Contents
Summary
Performance indicators
Chairman’s review
1
2
4
6 Managing Director’s review
10 Management discussion of financial results
24 Company overview
27 Governance
40 Remuneration report
51 Security holder information
Financial contents
56 Financial statements
61 Notes to the financial statements
110 Audit report
111 Corporate directory
The 2009 Annual Meeting of Contact Energy Limited shareholders will be held at the
Michael Fowler Centre, 111 Wakefield Street, Wellington on Thursday 22 October 2009,
commencing at 10:30am NZDST.
The Notice of Annual Meeting and shareholder voting/proxy form have been provided
separately to shareholders.
Contact Energy Limited Annual Report 2009
1
Summary
For the financial year ended 30 June 2009
• Weather extremes, transmission constraints and reduced electricity demand
combined to impact on earnings, with underlying earnings after tax of
$161 million, down from $233 million for the 12 months to 30 June 2008
• Generators and turbines delivered for the 200 megawatt gas-fired peaking
power station under construction at Stratford
• Commenced injection of natural gas into the Ahuroa natural gas storage
facility near Stratford
• Continued construction of the 23 megawatt Tauhara phase one geothermal
power station at Taupo
• Secured final resource consents for the company’s 220 megawatt Te Mihi
geothermal power station
• Continued to develop wind, hydro and geothermal generation options
• Completed the installation of more than 42,000 smart meters in Christchurch
customers’ houses
• Celebrated 50 years of renewable geothermal generation at the Wairakei
power station with a community open day and celebration
• Raised $550 million in Contact’s first retail bond issue – the most successful
issue raising in New Zealand for a non ‘A’ rated company
• Introduced a profit distribution plan that allows retention of cash for investment
in the business
•
Total distributions to shareholders equivalent to 28 cents per share, under the
profit distribution plan
For more information, please visit our website at www.contactenergy.co.nz or contact:
Investor Relations
PO Box 10742
Wellington
Phone: 64 4 499 4001
Email: annualreport@contactenergy.co.nz
2
Contact Energy Limited Annual Report 2009
Performance indicators
s
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300
250
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150
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45
40
35
30
25
20
15
10
5
600
500
400
300
200
100
e
s
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180
160
140
120
100
80
60
Underlying earnings for the period
Total operating revenue
241.6
231.2
232.8
197.1
160.6
2,330
1,998
1,759
2,757
2,222
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$
3,000
2,500
2,000
1,500
1,000
500
2005
2006A
2007B
2008B
2009B
2005
2006
2007
2008
2009
EBITDAF1
489.1
557.0
543.7
567.2
445.3
Operating cash flow per share2
84.1
71.6
73.8
72.3
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90
80
70
60
50
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30
20
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50.3
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Underlying earnings per share2
Net debt/debt+equity
41.10
39.32
39.60
33.52
27.35
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35
30
25
20
15
10
5
30
27
23
23
23
2005
2006A
2007B
2008B
2009B
2005
2006
2007R
2008
2009
Capital and investment expenditure
Underlying return on total assets
488.8
282.0
t
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6
5
4
3
2
1
138.7
149.2
90.5
5.3
4.5
4.6
4.4
3.0
2005
2006
2007
2008
2009
2005
2006A
2007RB
2008BC
2009B
CEN relative to the NZX50
Shareholder return
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NZX50
Contact Energy Limited Annual Report 2009
3
Generation by fuel source
Wholesale electricity price
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14,000
12,000
10,000
8,000
6,000
4,000
2,000
4,702
1,765
3,982
6,649
5,413
5,351
4,094
1,820
3,065
1,968
2,180
2,311
3,639
3,504
3,543
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92.84
106.90
54.72
53.70
56.08
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Hydro
Geothermal
Thermal
Retail electricity sales
Customer numbers (including LPG franchisees)
10,000
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7,213
7,361
7,564
7,800
7,609
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513
515
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700
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400
300
200
100
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Electricity
Gas
LPG
Underlying return on shareholders’ equity
Total assets
9.47
8.28
7.96
8.02
5.46
6,000
5,000
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$
4,000
3,000
2,000
1,000
4,381
4,580
4,985
5,241
5,432
2005
2006A
2007RB
2008B
2009B
2005
2006
2007R
2008C
2009
Profit distribution and dividends per share3
Shareholders’ equity
25.7
26.0
27.0
28.0
28.0
2,381
2,552
2,904
2,904
2,942
s
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$
3,500
3,000
2,500
2,000
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2005
2006
2007
2008
2009
2005
2006
2007R
2008
2009
Notes to the graphs
Comparatives have been restated to reflect current period presentation where appropriate.
• The 2005 reporting period was for the nine months ended 30 June 2005 and the results of that period have been annualised where appropriate for the purposes of the
above graphs; for 2006 and subsequent years the reporting period is the year ended 30 June.
• The above financial statistics, returns and ratios are based on Financial Statements prepared in accordance with New Zealand equivalents to International Financial
Reporting Standards (NZIFRS).
R Denotes years in which Contact’s property, plant and equipment were revalued. The revaluation affects total assets, shareholders’ funds and related ratios.
A Excludes gain on disposal of subsidiaries and change in fair value of financial instruments, both net of tax.
B Excludes change in fair value of financial instruments and other significant one-off items both net of tax where appropriate.
C The 2008 total assets have been adjusted to reflect the presentational changes of financial instruments and deferred financing costs.
1 Earnings before net interest expense, income tax, depreciation, amortisation, financial instruments and other significant items. The year ended 30 June 2006 was the first
year in which changes in the fair value of financial instruments were recognised within the Income Statement in accordance with NZIFRS.
2 The number of shares used for the current and prior year comparatives in the ‘underlying earnings per share’ and ‘operating cash flow per share’ analysis has been adjusted
for the impact of the bonus shares issued under the profit distribution plan (PDP).
3 The number of shares used in the ‘profit distribution and dividends per share’ analysis has not been adjusted for the impact of the bonus shares issued under the PDP and
represents the number of ordinary shares on issue at the dividend declaration date less any shares held as treasury stock. The total distribution paid is in respect of each
financial year. Prior to 2009, all distributions were fully imputed cash dividends. For the 2009 financial year the PDP operated as a non-taxable bonus issue, with any
shares bought back being fully imputed cash dividends.
4
Contact Energy Limited Annual Report 2009
Chairman’s review
Weather and transmission present challenges to performance
The financial year ended 30 June 2009 was challenging for Contact, largely as a result of unusual weather
conditions, transmission constraints, and the effects of economic recession on energy demand growth.
Despite this, the company has taken important steps to strengthen its financial position and has advanced
its strategy of investing for future growth.
The full year result and contributing factors
Contact achieved Earnings Before Net Interest Expense, Income Tax, Depreciation, Amortisation, Financial
Instruments and Other Significant Items (EBITDAF) of $445.3 million, down 21 per cent from $567.2 million
in the 2008 financial year. Underlying earnings were $160.6 million, down 31 per cent from $232.8 million.
The key drivers of the reduction in EBITDAF were:
•
•
a decrease in net contribution from electricity as a result of high electricity purchase costs to service retail
customers in the South Island in the first quarter, and a significant drop in generation revenue over the
remainder of the year due to a combination of low wholesale prices, transmission constraints (which limited
hydro generation) and some unplanned thermal generation outages
a 25 per cent per unit increase in gas costs and a loss of gas supply flexibility following the roll-off of gas
supply contracts from the Maui field.
While the period was challenging and the full year result disappointing, Contact took a number of significant
decisions over the financial year – supported by the company’s strong financial position – that will enable us
to restore valuable flexibility of fuel supply and generation. This positions the company well to continue to
grow and deliver value to shareholders, as well as making a significant contribution to New Zealand’s long term
energy security.
Distribution to shareholders
Notwithstanding the full year result, Contact’s Board of Directors resolved to hold the 2009 final distribution
to shareholders at the equivalent of 17 cents per share, made under the company’s profit distribution plan,
which was introduced during the 2009 year. Under the plan, all shareholders receive distributions in the form
of bonus shares, with the option to have those shares, or a portion of them, bought back by Contact for cash
as a fully imputed dividend. As a consequence, shareholders have the choice between retaining shares and/or
receiving cash.
The decision to maintain the distribution level was based on the expectation that the company’s financial
performance will return to normal trends. Any reoccurrence of extreme hydrology, transmission constraints,
adverse government policy changes or a prolonging of the economic recession could impact Contact’s financial
performance in the near to medium term. To the extent such impacts do occur, the company would be unlikely
to maintain distributions at this year’s level.
Financial position
Over the year, Contact undertook a number of steps to enhance the company’s financial strength, including
issuing $550 million of fixed rate unsecured, unsubordinated retail bonds – after seeking to raise $300 million
and closing well oversubscribed – and implementing the profit distribution plan, which enabled $50 million of
cash to be retained in the business in respect of the interim distribution. The capital raised by the bond issue and
the profit distribution plan are being used to fund investments in new generation projects and the Ahuroa natural
gas storage facility.
During the financial year, Contact also increased and extended the terms of its bank facilities, and as at 30 June
2009 had $685 million of undrawn bank facilities.
At the end of the 2009 financial year, Contact’s net debt stood at $1,124.2 million. With a gearing of net debt to
net debt plus equity of 27 per cent, Contact’s financial strength continues to position the company well in terms
of navigating the complexity of the current economic circumstances and executing growth options when economic
conditions are conducive.
Contact Energy Limited Annual Report 2009
5
Governance
There have been a number of changes to the Contact Board over the year. In March 2009, highly respected company
director Sue Sheldon joined the Board as an independent director, and Contact’s Chief Executive, David Baldwin,
was appointed to the Board as Managing Director.
At the end of the financial year Tim Saunders retired from the Contact Board as an independent director. With
the exception of a two year period, Tim has been involved in Contact’s governance since the company was first
formed and has made a significant contribution to building the company. On behalf of the Board, I thank Tim for
his contribution and commitment and wish him all the best for the future.
Outlook
When the country emerges from recession, increasing demand for energy will require new sources of generation
to be built in order to maintain security of supply. This will create upward pressure on electricity prices to support
investment in new generation.
Contact is well placed to support New Zealand’s requirement for new generation. Over the coming year, Contact’s
capital expenditure is forecast to exceed the $490 million invested over the last year (almost double the level of
capital expenditure in the previous year) as the company continues to execute its strategy of investing in projects
that both restore portfolio flexibility and expand geothermal generation.
Grant King
Chairman
6
Contact Energy Limited Annual Report 2009
Managing Director’s review
Navigating complexity
Introduction
While Contact has always faced earnings fluctuations as a result of weather and managed that risk through our
geographic and fuel diversity, the confluence of extreme weather conditions and other external factors impacted
Contact’s result for the financial year ended 30 June 2009.
Key among the factors influencing the result was the loss of pole one of the High Voltage Direct Current (HVDC)
transmission system, which constrained the company’s ability to manage the volatility associated with fluctuations
in hydrology. This occurred in a year that saw both extremes of drought and deluge in the South Island, where
Contact’s hydro assets are located.
During the severe winter drought in the South Island, transmission constraints north of Wellington and across the
HVDC prevented Contact from transmitting thermal generation from the North to the South Island, requiring the
company to purchase very high priced power from the market to meet South Island customer demand.
When the situation reversed in the spring and the southern hydro lakes rapidly filled, transmission constraints
in the lower South Island, combined with the loss of electricity demand from the Tiwai Point aluminium smelter,
forced Contact to spill more than 400 gigawatt hours of potential generation – enough to power more than 40,000
homes for a year – as the transmission system could not take any additional generation.
At the same time, the anticipated changes to Contact’s gas supply arrangements also impacted the business.
As well as gas being more expensive, current contractual arrangements also limit the company’s ability to vary
the amount of gas Contact takes throughout the year. During periods of high hydro inflows and low wholesale
prices in the year to 30 June 2009, gas supply inflexibility constrained the company’s ability to reduce higher-
priced thermal generation. This lack of gas supply flexibility is being addressed through Contact’s investment in
an underground gas storage facility at Ahuroa – a first for New Zealand – which will be operational from mid 2010.
While the financial result for the year to 30 June 2009 was disappointing, significant progress was made in a
number of important areas that position Contact well to execute its growth strategy over the coming months
and years.
Strategy for growth
Contact’s strategy for new generation development is to pursue a range of options across the major fuel types
– thermal, geothermal, wind and hydro – that we can execute at the right time to suit the changing operating
environment. This way, we can develop the lowest cost generation options first, ensuring the best outcomes
for shareholders and New Zealand.
Geothermal
Among those available options in the current environment, Contact’s priority is geothermal generation investment,
given its current costs relative to other generation options and Contact’s expertise in geothermal development. In
the year to 30 June 2009, we made pleasing progress on a number of key geothermal developments:
•
•
•
Construction of Contact’s $100 million, 23 megawatt Tauhara phase one geothermal binary plant is on track,
with commissioning of the plant expected around mid 2010 (on time and within budget).
In September 2008, final resource consents were granted for Contact’s 220 megawatt Te Mihi geothermal
power station.
Development of Contact’s proposed Tauhara phase two power station, a geothermal plant of up to 240
megawatts, was advanced.
The sequencing and timing of both the Te Mihi and Tauhara phase two projects is dependent on a number of
factors including electricity demand growth, credit conditions, carbon policies, currency rates and resource
consents. Consents exist for the operation of the Wairakei power station until 2026, enabling Contact to
appropriately time the Te Mihi development to achieve optimal value.
Contact Energy Limited Annual Report 2009
7
Gas
Contact’s investment in a 200 megawatt fast-start gas-fired peaking power station and a gas storage facility will
be key to restoring some of the operational flexibility lost through the end of the Maui gas contract, the increasing
exposure to fixed take or pay, high-cost gas supply contracts and the decommissioning of the company’s gas-fired
New Plymouth power station.
The Ahuroa gas storage project, a $250 million development, will enable Contact to switch off its gas-fired
baseload power stations when market conditions do not support them running, and store the gas for later use.
Contact’s $250 million gas-fired peaking power station at Stratford will enable us to respond to increasing levels
of volatility in electricity demand peaks that result in price volatility.
Wind
As part of Contact’s strategy to secure generation development options across the range of key fuel sources,
the company continues to advance resource consent applications for two wind farms – one in the Waikato and
the other in southern Hawke’s Bay – for development when economic conditions support them.
Hydro
In Contact’s view, new hydro projects will be required in New Zealand’s medium to long term energy future,
especially if the country is to meet its climate change obligations and avoid the need to import thermal fuels.
Following a review of plans inherited when Contact was formed, Contact began engaging with local communities
in April 2009 on four options for new hydro development on the Clutha River, with a view to selecting a preferred
option for further development. The process of community engagement, together with engineering design and
review, and the consenting of an eventual option will take some time, but will be in step with the country’s need
for new large-scale hydro development towards the end of the next decade.
Contact also holds resource consents for the 17 megawatt hydro power station at the Lake Hawea control gates
and will continue to review the economic feasibility of this project for development.
Creating an environment that is conducive to investment
The extent to which Contact’s generation growth options can be executed, and the benefits for shareholders and
New Zealanders realised, is dependent on a number of factors, including transmission investment, regulatory
certainty and acceptance of the need for prices to rise appropriately over time to support new generation
investment. Contact is committed to working with stakeholders in all these areas to positively contribute to an
environment that is conducive for investment.
Transmission
Investment in the national transmission grid is urgently required to ensure the electricity market can operate
optimally and play its role in delivering the efficiencies required to meet public expectations around reliability
of supply and the prices end-consumers pay for electricity.
As the events of the 2009 financial year have clearly demonstrated, a key priority is the replacement of pole one
of the HVDC by April 2012 (by what is known as pole three) to enable electricity to be moved freely between the
North and South Islands.
Wider upgrading of the grid – in which there has been no major investment since the 1980s – is also critical to
ensuring that the transmission system can deliver electricity from new sources of generation to end-consumers
and cope with increased load. Positive advances in this area include Transpower’s enhancements to regional
transmission capacity in Southland by the end of this calendar year.
I will continue to participate as a member of the HVDC Procurement Advisory Group and to support Transpower’s
project to replace pole one of the HVDC, in addition to supporting Transpower’s efforts to strengthen and hasten
transmission investment across the network.
8
Contact Energy Limited Annual Report 2009
Regulatory certainty
Certainty in key areas of policy is a necessary precondition of any investment decision. Notwithstanding this,
Contact continues to support workable improvements to the efficient operation of the electricity market and is
participating fully in the Ministerial Taskforce review of the sector. In particular, Contact supports the Government’s
commitment to streamlining regulatory functions to enable more efficient oversight of the sector and improvements
to the transmission investment process.
Securing resource consent for a power station – particularly a renewable wind farm or hydro power station –
remains challenging. While there should always be a careful independent consideration of a project’s impacts and
benefits, Contact supports the focus of the current review of the Resource Management Act and the development of
a Government Policy Statement that places greater weight on the benefits of renewable projects.
While the emissions trading scheme has been delayed from a 1 January 2010 implementation date for the
stationary energy sector, the introduction of a carbon pricing regime remains highly likely. Contact believes an
emissions trading scheme remains the most appropriate way to price carbon and to shift investment decisions
in new generation from thermal to renewable technologies.
Contact remains well positioned to capitalise from opportunities in a carbon pricing environment.
Pricing to support investment
Without appropriate investment in new generation, there will likely be greater demand for electricity than
available supply from around 2014 onwards. This will have significant impacts on individuals as well as
businesses and industries that are the bedrock of New Zealand’s economy, particularly in terms of reliability
of supply.
However, while electricity is an essential part of our lives, its value is only obvious when it is not there, and it
is therefore generally taken for granted. In this context, there is consistently strong resistance from consumers
and other stakeholders to electricity price increases. Like others in the industry, we have a role to play in better
articulating the rationale for electricity price increases and communicating the value of electricity, so that the
retail market is priced not only competitively but also realistically to support new investment.
Our people
Our people’s health and safety is of paramount importance in maintaining the highest standards of operational
excellence. Contact performed well in the 2008 financial year in terms of health and safety, but this performance
has slipped in the 2009 financial year, which is not acceptable to us. In this context, a key priority for the current
financial year is new or improved initiatives to foster the company’s health and safety culture and rigorous target
setting and reporting on all relevant measures. More detailed information on Contact’s health and safety
performance can be found in Contact’s 2009 Sustainability Report, available on the company’s website.
Our customers
Last year, our customers made it clear they perceived a link between price increases and a proposed increase to the
fee pool from which directors are paid, which was not acceptable to them. The result was a loss of retail customers
over the course of the year, which was a major disappointment for everyone at Contact that we are working hard to
reverse.
We have been focused on rebuilding the trust and confidence of our customers by providing a range of new offers
such as fixed price plans and the two winter price freeze for certain areas, in addition to the usual outstanding
customer service from our dedicated team across New Zealand.
Our communities
We recognise that like others in this industry, Contact has a relatively large footprint, particularly in terms of our
impact on communities where we have generation interests. In this context, we are committed to development and
operational excellence, and we give back to national and local communities in ways that are meaningful to them.
Contact Energy Limited Annual Report 2009
9
A highlight for this financial year was the 50th anniversary celebrations for Contact’s Wairakei power station,
the first geothermal plant of its kind anywhere in the world. As well as hosting a series of community events,
Contact commissioned a large sculpture to be gifted to the Taupo community to mark the 50 year milestone
and the special relationship between the people of the Taupo region and geothermal energy. For more detailed
information on Contact’s social and environmental performance, please see our Sustainability Report, available
on the company’s website.
Conclusion
A number of the factors that contributed to the financial result for the year ended 30 June 2009 – hydrology,
wholesale prices and electricity demand – are now moving back towards more normal patterns.
Supported by the important steps taken to strengthen the company’s financial position in the year to 30 June
2009, we remain focused on completing and commissioning the Ahuroa gas storage and Stratford peaker
projects to restore operational flexibility, continuing to develop other growth options, attracting and retaining
retail customers and fostering Contact’s health and safety culture.
It’s been a tough year for Contact but I’m proud to lead such a talented and committed team, and I would like
to thank the Board and everyone at Contact for their considerable efforts in navigating the company through
a challenging period. I’m excited about Contact’s future and I’m looking forward to working with all of our
stakeholders as we work to accomplish our goals.
David Baldwin
Managing Director
10
Contact Energy Limited Annual Report 2009
Management discussion
of financial results
for the financial year ended 30 June 2009
Despite a particularly challenging year, Contact remains well positioned to invest in New Zealand’s most important
energy projects, and deliver growth for the company’s shareholders.
Introduction
New Zealand’s electricity system depends on a robust and reliable transmission backbone to transmit electricity
from power stations across the country to customers.
New Zealand has a heavy reliance on hydro generation with significant potential for increasing quantities of wind
generation, and major load centres geographically isolated from key generation sources. These conditions require
a modern transmission grid that accommodates changing electricity generation and demand patterns to ensure
efficient operation of the electricity market.
Investments made over the preceding decades, particularly the 1970s and 1980s, were oriented towards
strengthening New Zealand’s transmission backbone to support the movement of energy between the South
and North Islands and within the islands. However, in the last decade there has been very little investment in
transmission while electricity demand has continued to grow.
New Zealand has had three reasonably dry winters since 2000. In each of those years the inter-island high voltage
cable (the HVDC) has played a critical role in enabling North Island thermal generation to support the South Island
during the periods of low hydro generation. In the wetter years, the HVDC has allowed cheaper hydro generation to
be transmitted to the north resulting in lower thermal generation.
Contact’s financial performance over the past 10 years has reflected this inherent flexibility.
During dry periods such as 2001, 2003 and 2006, Contact was able to access flexible, relatively cheap natural gas
from the Maui field to offset the reduction of hydro generation. Equally, during periods of high hydro inflows, the
flexibility of legacy Maui gas supply arrangements enabled Contact to reduce gas take to balance generation from
its gas-fired stations in order to maximise use of the cheaper hydro generation. Accordingly Contact’s financial
performance has grown over time despite the volatility in wholesale electricity prices.
EBITDAF and wholesale electricity prices
Y
F
r
e
p
s
n
o
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M
$
Z
N
600
500
400
300
200
100
0
1999
2000
2001 2002 2003
2004
Financial year
2005*
120
100
h
W
M
/
$
80
60
40
20
0
2006 2007 2008 2009
EBITDAF
Average wholesale electricity price
* 2005 shown as the 12 months to June 2005
Contact Energy Limited Annual Report 2009
11
In the financial year ending 30 June 2009 we have seen the impact of changes which have undermined this
flexibility:
•
•
•
Demand has continued to rise across both islands while the South Island has seen very little increase in
new generation. As a result, in dry conditions there is an increasing dependence on the HVDC to ensure
security of supply to the South Island. Transmission constraints across the alternating current (AC) part
of the grid are also more prevalent.
Flexible low-cost legacy Maui gas supply arrangements have now expired (although Contact still retains
further ongoing rights to other Maui gas). Current gas supply contracts have relatively flat and fixed daily
take requirements, which constrain the ability of gas-fired power stations to adjust their output in response
to fluctuating hydro inflows. During the second half of this financial year the impact of inflexible and high
priced gas began to impact the operation of Contact’s portfolio with the gas-fired plant operating at times
when prices were insufficient to cover the variable costs of operation.
Pole one of the HVDC was unexpectedly decommissioned in November 2007. For the majority of the time,
the remaining pole (pole two), together with available generation capacity in each island, is sufficient to
ensure North and South Island electricity demand is met at a similar cost. However, during periods of
extreme weather, such as the drought last winter and the high inflows over the summer and autumn, the
absence of a second Cook Strait cable can result in the islands operating as separate markets, often with
a significant loss of system efficiency. During periods of extreme drought in the South Island, the system
needs a robust grid, including two poles to move energy from the North Island to the South Island. Equally,
when inflows into the southern lakes are very high as we saw in the second half of the financial year, hydro
becomes the cheapest source of electricity for the country, and requires two poles to maximise flow to the
North Island to minimise both the spilling of water and the use of thermal fuels.
Contact has implemented a series of strategies to help to mitigate the impact of transmission system
constraints and gas supply inflexibility. These include:
•
•
•
•
In 2008, Contact acquired the rights to the largely depleted Ahuroa gas reservoir to convert the field into an
underground gas storage facility. Contact commenced injecting gas into the Ahuroa field in December 2008
and a total of 5.6 petajoules (PJ) (excluding LPG) is now held in the reservoir. Although the gas storage
project is not expected to be fully operational until 2010, the storage facility has already provided Contact
with a valuable source of fuel flexibility by providing an ability to inject and store ‘must-take’ gas during the
low demand and high hydro inflow summer months. With the addition of a more powerful compressor
during September 2009 the daily volume capable of being injected will increase.
Also in 2008, Contact commenced the development and construction of a 200 megawatt (MW) gas-fired
peaking plant near Taranaki, which is on schedule to be completed in mid 2010. As the market experiences
increasing volatility due to transmission constraints, and weather-related intermittency, fast-start plant of
this nature will enable Contact to respond to those events. Combined with access to gas in storage, this will
provide opportunities for Contact to leverage volatile market conditions. Market conditions in the second
half of the financial year which exhibited a high degree of intra-day volatility confirm that the peakers
combined with storage will be valuable additions to the Contact portfolio.
Contact is actively supporting Transpower in its efforts to execute transmission upgrades across the
country, including participating in a Transpower procurement advisory group in relation to the project
to replace pole one of the HVDC. Pole three (the replacement for pole one) is currently expected to be
operational by April 2012.
In September 2008, Contact adjusted tariffs to reflect the significant risk of inter-island price separation
during periods of low hydro inflows, arising as a consequence of the decommissioning of pole one.
Unsurprisingly, other South Island retailers have adjusted tariffs to similar levels.
12
Contact Energy Limited Annual Report 2009
In addition, Transpower is implementing a series of transmission upgrades which, when complete, are expected
to largely alleviate system constraints. These include a project which, upon completion in the spring of 2009, is
expected to increase the amount of hydro power that can be transferred out of the Southland/Otago area by up
to an additional 150 MW.
Financial results to 30 June 2009
The events and conditions described above presented Contact with extremely challenging trading conditions and
significantly contributed to a disappointing annual result for the period ended 30 June 2009.
EBITDAF
Contact achieved Earnings Before Net Interest Expense, Income Tax, Depreciation, Amortisation, Financial
Instruments and Other Significant Items (EBITDAF) of $445.3 million, down 21 per cent from $567.2 million
for the financial year ended 30 June 2008.
The key drivers of the $122 million reduction in EBITDAF in the 2009 financial year were:
•
•
•
a decrease in net contribution from electricity (after electricity purchase cost) of $101 million. The main
causes of this were high purchase costs for the retail customers in the South Island in the first quarter and a
significant drop in generation revenue in the remainder of the year due to low wholesale prices, transmission
constraints, which limited hydro generation, and some unplanned thermal generation outages;
a 25 per cent per unit increase in gas costs – this added $1.40 to every gigajoule (GJ) which Contact used.
This increased cost combined with loss of gas flexibility placed a large burden on the business in a year in
which wholesale electricity prices averaged $56 per megawatt hour (MWh); and
the impact of the recession which dampened demand growth and limited the ability of Contact to reflect the
increased costs of generation through appropriate tariff movements.
Depreciation
Depreciation increased by $15.4 million (11 per cent) to $162 million largely due to increases associated with
the long term maintenance costs for the gas-fired plants at Otahuhu and Taranaki Combined Cycle (TCC) and the
geothermal drilling undertaken to increase output at Wairakei and Ohaaki.
Interest expense
Net interest expense for the period reduced by $7.3 million or 10 per cent to $62.6 million for the financial
year ended 30 June 2009. While the total net debt increased, interest costs were lower primarily due to the fact
that interest on strategic investment projects such as the Stratford peaker project, the first phase of the Tauhara
geothermal project, and the Ahuroa gas storage project, is capitalised until construction is completed. In the
financial year ended 30 June 2009, $21.5 million of interest has been capitalised.
Income tax expense
Income tax for the period at $46.5 million is $55.6 million lower than for the financial year ended 30 June 2008.
This is due to the reported profit for the period being significantly lower at $117.5 million (compared with $237.1
million) and the lower statutory tax rate of 30 per cent.
Underlying earnings after tax
Underlying earnings after tax for the financial year to 30 June 2009 were $160.6 million, down 31 per cent from
$232.8 million for the prior financial year.
Contact Energy Limited Annual Report 2009
13
Capital expenditure and investments
Contact’s capital expenditure and investments for the financial year ended 30 June 2009 were $488.8 million
(including capitalised interest). Of this, $103.2 million was ‘stay in business’ and $385.6 million was growth
capital expenditure. This compares with $81.5 million and $200.5 million respectively for the financial year
ended 30 June 2008. The increase in growth capital expenditure is primarily due to the previously announced
investment in generation projects – the 23 MW Tauhara geothermal binary plant, the 200 MW gas-fired peaking
plant at Stratford and gas storage.
The increase in the stay in business capital expenditure is primarily due to a major inspection and plant overhaul
undertaken at Otahuhu and TCC during November and December 2008.
Net debt
During the financial year ended 30 June 2009, Contact took steps to strengthen its financial position by extending
and increasing its debt facilities and raising capital through a $550 million domestic retail bond issue.
Based on the NZD equivalent of borrowings, after foreign exchange hedging, and net of short term deposits, net
debt as at 30 June 2009 was $1,124.2 million, compared with $878.4 million as at 30 June 2008. This is largely
due to the significant increase in growth capital expenditure as well as a reduction in cash flows from ongoing
operations. Contact’s committed credit facilities total $685 million; all were undrawn at 30 June 2009. With a
gearing of 27 per cent as at 30 June 2009, Contact’s financial strength continues to position the company well
in terms of navigating the complexity of the current economic circumstances and executing growth options when
economic conditions are conducive.
Profit Distribution Plan
In addition to increasing available liquidity, Contact introduced a Profit Distribution Plan (Plan), effective from
(and including) the interim and final distributions for the year ended 30 June 2009.
Under the Plan, all shareholders receive distributions in the form of non-taxable bonus shares, with the option to
have those shares, or a portion of them, bought back by Contact for cash to be received on a fully imputed basis.
As a consequence, shareholders have the choice between retaining shares and/or receiving cash.
The Plan enabled Contact to retain approximately $49 million in respect of the interim distribution to support
the execution of Contact’s strategic initiatives, with 77 per cent of the shares issued retained by shareholders.
Notwithstanding the events of the 2009 financial year, Contact’s Board of Directors resolved to hold the 2009
final distribution at the equivalent of 17 cents per share. The decision to maintain the distribution level was
based on the expectation that the company’s financial performance would return to normal trends. Any
reoccurrence of extreme hydrology, transmission constraints, adverse government policy changes, or a prolonging
of the recession could impact Contact’s financial performance in the near to medium term. To the extent such
impacts do occur, the company would be unlikely to maintain distributions at this year’s level.
Outlook
In respect of the 2010 financial year, the extreme weather events which affected the business in July and August
2008 will not recur given current hydrological conditions. However, wholesale prices are currently below both
the variable costs of operating thermal plant, and the price required to support investment in new generation.
In addition, current economic conditions are expected to continue to dampen demand growth and, consequently,
tariff movements.
14
Contact Energy Limited Annual Report 2009
While the construction of the Ahuroa gas storage and Stratford peaker projects are on schedule for completion in
mid 2010, Contact will have limited ability to manage gas inflexibility during the current financial year (although
Contact is continuing to inject gas into Ahuroa to build up the cushion gas). Ahuroa gas storage, together with the
Stratford gas-fired peakers, will make a material difference to Contact’s ability to manage and leverage wholesale
price volatility.
When the country emerges from recession, energy demand will also grow. As demand grows, so will the need
for new generation. The lack of certainty of domestic gas resources and prices beyond the second half of next
decade means that renewable options remain at the forefront of new generation development. Accordingly,
Contact continues to develop its portfolio of renewable generation options (geothermal, wind and hydro),
whilst maintaining its existing consented gas-fired generation options at Otahuhu and Taranaki in the scenario
that new gas is discovered and new gas-fired generation becomes the preferred choice.
Contact holds consents to construct the 220 MW Te Mihi geothermal station and is preparing resource consent
applications to expand the Tauhara geothermal project by an additional 240 MW. The sequencing and timing of
the Te Mihi and Tauhara projects is dependent on a number of factors including electricity demand growth, credit
conditions, carbon policies, currency rates and resource consents. However, we currently anticipate both projects
will be implemented over time.
On the expectation that the market will continue to experience price volatility through intermittency of generation,
the construction of Contact’s fast-start gas-fired peaking plant and its gas storage project, both located near
Stratford, Taranaki, also remain central to the company’s renewables strategy, in addition to deriving value from
electricity market volatility.
Given that almost all of the market’s new generation options are higher cost than current generation, electricity
prices will need to rise to meet the cost of that new generation. This is likely to require tariff increases over time,
possibly at rates higher than inflation in the years through to the middle of the next decade, to support new
generation investment.
Contact remains well positioned in the longer term. New generation decisions are dependent on a number of
economic and market factors, which can change over time. Accordingly Contact’s strategy of securing a range
of fuel options places it in a great position to grow market share in generation as underlying growth supports
new investment and/or as a substitute for existing generation as legacy fuel declines.
Over the next year, Contact will complete the first tranche of its investment to restore fuel and generation
flexibility, and will also complete the first new geothermal plant on the large Tauhara geothermal field; an
investment across the three projects of $600 million in key infrastructure which will support New Zealand’s
economic growth and security of supply for decades to come.
Overview of performance for the period
As the following graph illustrates, the extreme movements in hydrology and the loss of pole one of the HVDC
led to a number of periods of North and South Island price separation which impacted on Contact’s financial
performance. For example, in August and September 2008 when the South Island was in drought, Contact was
short of generation in the South Island, and this resulted in Contact supplying electricity to its South Island
customers at a significant loss.
While wholesale prices dropped towards the end of the first half of the financial year, and were low throughout the
second half of the financial year, the transmission constraints continued to limit the ability to move hydro energy
to the North Island, resulting in South Island prices being lower than those in the North Island. At times, this led
to spilling of water from Contact’s and other generators’ hydro generation assets in the South Island.
Contact Energy Limited Annual Report 2009
15
North Island prices rise well above South Island prices reflecting North Island capacity constraints
Prices drop dramatically as South Island storage increases – north/south flows constrain
South Island prices remain high as drought continues with transmission constraints
Wholesale prices rise as storage drops
)
h
W
G
(
e
g
a
r
o
t
S
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
$450
$400
$350
$300
$250
$200
$150
$100
$50
)
h
W
M
/
$
(
e
c
i
r
P
7
0
/
7
0
/
1
0
7
0
/
7
0
/
0
3
7
0
/
8
0
/
8
2
7
0
/
9
0
/
6
2
7
0
/
0
1
/
5
2
7
0
/
1
1
/
3
2
7
0
/
2
1
/
2
2
8
0
/
1
0
/
0
2
8
0
/
2
0
/
8
1
8
0
/
3
0
/
8
1
8
0
/
4
0
/
6
1
8
0
/
5
0
/
5
1
8
0
/
6
0
/
3
1
8
0
/
7
0
/
2
1
8
0
/
8
0
/
0
1
8
0
/
9
0
/
8
0
8
0
/
0
1
/
7
0
8
0
/
1
1
/
5
0
8
0
/
2
1
/
4
0
9
0
/
1
0
/
2
0
9
0
/
1
0
/
1
3
9
0
/
3
0
/
1
0
9
0
/
3
0
/
0
3
9
0
/
4
0
/
8
3
9
0
/
5
0
/
7
2
9
0
/
6
0
/
5
2
National mean storage
North Island prices
National storage
South Island prices
Later in the financial year, the North Island wholesale prices rose well above the South Island as the HVDC
continued to constrain and the North Island was also short of capacity at certain times. Given that Contact
is generally long generation in the North Island, Contact was able to benefit from such conditions.
Due to the low wholesale electricity prices in the second half of the financial year, total electricity revenue
was $1,881 million; $512 million (21 per cent) lower than in the financial year ended 30 June 2008. This was
driven by a 48 per cent decrease in wholesale electricity revenue (as a result of a 48 per cent decrease in average
wholesale electricity prices and a 10 per cent reduction in generation volume), offset by a three per cent increase
in retail electricity revenue. After netting off retail electricity purchases, total retail and wholesale (net) electricity
revenue was $101 million lower than for the period ended 30 June 2008, which is largely attributable to
wholesale market conditions.
By way of illustration of the impact of hydrology, the average price earned by Contact’s generation in the second
half of the financial year ended 30 June 2009 was $40 per MWh – compared with an average of $173 per MWh
earned in the second half of the financial year ended 30 June 2008. The average wholesale price for the 2009
financial year of $56 per MWh is both well below the long run cost of electricity and the variable operating cost
of the gas-fired generation plant.
Total electricity revenue
s
n
o
i
l
l
i
M
$
Z
N
3,000
2,500
2,000
1,500
1,000
500
1,244
955
1,148
544
1,286
594
June 2008
June 2009
Financial year ended
Retail purchases
Retail electricity revenue
Wholesale electricity revenue
16
Contact Energy Limited Annual Report 2009
During the financial year, there were two significant increases in the quarterly producer price index (PPI). The PPI
is applied to adjust gas prices in most of Contact’s gas purchase contracts. These recent increases, as well as the
completion of Contact’s low cost Maui 367 gas entitlements, resulted in the company paying about 25 per cent
more per GJ for gas over the 2009 financial year. This was significantly higher than expected.
Key financial information
Operating revenue
Operating expenses (1)
EBITDAF (2)
Depreciation and amortisation
Equity accounted earnings of associates
Change in fair value of financial instruments
Removal of New Plymouth asbestos and related costs
Impairment of investments
Gain on sale of Mokai geothermal land and rights
Earnings Before Net Interest Expense and Income Tax (EBIT)
Net interest expense
Income tax expense
Profit for the period
Underlying earnings after tax (3)
Underlying earnings per share (3)
Shareholders’ equity
Variance
12 months ended
30 June 2009
$ million
12 months ended
30 June 2008
$ million
$ million
%
2,222.2
(1,776.9)
2,756.7
(534.5)
(19%)
(2,189.5)
412.6
19%
445.3
(162.0)
3.6
(57.5)
–
(2.8)
–
226.6
(62.6)
(46.5)
117.5
160.6
27.35
567.2
(121.9)
(21%)
(146.6)
(15.4)
(11%)
2.8
(1.9)
0.8
29%
(55.6)
2,926%
(33.7)
33.7
(100%)
–
(2.8)
–
21.3
(21.3)
(100%)
409.1
(182.5)
(45%)
(69.9)
(102.1)
7.3
55.6
10%
54%
237.1
(119.6)
(50%)
232.8
(72.2)
(31%)
39.60
(12.25)
(31%)
2,942.3
2,904.1
38.2
1%
1 Includes electricity purchases.
2 Earnings before net interest expense, income tax, depreciation, amortisation, financial instruments and other significant items.
3 Underlying earnings after tax removes significant one-off items and the non cash change in fair value of financial instruments.
Profit for the period ended 30 June 2009 was $117.5 million. This was negatively affected by a non-cash post-tax
movement of $40.3 million in the fair value of financial derivatives. With the introduction of International
Financial Reporting Standards (IFRS), the accounting standards require that certain changes in the fair value of
financial instruments be reflected in the Income Statement. This can introduce significant volatility to the earnings
reported for the year. This impact is primarily driven by financial instruments Contact utilises in order to hedge
various price and interest rate risks to which it is exposed. The intention of hedging is to reduce these risks and
deliver a higher level of certainty to the cash flows of the business. While Contact utilises valid economic risk
management instruments to hedge these risks, these instruments must also meet the criteria prescribed under
IFRS in order to qualify for hedge accounting where fair value changes are carried in equity. For those instruments
which do not qualify for hedge accounting the change in fair value is recognised in the Income Statement.
The most notable instruments in Contact’s portfolio that do not qualify for hedge accounting are interest rate
swaps. With the significant drop in the forward yield curve over the first six months of the financial year, the fair
value of the interest rate book has correspondingly decreased and will fluctuate with movements in interest rates.
Contact Energy Limited Annual Report 2009
17
Variance
12 months ended
30 June 2009
$ million
12 months ended
30 June 2008
$ million
$ million
1,286.3
1,244.4
41.9
%
3%
(24.6)
(25%)
72.8
82.2
153.8
15.8
97.4
84.1
145.2
11.9
(1.9)
8.6
3.9
1,610.9
1,583.0
27.9
(537.9)
(431.8)
(148.2)
(112.1)
(144.0)
(1,012.5)
474.6
(442.1)
(159.4)
(105.2)
(142.0)
10.3
11.2
(6.9)
(2.0)
(1,374.0)
(1,861.2)
487.2
(2%)
6%
33%
2%
47%
2%
7%
(7%)
(1%)
26%
236.9
(19.8)
217.1
(65.79)
7,609
11.1
3.9
77,228
67,000
53,700
(278.2)
515.1
185%
(20.3)
0.5
2%
(298.5)
515.6
173%
(122.07)
7,800
56.3
(191)
17.0
4.1
(5.9)
(0.2)
84,334
(7,106)
46%
(2%)
(8%)
(35%)
(4%)
(8%)
75,000
(8,000)
(11%)
50,800
2,900
6%
479,000
520,000
(41,000)
Retail segment
Retail electricity revenue
Gas revenue wholesale
Gas revenue retail
LPG revenue
Other retail revenue
Total retail revenue
Retail electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
LPG purchases
Labour costs and other operating expenses
Total operating expenses
EBITDAF
Depreciation and amortisation
Segment result
Average electricity purchase price ($ per MWh) (1)
Retail electricity sales (GWh)
Electricity customer numbers
Gas sales wholesale customers (PJ)
Gas sales retail customers (PJ)
Gas sales LPG customers (tonnes)
Gas customer numbers
LPG customer numbers (including franchisees) (2)
1 This price excludes contracts for differences.
2 LPG customer numbers have been restated down by approximately 1,800 customers. These 1,800 customers are closed or non-active accounts that had been historically
recorded as customers.
18
Contact Energy Limited Annual Report 2009
Contact’s retail segment EBITDAF of $236.9 million was $515.1 million higher than the negative $278.2 million
for the financial year ended 30 June 2008. This is predominantly due to the change in wholesale conditions which
reduced the retail electricity purchase cost from $1,012.5 million to $537.9 million, a 47 per cent decrease.
Retail purchase costs
s
n
o
i
l
l
i
M
$
Z
N
1,200
1,000
800
600
400
200
122
1,013
140
120
100
80
60
40
20
h
W
M
/
$
66
538
June 2008
June 2009
Financial year ended
Spot purchases
Purchase price
Set out in the table below are the North and South Island average retail electricity purchase prices by quarter.
These prices illustrate the stark changes in hydrology conditions which occurred within the financial year as well
as the differences between the North and South Islands.
Average electricity purchase price
12 months ended
30 June 2009
$/MWh
12 months ended
30 June 2008
$/MWh
Q1 North Island
Q2 North Island
Q3 North Island
Q4 North Island
FY North Island
Q1 South Island
Q2 South Island
Q3 South Island
Q4 South Island
FY South Island
Q1 National
Q2 National
Q3 National
Q4 National
FY National
102
47
46
70
68
149
38
25
25
63
124
43
37
49
66
57
45
124
228
113
60
43
114
305
133
59
45
119
265
122
Variance
$/MWh
45
2
%
79%
3%
(78)
(63%)
(158)
(69%)
(45)
(40%)
89
(5)
146%
(12%)
(89)
(78%)
(280)
(92%)
(70)
(53%)
65
(2)
(82)
112%
(5%)
(69%)
(216)
(81%)
(56)
(46%)
Contact Energy Limited Annual Report 2009
19
Total retail electricity revenue rose three per cent to $1,286.3 million, with total sales of 7,609 gigawatt hours
(GWh) compared with 7,800 GWh in the financial year ended 30 June 2008. This two per cent drop consists of
a two per cent decrease in mass market volumes and three per cent reduction in time of use (large commercial/
industrial customers) volumes. The time of use reduction is largely due to the economic conditions that have
driven a per customer decrease in energy consumption in the second half of the 2009 financial year.
Set out below is a summary of the North and South Island electricity purchase volumes for the financial years
ended 30 June 2008 and 2009.
North Island retail electricity purchases (GWh)
South Island retail electricity purchases (GWh)
Retail GWh purchased
North Island purchases (GWh) as a percentage of total purchases
South Island purchases (GWh) as a percentage of total purchases
12 months ended
30 June 2009
12 months ended
30 June 2008
4,354
3,755
8,109
54%
46%
4,447
3,857
8,304
54%
46%
Variance
GWh
(93)
(102)
(195)
%
(2%)
(3%)
(2%)
0%
0%
Retail electricity customers reduced to 480,000 compared with 500,000 as at 31 December 2008 and 520,000
as at 30 June 2008. As a result of the marketing activities which Contact has undertaken in the past few months,
Contact is once again acquiring customers and, together with LPG gains, the customer base is now growing.
Wholesale and retail gas revenue
100
97.4
17.0
84.1
4.1
s
n
o
i
l
l
i
M
$
Z
N
80
60
40
20
72.8
82.2
11.1
3.9
J
P
22
18
14
10
6
2
-2
June 2008
June 2009
Financial year ended
Wholesale gas revenue
Retail gas revenue
Wholesale gas volume
Retail gas volume
20
Contact Energy Limited Annual Report 2009
Contact’s gas revenue from wholesale customers reduced by $24.6 million to $72.8 million in the period
ended 30 June 2009. This was largely due to the non recurrence of short term sales which were executed
in the second half of the financial year ended 30 June 2008 resulting in a decrease in sales volume of 6 PJ.
Retail gas revenue was slightly lower at $82.2 million, compared with $84.1 million in the financial year ended
30 June 2008. The sales volume was four per cent lower at 3.9 PJ compared with 4.1 PJ in the financial year ended
30 June 2008. Gas customer numbers have decreased to 67,000, compared with 70,000 as at 31 December 2008
and 75,000 as at 30 June 2008.
The average cost of gas (excluding transmission) increased 25 per cent from $5.55 per GJ in the financial year
ended 30 June 2008 to $6.94 per GJ in the financial year ended 30 June 2009. This increase has been driven by
a change in the underlying mix of gas used, as the use of cheaper Maui 367 legacy gas ceases and is replaced by
more expensive gas, and the impact of escalation in gas prices in gas contracts within Contact’s portfolio. During
the period, the PPI, which is the index used to escalate the prices under most gas contracts, increased significantly
more than Contact expected. The average gas transmission and distribution costs for retail also increased by six
per cent from $10.43 per GJ to $11.13 per GJ for the financial year ended 30 June 2009.
Revenue from LPG sales grew by six per cent to $153.8 million. This was in part offset by an increase in LPG
cost of goods of $7 million or seven per cent. The main driver of this cost increase is the underlying purchase
cost of LPG which increased by 16 per cent from $1,248 per tonne to $1,451 per tonne in the financial year
ended 30 June 2009. This was largely due to the imported cost of LPG which tends to move with oil prices.
LPG volume decreased by eight per cent to 77,228 tonnes, reflecting a drop in the overall market for LPG as
increasing costs result in fuel switching by some customers. Contact’s market share remains consistent at
approximately 50 per cent.
Contact Energy Limited Annual Report 2009
21
Generation segment
Wholesale electricity revenue
Steam revenue
Other wholesale revenue
Total wholesale revenue
Wholesale electricity purchase contracts for differences
Electricity transmission, distribution and levies
Gas purchases and transmission
Labour costs and other operating expenses
Total operating expenses
EBITDAF
Depreciation
Segment result
Average wholesale electricity price ($ per MWh) (1)
Gas used in internal generation (PJ)
Thermal generation (GWh)
Geothermal generation (GWh)
Hydro generation (GWh)
Total generation (GWh)
12 months ended
30 June 2009
$ million
12 months ended
30 June 2008
$ million
$ million
%
Variance
594.3
12.9
4.1
611.3
(6.3)
(47.3)
(251.3)
(98.0)
(402.9)
208.4
(142.2)
66.2
56.08
33.4
4,094
2,311
3,543
9,948
1,148.0
(553.7)
(48%)
11.0
14.7
1.9
17%
(10.6)
(72%)
1,173.7
(562.4)
(48%)
57.6
(63.9)
111%
(44.7)
(253.0)
(2.6)
1.7
(6%)
1%
(88.2)
(9.8)
(11%)
(328.3)
(74.6)
(23%)
845.4
(637.0)
(75%)
(126.3)
(15.9)
(13%)
719.1
(652.9)
(91%)
106.90
(50.8)
(48%)
42.0
(8.6)
(20%)
5,351
(1,257)
(23%)
2,180
3,504
131
39
6%
1%
11,035
(1,087)
(10%)
1 This is the price received by Contact for its generation. It excludes contracts for differences.
As discussed earlier, the financial year ended 30 June 2009 saw hydrology extremes which, together with the
loss of pole one of the HVDC and a loss of approximately 180 MW of demand at the Tiwai Point aluminium smelter
in Southland, resulted in unprecedented volatility in the wholesale electricity market. This led to the EBITDAF
contribution of the generation segment decreasing by 75 per cent to $208.4 million, a $637.0 million decrease
from the financial year ended 30 June 2008.
The average wholesale electricity price for the financial year ended 30 June 2009 was $56 per MWh, a 48 per cent
decrease over the average wholesale price for the financial year ended 30 June 2008 of $107 per MWh. Within the
period the prices were extremely volatile as illustrated in the following table.
22
Contact Energy Limited Annual Report 2009
Average wholesale electricty price
12 months ended
30 June 2009
$/MWh
12 months ended
30 June 2008
$/MWh
Q1 North Island
Q2 North Island
Q3 North Island
Q4 North Island
FY North Island
Q1 South Island
Q2 South Island
Q3 South Island
Q4 South Island
FY South Island
Q1 National
Q2 National
Q3 National
Q4 National
FY National
96
43
41
60
64
117
34
20
21
43
101
39
33
45
56
Variance
$/MWh
42
(1)
%
78%
(2%)
54
44
110
(69)
(63%)
212
107
56
40
102
279
107
55
42
107
229
107
(152)
(72%)
(43)
(40%)
61
(6)
107%
(16%)
(82)
(80%)
(258)
(93%)
(64)
(60%)
46
(3)
85%
(8%)
(74)
(69%)
(184)
(80%)
(51)
(48%)
During the financial year ended 30 June 2009, Contact was, on average, hedged about 90 per cent, compared with
84 per cent for the financial year ended 30 June 2008. In respect of the South Island Contact was about 111 per
cent hedged compared with the financial year ended 30 June 2008 where Contact was 116 per cent hedged in the
South Island. This reflects the change in hydro conditions after September 2008. Conversely in the North Island
Contact was about 79 per cent hedged – this is higher than the North Island hedge level of 71 per cent in the prior
financial year due to the significant reduction in thermal generation in the 2009 financial year.
Contact’s thermal generation for the financial year ended 30 June 2009 was 4,094 GWh, 1,257 GWh lower than
the financial year ended 30 June 2008. This was largely due to a scheduled six week outage at Contact’s Otahuhu B
gas-fired power station and additional outages of both TCC and Otahuhu B during the second half of the financial
year when wholesale prices enabled Contact to take the plants out of service at certain times to undertake
preventative maintenance. This activity contributed about $5 million in additional operating costs for the financial
year ended 30 June 2009.
Contact Energy Limited Annual Report 2009
23
Generation by type
12,000
10,000
s
h
W
G
8,000
6,000
4,000
2,000
3,504
5,351
2,180
3,543
4,094
2,311
June 2008
June 2009
Financial year ended
Geothermal generation
Thermal generation
Hydro generation
Contact’s geothermal generation increased six per cent or 131 GWh in the period ended 30 June 2009 to
2,311 GWh as a result of Contact’s geothermal drilling and development programme.
Contact’s hydro generation at 3,543 GWh was 39 GWh more than in the financial year ended 30 June 2008.
Despite the increase over the prior financial year, hydro generation was well below what might be expected
given the hydro conditions. This was due to the fact that Contact was forced to spill in excess of 400 GWh
due to transmission constraints.
Contact used 33.4 PJ of gas in generation in the financial year ended 30 June 2009, an 8.6 PJ reduction from
the financial year ended 30 June 2008. Despite this, the total gas cost including transmission was relatively
flat at $251 million, compared with $253 million in the financial year ended 30 June 2008. Accordingly the
average cost of gas used in generation increased from $6.03 per GJ to $7.55 per GJ, a 25 per cent increase.
Gas purchases for generation
)
J
P
(
e
m
u
l
o
V
50
40
30
20
10
$6.03
42.0
$7.55
33.4
June 2008
June 2009
Financial year ended
Gas purchased for generation (PJ)
Average cost per GJ for generation (including transmission)
J
G
/
$
10
8
6
4
2
24
Contact Energy Limited Annual Report 2009
Company overview
Contact Energy is one of New Zealand’s leading publicly listed
companies, with around 83,000 shareholders, a national staff
of about 1,000 and the ability to supply electricity and gas
products across New Zealand.
Retail
Contact Energy has approximately:
• 479,000 retail electricity customers
• 67,000 reticulated natural gas customers, and
• 54,000 LPG customers.
Generation
• Contact owns and operates nine power stations across the North and South Islands.
•
•
•
In the 2009 financial year, these power stations provided around 25 per cent of New Zealand’s total electricity
annual generation.
Contact is also contracted to operate the Crown-owned reserve generation plant at Whirinaki in Hawke’s Bay
and holds a minority interest in the Oakey power station in Australia.
Contact is currently constructing a 200 megawatt gas-fired peaking power station and the country’s first
underground natural gas storage facility near Stratford, as well as a 23 megawatt geothermal power station
at Taupo.
•
Contact is also advancing development options in geothermal, wind and hydro generation projects.
Otahuhu B – combined-cycle gas turbine, 400 megawatts
Commissioned in 1999, the Otahuhu B power station is a high-efficiency combined-cycle gas-fired power station.
Located in South Auckland, Otahuhu B provides electricity directly into the country’s largest load centre.
Otahuhu A
Commissioned in 1968, this gas-fired power station provides reactive power, which supports the stable operation
of the electricity transmission system.
Te Rapa – cogeneration, 44 megawatts
Commissioned in 1999, the Te Rapa cogeneration plant is efficient, using natural gas to generate steam and
electricity for Fonterra’s Te Rapa factory, with surplus electricity being exported into the electricity network.
Ohaaki – geothermal, 105 megawatts
Commissioned in 1989, the Ohaaki geothermal power station is currently producing around 65 megawatts
of electricity.
Wairakei – geothermal, 157 megawatts plus 15 megawatt binary plant
Commissioned in 1958, the Wairakei geothermal power station marked its 50th anniversary in the 2009
financial year.
Poihipi Road – geothermal, 50 megawatts
Purchased by Contact in 2000, the Poihipi Road power station draws its steam from the Wairakei steamfield.
Contact Energy Limited Annual Report 2009
25
Taranaki – combined-cycle gas turbine, 377 megawatts
Commissioned in 1998 and upgraded during 2008, the Taranaki combined-cycle power station is a modern,
efficient plant.
Clyde – hydro, 432 megawatts
Commissioned in 1992, the Clyde dam on the Clutha River in Central Otago is the largest concrete gravity dam
in New Zealand, generating electricity from four large generator turbines.
Roxburgh – hydro, 320 megawatts
Commissioned in 1956, the Roxburgh dam was the first large-scale hydro dam on the Clutha River.
Oakey – distillate/gas-fired peaking station, 282 megawatts
Commissioned in February 2000, Contact owns 25 per cent of this peaking power station, based in Queensland,
Australia. Contact is also the operator of this station.
Whirinaki – distillate-fired peaking station, 155 megawatts
Contact operates the Whirinaki peaking station on behalf of the Crown. Contact owns the land upon which the
power station is located in Hawke’s Bay.
New Plymouth
Over the 2009 financial year the New Plymouth gas-fired power station was decommissioned, following the
discovery of asbestos at the plant. While the plant is decommissioned, the site remains of value to Contact
as a potential location for a future gas-fired power station.
26
Contact Energy Limited Annual Report 2009
National
overview
Contact is one of New Zealand’s largest publicly
listed companies, with the ability to supply
electricity and gas products across the country.
We have reticulated natural gas customers across
much of the North Island, reticulated LPG customers
in Christchurch, Queenstown and Wanaka, and we
can supply bottled and automotive LPG nationwide.
Contact Energy Limited Annual Report 2009
27
Governance
Contact Energy Limited is a limited liability company registered
under the New Zealand Companies Act 1993.
Contact’s company registration number is 660760. The company is listed on, and its shares are quoted on,
the New Zealand Stock Market (NZSX) and has retail bonds listed on the New Zealand Debt Market (NZDX).
The company’s listing is under the trading code ‘CEN’.
Contact’s constitution is available on the company’s website.
Distribution Policy
Contact’s Distribution Policy is to maintain or grow distributions on a year-to-year basis while targeting an
average distribution equivalent to approximately 80 per cent of net surplus over time.
Ethics
Contact’s Code of Ethics sets out the ethical and behavioural standards expected of the company’s directors,
officers, employees and contractors.
Contact has established internal procedures to monitor compliance with the Code of Ethics. Every six months,
a report is provided to the Board Audit Committee highlighting any matters raised by staff under the Code of
Ethics. In the financial year ended 30 June 2009, there were no issues to report in relation to the Code of Ethics.
A copy of the Code of Ethics is available on the company’s website.
Health, safety and environment
Health, safety and environment (HSE) is a key priority at Contact and is an integral factor in assessing
management’s achievement of annual goals, which are measured against key performance indicators.
Contact’s Health and Safety Policy and Environmental Policy are available on the company’s website.
For further information on Contact’s HSE performance, see the 2009 Sustainability Report, available on
the company’s website.
Whistleblowing Policy
Contact’s Whistleblowing Policy, available on the company’s website, facilitates the disclosure and impartial
investigation of any serious wrongdoing. This policy advises employees of their right to disclose serious
wrongdoing and sets out Contact’s internal procedures for receiving and dealing with such disclosures. The
policy is consistent with and facilitates the Protected Disclosures Act 2000.
Role of the Board of Directors
The Board is responsible for setting the strategic direction of Contact, with its ultimate goal being to protect and
enhance the value of Contact’s assets and business in the interests of the company and for all of its shareholders.
The Board’s role includes approving the budget and strategic plan; approving major investments; monitoring
financial performance of the company, including approval of half year and annual financial statements; appointing
and reviewing the performance of the Managing Director; and ensuring the integrity of corporate governance.
The Board has delegated certain of its powers to sub-committees of the Board, and the day-to-day
management of the company to the Managing Director. The ambit of these delegations is documented in the
Board Committee charters, the company’s Delegated Authorities Policy, and by relevant minuted resolutions
of the Board.
28
Contact Energy Limited Annual Report 2009
The Board has a statutory obligation to reserve to itself responsibility for certain matters, such as the payments
of distributions and the issue of shares. It also reserves responsibility for significant matters, including those
described above, such as the approval of business plans and budgets and the incurring of significant obligations.
In addition, under the Companies Act 1993 and the NZSX Listing Rules, Contact is required to seek the approval
of its shareholders prior to entering into certain types of transactions.
The Board’s role, responsibilities, operation, delegations and committees are set out in Contact’s Board Charter,
which is available on the company’s website.
Operation of the Board
The Board meets regularly on a formal scheduled basis and otherwise as required. The Chairman and the Managing
Director establish the agenda for each Board meeting. Each month, as a standing item, the Managing Director
prepares a report to the Board that includes disclosure of performance against key HSE benchmarks and a summary
of the company’s operations, together with financial and other reports. In addition, the Board receives regular
briefings on key strategic issues from management, either as part of the regularly scheduled Board meetings or in
separate dedicated sessions.
New directors appointed to the Contact Board receive induction training. This training primarily involves written
and oral presentations by the Managing Director and senior management team on the key strategic and operational
business issues facing Contact.
Compliance with NZX Best Practice Code and other guidelines
Contact complies fully with the corporate governance principles set out in the NZX Corporate Governance Best
Practice Code.
Contact also complies with all of the principles in the Securities Commission’s Corporate Governance in New Zealand
Principles and Guidelines.
One of the Securities Commission’s corporate governance principles is that there should be a balance of
independence, skills, knowledge, experience and perspectives among a Board’s directors so that the Board
works effectively. Contact considers that it complies with this principle for a number of reasons, including because:
•
•
•
•
the members of its Board hold substantial and diverse business and energy-industry experience
the Board comprises a balance of independent directors and Origin Energy-associated directors
the Chairman does not hold a casting vote
the Board regularly assesses its performance to ensure that constructive working relationships are maintained.
The Securities Commission includes as a guideline relating to this principle that the Chairman should be an
independent director. Contact departs from this guideline because its Chairman, Grant King, is not an independent
director. Despite this departure, for the reasons set out above, Contact is satisfied that it complies with the
Commission’s principle.
A table summarising Contact’s compliance with the NZX Corporate Governance Best Practice Code and the Securities
Commission’s Corporate Governance in New Zealand Principles and Guidelines is available on the company’s website.
Contact Energy Limited Annual Report 2009
29
Board composition
The composition of the Board has changed during the financial year. On 16 March 2009, David Baldwin and
Sue Sheldon were appointed to the Contact Board, and effective from 30 June 2009, Tim Saunders retired
from the Contact Board.
Accordingly, from 30 June 2009, the Board comprises seven members as follows:
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
John Milne
Karen Moses
Sue Sheldon
Chairman and Origin Energy associate
Deputy Chairman and Independent Director
Managing Director and Origin Energy associate
Origin Energy associate
Independent Director
Origin Energy associate
Independent Director
Biographies of the current directors are set out on the company’s website.
Independence of directors
The NZSX Listing Rules and Contact’s constitution require Contact to have a minimum of two independent
directors. In order to be an independent director, a director must not be an executive officer of the company,
or have a ‘Disqualifying Relationship’. Having a ‘Disqualifying Relationship’ includes (but is not limited to):
•
•
being an associated person of a substantial security holder of the company (in Contact’s case, the Origin
Energy group of companies), other than solely as a consequence of being a director of Contact, or
having a relationship (other than the directorship itself) with the company or a substantial security holder of
the company by virtue of which the director is likely to derive, in the current financial year of the company, a
substantial portion of his or her annual revenue from the company (excluding dividends and other distributions
payable to all shareholders).
The Board has confirmed that, at the end of the financial year, Phillip Pryke, John Milne and Sue Sheldon each
held (and still hold) no ‘Disqualifying Relationship’ in relation to Contact and are therefore each independent
directors. The Board also confirmed that until his retirement on 30 June 2009, Tim Saunders held no ‘Disqualifying
Relationship’ in relation to Contact and was therefore an independent director.
This is because none of these directors fall within the definition of ‘Disqualifying Relationship’ and, in particular,
none of these directors is an associated person of a substantial security holder of the company, nor has any
relationship with the company or a substantial security holder of the company by virtue of which they derive any
revenue from the company, other than their respective Contact directorships and shareholdings.
Grant King, Bruce Beeren and Karen Moses are not considered to be independent directors by virtue of being
associated persons of substantial security holder Origin Energy New Zealand Limited. David Baldwin is not
considered to be an independent director because he is an executive of Contact and is also an associated person
of substantial security holder Origin Energy New Zealand Limited. Grant King, Bruce Beeren, Karen Moses and
David Baldwin were therefore not independent directors as at 30 June 2009.
Residence of directors
The NZSX Listing Rules and Contact’s constitution require at least two directors to be ordinarily resident in
New Zealand. David Baldwin, John Milne and Sue Sheldon satisfy this requirement (as did Tim Saunders up
until his retirement on 30 June 2009).
30
Contact Energy Limited Annual Report 2009
Election and re-election of directors
The NZSX Listing Rules and Contact’s constitution require that directors who have been appointed to fill a casual
vacancy during a financial year must stand for election at the next Annual Meeting. Accordingly, David Baldwin and
Sue Sheldon will stand for election at the 2009 Annual Meeting.
The NZSX Listing Rules and Contact’s constitution also require a minimum of one-third of directors (other than
one executive director and any directors appointed to fill a casual vacancy) to retire at each Annual Meeting and,
if appropriate, stand for re-election. The directors required to resign are those who have been in office longest
since their last election. Accordingly, Grant King and Bruce Beeren will retire and stand for re-election at the 2009
Annual Meeting. (Karen Moses and Tim Saunders retired and were re-elected at the October 2007 Annual Meeting,
and Phillip Pryke and John Milne retired and were re-elected at the October 2008 Annual Meeting.)
Conflicts of interest
Where any Contact director has a conflict of interest or is otherwise interested in any transaction, that director is
generally required to disclose his or her conflict of interest to the company, and thereafter will normally not be able
to participate in the discussion, nor vote in relation to the relevant matter. The company maintains a register of
disclosed interests.
Board assessment
Contact’s Board follows a practice of reviewing the performance of the Board as a whole and the Board committees
every two years, and of reviewing the performance of those directors standing for re-election or standing for
election at the next Annual Meeting every year. In accordance with this practice, in July 2009:
• Contact undertook a formal assessment of the Board and the Board committees, and
•
the Board reviewed the performance of Grant King, Bruce Beeren, David Baldwin and Sue Sheldon, being
those directors required to retire and stand for re-election, or stand for election, at the 2009 Annual Meeting.
Board committees
The Board has four formally constituted committees – the Board Audit Committee, the Health, Safety and
Environment Committee, the Nominations Committee and the Remuneration Committee. Copies of the charters
for these committees are available on the company’s website.
Other committees of the Board are formed as and when required. For example, an Independent Directors’
Committee comprising Phillip Pryke (Chair), John Milne, Tim Saunders (until 30 June 2009) and Sue Sheldon
(from 19 March 2009) meets to evaluate and approve various related party transactions with Origin Energy,
which, in the financial year ended 30 June 2009, included gas processing arrangements, LPG prices and the
related party transactions process.
In addition, Contact formed a Due Diligence Committee to oversee the due diligence process for the March 2009
retail bond issue. John Milne (Chair) and Bruce Beeren were members of the Due Diligence Committee.
Board Audit Committee
At the end of the financial year, the Board Audit Committee (BAC) comprised John Milne (Chair), Bruce Beeren,
Tim Saunders (until 30 June 2009) and Sue Sheldon (from 16 March 2009). John Milne is a qualified Chartered
Accountant, Sue Sheldon is a Fellow Chartered Accountant and Bruce Beeren is a fellow of CPA Australia. All
members of the committee are non-executive directors.
The BAC’s purpose is to oversee Contact’s financial policies and to monitor the quality of financial reporting and
financial management. The BAC is responsible for approving the annual internal audit work programme, monitoring
the roles, responsibilities and performance of external and internal audit, and making recommendations to the
Board on matters such as new accounting policies and adopting the financial statements for public release. The
Board Audit Committee Charter is set out on the company’s website.
Contact Energy Limited Annual Report 2009
31
The Managing Director attends each quarterly BAC meeting at the invitation of the BAC. At the conclusion
of each meeting and at any other time the BAC requires, the BAC meets separately with the head of internal
audit, Contact’s external auditors and the Chief Financial Officer without any other members of management
being present.
Health, Safety and Environment Committee
At the end of the financial year, the Health, Safety and Environment (HSE) Committee comprised Karen Moses
(Chair), Phillip Pryke, John Milne and Tim Saunders (until 30 June 2009). Prior to 31 December 2008, the HSE
Committee comprised all members of the Board.
The HSE Committee meets at least three times per year, and its role is to assist the Board to fulfil its
responsibilities in relation to HSE-related matters arising out of the activities of Contact and its related
companies. These matters relate to those activities that affect employees, contractors, communities and
the environment in which the company operates. The HSE Committee is responsible for, among other matters,
periodically reviewing the company’s Health and Safety Policy and Environmental Policy, monitoring the
company’s compliance with those policies, reviewing and recommending to the Board targets for HSE
performance and assessing performance against those targets, and reviewing HSE-related incidents and
considering appropriate actions to minimise the risk of recurrence. The HSE Committee Charter is set out
on the company’s website.
Nominations Committee
At the end of the financial year, the Nominations Committee comprised Grant King (Chair), Phillip Pryke,
Tim Saunders (until 30 June 2009) and Sue Sheldon (from 19 March 2009). The Nominations Committee’s
primary purpose is to ensure that the Board is comprised of individuals who are best able to discharge the
responsibilities of Directors, and it also attends to other matters put to it, including director performance
assessment and Managing Director appointment.
In the 2009 financial year, the Nominations Committee considered the assessment of Phillip Pryke and John
Milne’s performance as directors ahead of their standing for re-election at the October 2008 Annual Meeting
and considered Board composition issues (including processes for the appointment of Sue Sheldon as a director
and David Baldwin as Managing Director). In July 2009, the Nominations Committee considered the assessment
of Grant King, Bruce Beeren, David Baldwin and Sue Sheldon’s performance as directors ahead of their standing
for election/re-election at the October 2009 Annual Meeting. The Nominations Committee Charter is set out on
the company’s website.
Remuneration Committee
At the end of the financial year, the Remuneration Committee comprised Phillip Pryke (Chair), Grant King,
Tim Saunders (until 30 June 2009) and Bruce Beeren (from 19 March 2009). The Remuneration Committee’s
primary purposes are to review directors’ fees, the Managing Director’s remuneration package and performance,
and the policy for remuneration of senior management, with a view to ensuring that the interests of employees
and shareholders are aligned. These reviews form the basis of recommendations to the Board.
The Remuneration Committee met twice during the financial year and has met a further time since the end of
the financial year to assess and make recommendations to the Board about a variety of remuneration issues that
relate to directors, the Managing Director and Contact employees, including the level of directors’ fees, employee
short term incentives and the long term incentive scheme for senior and key employees. Details of director and
executive remuneration arrangements are set out in the remuneration report section of this Annual Report. The
Remuneration Committee Charter is set out on the company’s website.
32
Contact Energy Limited Annual Report 2009
Attendance at meetings
During the financial year ending 30 June 2009, the Board met 13 times. The table below sets out attendance at
meetings for all directors.
Committee attendance
Director
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
John Milne
Karen Moses
Sue Sheldon
Tim Saunders
Board attendance
(scheduled and
special purpose)
13
13
13
13
13
13
4
13
BAC
N/A
N/A
4
4
4
N/A
1
4
HSE
Remuneration
Nominations
Independent
Directors
Due Diligence
1
3
3
1
3
3
N/A
2
2
2
2
1
N/A
N/A
N/A
1
1
1
1
N/A
N/A
N/A
N/A
1
N/A
3
3
N/A
3
N/A
N/A
3
N/A
N/A
4
4
4
N/A
N/A
N/A
Note: David Baldwin and Sue Sheldon were appointed to the Board on 16 March 2009. In respect of David Baldwin, the above table includes attendances as an observer on
all committees, and as an observer on the Board prior to 16 March 2009.
Distribution plans
Profit distribution plan
Contact implemented a profit distribution plan in February 2009, which took effect from the 2009 interim
distribution in March 2009.
Under the profit distribution plan, instead of distributing profits in the form of fully imputed dividends in cash,
all shareholders receive distributions in the form of Contact shares (as a non-taxable bonus issue), but have the
opportunity to have those shares, or a portion of them, bought back by Contact for cash as a fully imputed taxable
dividend. This means that shareholders have the choice between retaining bonus shares and receiving cash, or a
combination of both.
More detail about the profit distribution plan, including a full description of its terms and conditions, is available
on Contact’s website.
Share top up plan
Contact operated a share top up plan until February 2009, when it was terminated following the implementation
of the profit distribution plan. The share top up plan provided shareholders holding 5,000 or fewer shares who
were resident in New Zealand or Australia and who were not directors or associated persons of directors of Contact
with the opportunity to acquire additional shares funded by their regular dividend payments.
During the financial year ended 30 June 2009, Contact provided financial assistance in connection with the
ongoing costs associated with the share top up plan until it was terminated. The disclosure document which
was sent to shareholders in September 2009 sets out the details of the financial assistance provided in connection
with the plan and is available on the company’s website.
Contact Energy Limited Annual Report 2009
33
Current NZX waivers
A summary of all waivers granted and published by NZX within or relied on by Contact in the 12 month period
preceding 22 July 2009 (being two months before the date of publication of this Annual Report) is available on
Contact’s website. This summary will remain on Contact’s website for at least 12 months following publication
of this Annual Report.
Exercise of NZX disciplinary powers
NZX did not exercise any of its powers under Listing Rule 5.4.2 in relation to Contact during the financial year.
Financial reporting
Contact undertakes twice-yearly financial reporting and also provides a suite of operational data on a
regular basis.
Contact’s Annual and Half Year Reports are posted on Contact’s website. The annual financial statements are
audited and this year the 31 December 2008 half year financial statements were also audited. In accordance
with the Companies Act 1993, Contact does not automatically mail printed copies of the Annual and Half Year
Reports to shareholders. A notice will be posted to shareholders when the Annual Report is available each year,
and shareholders can request, free of charge, a hard copy of the Annual Report or the next Half Year Report and
subsequent reports within 15 working days of receiving that notice.
The Managing Director and Acting Chief Financial Officer have provided the Board with written confirmation
that the company’s financial statements for the year ended 30 June 2009 have been prepared in accordance
with New Zealand Generally Accepted Accounting Practice and that they comply with New Zealand Equivalents
to International Financial Reporting Standards and other appropriate financial reporting standards, as appropriate
for profit-oriented entities.
Auditor independence
The Board Audit Committee (BAC) is responsible for considering and making recommendations to the Board
regarding any issues relating to the appointment, dismissal or resignation of the external auditor.
The BAC Charter prohibits the external auditor from consulting to Contact on matters that could be regarded as
compromising audit independence.
The BAC requires the external auditor to confirm annually that it has complied with all professional regulations
relating to auditor independence. Specifically, the external auditor is required to confirm its commitment to strict
procedures to ensure that:
•
•
the external auditor, its partners and current audit team do not have any financial interest in Contact
the superannuation fund of the partners or staff of the external auditor does not hold any direct financial
interest in Contact
•
there are no business interests between Contact and the external auditor
• no fee paid by Contact to the external auditor is paid on a contingency basis.
In addition, the senior external audit partner and peer review partner must rotate after a maximum of five years,
with suitable succession planning in place.
The BAC is responsible for determining whether potential engagements of the external auditor are appropriate,
documenting decisions and recommending to the Board accordingly.
The Chief Financial Officer is responsible for the day-to-day relationship with the external auditor, while individual
business units have a direct responsibility for their relationship with the external or internal auditor, ensuring
provision of timely and accurate information and full access to company records.
34
Contact Energy Limited Annual Report 2009
Auditors
The amount payable by Contact and its subsidiaries to KPMG as audit fees in respect of the financial year ended
30 June 2009 was $691,000. In addition, Contact paid $186,000 to KPMG for a statutory audit as at 31 December
2008 in relation to the retail bond issue.
Contact also engaged KPMG to perform other assurance services. The amount payable in respect of the additional
assurance services was $63,104, comprising work relating to assurance procedures over a commercial model, and
due diligence work relating to the retail bond issue.
Credit rating
As at the date of this Annual Report, Standard & Poor’s long term credit rating for Contact was BBB Stable. As at
the date of this Annual Report, Fitch’s long term credit rating for Contact was BBB+ Stable.
The $550 million unsubordinated, unsecured fixed rate bonds issued by Contact in March 2009 were assigned an
initial rating of BBB by Standard & Poor’s.
Donations
During the financial year ended 30 June 2009, in addition to the numerous sponsorships detailed in the
Sustainability Report, Contact made donations amounting to $93,573. No subsidiaries made any donations
during the financial year ended 30 June 2009.
Donations are made on the basis that the recipient is not obliged to provide any service such as promoting
Contact’s brand and are separate from Contact’s sponsorship activity.
There were no political donations made during the financial year.
Risk management
Contact’s Risk Management Framework aligns with recognised best practice (Australian/New Zealand Standard for
Risk Management AS/NZS 4360:2004). An Executive Risk Management Committee is responsible for monitoring
the ongoing effectiveness of Contact’s risk management activities and provides assurance to the Board and its
committees that there is an effective framework in operation over risk-related activities. The Executive Risk
Management Committee monitors trends in the company’s risk profile and considers papers on how the business
manages or mitigates key risk exposures. Regular reports on the company’s risks are presented to the Board.
Contact recognises the importance of effective risk management to its business success and aims to continually
improve its risk profile and risk management capability.
Internal audit
Contact has an independent in-house internal audit function (Internal Audit) that provides objective assurance
over the effectiveness of the internal control framework.
The Internal Audit Charter is included in the Board Audit Committee Charter available on the company’s website.
Internal Audit assists Contact to accomplish its objectives by bringing a systematic disciplined approach to
evaluate and improve the effectiveness of risk management, internal controls and governance processes. Internal
Audit adopts a risk-based audit approach driven from the company’s Risk Management Framework.
Internal Audit also assists external audit by reporting findings from the Internal Audit programme so the external
auditors may independently assess the degree of reliance they are able to place on the control environment when
providing their opinion on the financial statements.
On a day-to-day basis, Internal Audit reports to the General Counsel and Company Secretary. Internal Audit has
the autonomy to report significant issues to the Managing Director and the Board Audit Committee or, if considered
necessary, the Chairman. The BAC oversees the audit programme and provides Internal Audit with the mandate to
perform the agreed audit programme. Internal Audit has unlimited access to all other departments, records and
systems of the Contact Group and to the external auditors and other third parties as it deems necessary.
Contact Energy Limited Annual Report 2009
35
Securities Trading Policy
Contact’s Securities Trading Policy applies to all directors, officers, employees and contractors of Contact and
its subsidiaries (‘directors and employees’). Under the policy, directors and employees must not trade Contact
securities, or advise or encourage others to trade or hold Contact securities, or pass on material information,
if they are in possession of material information that is not publicly available. In addition:
•
•
directors and employees may not trade during the period between 1 January and the date of the announcement
of Contact’s half year results to NZX (inclusive) or during the period between 1 July and the date of the
announcement of Contact’s full year results to NZX (inclusive), and
directors and specified employees must adhere to further additional obligations prior to any trade of
Contact securities.
Entries recorded in the interest register
The following interest register entries were recorded for the company and its subsidiaries during the financial year
ended 30 June 2009:
(a) Security dealings of directors
Contact directors disclosed the following transactions in Contact securities in the financial year ended 30 June
2009. Note that all dealings are in ordinary shares unless otherwise specified.
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of) Nature of relevant interest
Director
G King
P Pryke
12/06/09
27/08/08
03/10/08
24/02/09
03/04/09
27/08/08
27/08/08
03/10/08
03/10/08
25/02/09
25/02/09
01/04/09
01/04/09
31/03/09
31/03/09
02/04/09
02/04/09
$5.81
$8.44
$7.70
$5.86
$6.00
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
$5.66
$5.66
NCBO
NCBO
Restricted shares acquired on trust under the Contact
GA King Director Remuneration Share Trust
Restricted shares acquired on trust under the Contact
PJ Pryke Director Remuneration Share Trust
Transfer of unrestricted shares from Contact PJ Pryke
Director Remuneration Share Trust to Pryke Pty Limited,
as beneficiary of Contact PJ Pryke Director Remuneration
Share Trust
4,781
1,935
1,624
2,140
2,083
(1,694)
1,694
(1,695)
1,695
(1,547)
1,547
(1,653)
1,653
894
769
Acquisition of bonus issue shares pursuant to the Profit
Distribution Plan (2009 interim distribution)
(894)
894
Transfer of bonus issue shares acquired pursuant to the
Profit Distribution Plan (2009 interim distribution) from
Contact PJ Pryke Director Remuneration Share Trust to
Pryke Pty Limited, as beneficiary of Contact PJ Pryke
Director Remuneration Share Trust
88,342 restricted
ordinary shares
Initial disclosure on appointment as Managing Director:
beneficial interest in, and conditional entitlement to
become legal and beneficial owner of, ordinary shares
under Contact’s employee long term incentive scheme
(Restricted Share Plan)
D Baldwin
16/03/09
N/A
16/03/09
N/A
525,547 options to
acquire ordinary shares
Initial disclosure on appointment as Managing Director:
options to acquire ordinary shares under Contact’s
employee long term incentive scheme (Share Option Plan)
* NCBO means no change in beneficial ownership.
36
Contact Energy Limited Annual Report 2009
Director
B Beeren
J Milne
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of) Nature of relevant interest
27/08/08
06/10/08
24/02/09
03/04/09
25/02/09
25/02/09
01/04/09
01/04/09
31/03/09
31/03/09
02/04/09
02/04/09
27/08/08
03/10/08
24/02/09
03/04/09
27/08/08
27/08/08
03/10/08
03/10/08
25/02/09
25/02/09
01/04/09
01/04/09
31/03/09
31/03/09
31/03/09
31/03/09
02/04/09
02/04/09
06/04/09
06/04/09
30/04/09
30/04/09
31/03/09
31/03/09
31/03/09
$8.44
$7.50
$5.86
$6.00
NCBO
NCBO
NCBO
NCBO
$5.66
$5.66
NCBO
NCBO
$8.44
$7.70
$5.86
$6.00
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
$5.66
$5.66
$5.66
$5.66
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
$1.00
$1.00
$1.00
Restricted shares acquired on trust under the Contact
BG Beeren Director Remuneration Share Trust
Transfer of unrestricted shares from Contact BG Beeren
Director Remuneration Share Trust to Bruce Beeren
1,291
1,111
1,426
1,389
(1,032)
1,032
(1,102)
1,102
238
21
Acquisition of bonus issue shares pursuant to the Profit
Distribution Plan (2009 interim distribution)
(238)
238
Transfer of bonus issue shares acquired pursuant to the
Profit Distribution Plan (2009 interim distribution) from
Contact BG Beeren Director Remuneration Share Trust to
Bruce Beeren
644 + 645
542 + 541
712 + 713
694 + 694
(564) + (565)
564 + 565
(565) + (565)
565 + 565
(515) + (516)
515 + 516
(551) + (551)
551 + 551
280 + 280
694
378
47
(280) + (280)
280 + 280
Restricted shares acquired on trust under the Contact JHG
Milne Director Remuneration Share Trust
Transfer of unrestricted shares from Contact JHG Milne
Director Remuneration Share Trust to John Milne Trust and
Maureen Milne Trust, as beneficiaries of Contact JHG Milne
Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profit
Distribution Plan (2009 interim distribution)
Transfer of bonus issue shares acquired pursuant to the
Profit Distribution Plan (2009 interim distribution) from
Contact JHG Milne Director Remuneration Share Trust to
John Milne Trust and Maureen Milne Trust, as beneficiaries
of Contact JHG Milne Director Remuneration Share Trust
(47)
47
Transfer of bonus issue shares acquired pursuant to the
Profit Distribution Plan (2009 interim distribution) from
beneficially held shares into family trust, of which Mr Milne
is a trustee
(2,415)
2,415
Transfer of beneficially held shares into family trust, of
which Mr Milne is a trustee
70,000 bonds
50,000 bonds
30,000 bonds
Acquisition of bonds as trustee and beneficiary of family
trusts and as spouse of registered holder
* NCBO means no change in beneficial ownership.
Contact Energy Limited Annual Report 2009
37
Director
K Moses
Date of
transaction
Consideration
per security*
12/06/09
$5.81
S Sheldon
16/03/09
T Saunders
31/03/09
27/08/08
03/10/08
24/02/09
03/04/09
27/08/08
27/08/08
03/10/08
03/10/08
25/02/09
25/02/09
01/04/09
01/04/09
31/03/09
31/03/09
31/03/09
02/04/09
02/04/09
N/A
$1.00
$8.44
$7.70
$5.86
$6.00
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
NCBO
$5.66
$5.66
$5.66
NCBO
NCBO
Number of securities
acquired (disposed of) Nature of relevant interest
2,390
Restricted shares acquired on trust under the Contact
KA Moses Director Remuneration Share Trust
540
Initial disclosure on appointment as director of shares held
in a trust for which Ms Sheldon is an independent trustee
10,000 bonds
Acquisition of bonds by trust for which Ms Sheldon is an
independent trustee
1,288
1,083
1,425
1,389
(1,129)
1,129
(1,130)
1,130
(1,031)
1,031
(1,102)
1,102
498
239
13
(498)
498
Restricted shares acquired on trust under the Contact
TEC Saunders Director Remuneration Share Trust
Transfer of unrestricted shares from Contact TEC Saunders
Director Remuneration Share Trust to TEC Saunders Family
Trust as beneficiary of Contact TEC Saunders Director
Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profit
Distribution Plan (2009 interim distribution)
Transfer of bonus issue shares acquired pursuant to the
Profit Distribution Plan (2009 interim distribution) from
Contact TEC Saunders Director Remuneration Share Trust
to TEC Saunders Family Trust as beneficiary of Contact TEC
Saunders Director Remuneration Share Trust
11/03/09
$5.56
10,000 On-market disposal of shares
* NCBO means no change in beneficial ownership.
(b) Directors’ interests in transactions
General disclosures
As at 30 June 2009, the following directors had made the following general disclosures in the interests register of
the company. Notices given or adjusted during the financial year ended 30 June 2009 are marked with an asterisk (*).
Each such director will be regarded as interested in all transactions between Contact and the disclosed entity.
G King
Origin Energy Limited and Group companies
Managing Director/Shareholder/Employee
Energy Supply Association of Australia Limited (resigned in November 2008)*
Director/Chairman
Australian Petroleum Production and Exploration Association
Councillor
38
Contact Energy Limited Annual Report 2009
P Pryke
ComTel Corporation Limited*
Co-Investor Capital Partners Pty Limited
Frog Hollow Limited
Goodman (NZ) Limited
Goodman Property Aggregated Limited
New Zealand Deer Farms Limited
Director/Chairman
Director/Shareholder
Director/Shareholder
Director
Director
Director/Shareholder
Novotech Pty Limited (resigned as director in October 2008)*
Director
Pauatahanui Projects Limited
Pryke Pty Limited
Tru-Test Corporation Limited*
Tru-Test Pty Limited
D Baldwin
Origin Energy Limited*
B Beeren
Director/Shareholder
Director/Shareholder
Director
Alternate Director
Employee
Origin Energy Limited and Group companies
Director/Shareholder and former Employee/Executive Director
Coal & Allied Industries Limited
Equipsuper Pty Limited
ConnectEast Group*
J Milne
Director
Director
Director
The New Zealand Wine Company Limited (including various wholly owned
subsidiaries) (resigned as a director in October 2008)*
The He Huarahi Tamariki Trust
Director/Shareholder
Chairman/Trustee
Wellington City Council Audit and Risk Management Subcommittee
Independent Member
K Moses
Origin Energy Limited and Group companies (appointed to Origin Energy
Limited directorship March 2009)*
Director/Employee/Shareholder
Australian Energy Market Operator (Transitional) Limited*
Director
CSIRO, Energy and Transport Sector Advisory Council
UNSW, Australian School of Business Advisory Council*
Energy and Water Ombudsman (Victoria) Limited
Victorian Energy Networks Corporation (ceased operation in June 2009)*
S Sheldon CNZM
Christchurch International Airport Limited*
Electronic Transaction Services Limited*
FibreTech New Zealand Limited*
Freightways Limited*
National Provident Fund Board of Trustees*
Reserve Bank of New Zealand*
Sue Sheldon Advisory Limited*
Smiths City Group Limited and subsidiaries*
Wool Industry Network Limited*
Wool Grower Holdings Limited*
T Saunders
Committee Member
Director
Director
Deputy Chairman
Director
Chairman
Director
Chairman
Director
Director
Director
Chairman
Director
Global Corporate Credit Limited (resigned as a director in February 2009)*
Director
L.E.K. Consulting Australasian Advisory Board
Advisory Board Member
Contact Energy Limited Annual Report 2009
39
Specific disclosures
There were no specific disclosures made during the year of any interests in transactions entered into by Contact
or any of its subsidiaries.
(c) Use of company information
No director issued a notice requesting to use information received in his or her capacity as a director that would
not otherwise be available to the director.
(d) Board-approved remuneration and other benefits
The Board passed resolutions and signed accompanying certificates to confirm the distribution for the year ended
30 June 2009 amongst directors of a portion of the $1,500,000 remuneration pool (that pool having been
approved by shareholders at the 2008 Annual Meeting). See page 40 for further details about the distribution
approved by the Board.
(e) Directors’ and employees’ indemnity and insurance
Contact has agreed to indemnify Contact’s employees and directors, including directors of subsidiary and
associated companies, against any liability or costs incurred in any proceeding, excluding actions for gross
negligence, criminal liability, breach of fiduciary duty or breach of directors’ duties.
Contact has paid premiums and taken out comprehensive insurance cover, including insurance policies that
indemnify employees and directors, including directors of subsidiaries and associates, against various potential
legal liabilities.
In March 2009, Contact’s Board authorised the renewal of the Directors and Officers and Statutory Liability
Insurance covers as at 31 March 2009 until 31 December 2009 and certified, in terms of section 162 of the
Companies Act 1993, that this cover is fair to the company.
40
Contact Energy Limited Annual Report 2009
Remuneration report
Directors’ remuneration
Directors’ fees
The current total directors’ fee pool is $1,500,000 per annum. A total of $852,651 was distributed in respect
of the year ended 30 June 2009 as follows:
• Base director fees: $679,445, distributed as follows:
- Chairman (Grant King) – $200,000 per annum, paid with effect from 1 November 2008.
- Deputy Chairman (Phillip Pryke) – $150,000 per annum.
-
Other non-executive directors – $100,000 per annum each (note that Karen Moses’s fees were paid
with effect from 1 November 2008 and Sue Sheldon’s fees were paid with effect from 16 March 2009).
- Managing Director (David Baldwin) – Nil.
• Committee fees: $173,206, distributed as follows:
-
-
-
$22,500 and $17,500 was distributed to John Milne and Bruce Beeren respectively for their additional
workload as members of the Due Diligence Committee for Contact’s March 2009 retail bond issue.
$50,000 was distributed to John Milne in his capacity as Chair of the Board Audit Committee.
$83,206 was distributed as committee fees.
Directors’ restricted share scheme
Contact operates a directors’ restricted share scheme (Directors’ Share Scheme), approved by shareholders in
2004 to improve the alignment of directors’ and shareholders’ interests. Instead of receiving all of their pre-tax
base directors fees in cash, those directors participating in the Directors’ Share Scheme receive one-third of that
amount by way of Contact shares that are restricted for a period of three years or until a director ceases to hold
office. Directors are not otherwise entitled to any payment in connection with their retirement or cessation of office.
The directors participating in the Directors’ Share Scheme during the financial year were Grant King, Phillip Pryke,
Bruce Beeren, John Milne, Karen Moses, Sue Sheldon and Tim Saunders. Grant King and Karen Moses joined the
Directors’ Share Scheme effective from 1 November 2008 (the date they commenced receiving director fees), and
Sue Sheldon joined effective from 16 March 2009. Tim Saunders’s participation in the Directors’ Share Scheme
ceased following the final share purchase on 17 August 2009, using his director fees from the quarter ended
30 June 2009.
Under the Directors’ Share Scheme, at the end of each quarter, Contact pays to a trustee on behalf of each
participant one-third of the pre-tax base remuneration accrued by the participant during that quarter. The trustee
uses the payment to purchase Contact shares on-market through a broker. This trading may only take place during
a period that is not a specified blackout period to ensure compliance with the company’s Securities Trading Policy.
The trustee is then required to hold the shares purchased until the earlier of three years from the commencement of
the quarter immediately following the quarter in which the fees were accrued, and the date of the director ceasing
to hold office. On transfer by the trustee to the participant at this time, the participant is entitled to sell the shares,
subject to Securities Trading Policy requirements. Throughout the time that the shares are held by the trustee, the
participant is entitled to receive distributions and participate in other rights attaching or accruing to the shares,
subject to any particular restrictions set out in the Directors’ Share Scheme or elsewhere.
During the financial year ended 30 June 2009, Contact provided financial assistance in connection with the ongoing
operation of the scheme. A disclosure document relating to the financial assistance to be provided over the next
12 months was sent to shareholders in September 2009 and is available on the company’s website.
Contact Energy Limited Annual Report 2009
41
The table below details the restricted shares of each of Contact’s directors that became unrestricted under the
Directors’ Share Scheme during the financial year ended 30 June 2009.
Date of acquisition
Date unrestricted
Number unrestricted
Original acquisition price
Name
Phillip Pryke
John Milne
Tim Saunders
16 November 2005
16 November 2005
27 August 2008
3 October 2008
21 February 2006
25 February 2009
28 August 2006
1 April 2009
16 November 2005
16 November 2005
27 August 2008
3 October 2008
21 February 2006
25 February 2009
28 August 2006
1 April 2009
16 November 2005
16 November 2005
27 August 2008
3 October 2008
21 February 2006
25 February 2009
28 August 2006
1 April 2009
Bruce Beeren
21 February 2006
25 February 2009
28 August 2006
1 April 2009
1,694
1,695
1,547
1,653
1,129
1,130
1,031
1,102
1,129
1,130
1,031
1,102
1,032
1,102
$6.67
$6.67
$7.29
$6.84
$6.67
$6.67
$7.29
$6.84
$6.67
$6.67
$7.29
$6.84
$7.29
$6.84
Remuneration details of directors
Details of the total remuneration and the value of other benefits received by each director of Contact in their
capacity as a director during the financial year ended 30 June 2009 are as follows:
Director
Position
Board fees
Committee fees
Total remuneration5
G King1
P Pryke
Chairman
Deputy Chairman
D Baldwin2
Managing Director
B Beeren
J Milne
K Moses1
S Sheldon3
T Saunders
Total
Director
Director
Director
Director
Director
Cash
Restricted shares
$88,889
$100,000
–
$66,667
$66,667
$44,445
$19,630
$66,667
$44,444
$50,000
–
$33,333
$33,333
$22,222
$9,815
$33,333
Cash
–
–
–
$44,714
$77,500
$10,000
$7,842
$33,150
$452,965
$226,4804
$173,206
$133,333
$150,000
–
$144,714
$177,500
$76,667
$37,287
$133,150
$852,651
1
2
3
4
Grant King and Karen Moses received director fees with effect from 1 November 2008.
As an executive, David Baldwin does not receive fees in his capacity as a director. See page 42 for details of David Baldwin’s remuneration.
Sue Sheldon became a director on 16 March 2009.
Due to trading period restrictions under Contact’s Securities Trading Policy, purchases of restricted shares valued at $72,314 of this total amount occurred on
17 August 2009.
5
Pursuant to Contact’s constitution, directors are not entitled to any payment in connection with their retirement or cessation of office.
42
Contact Energy Limited Annual Report 2009
Executive remuneration
There are two components to executive remuneration – fixed remuneration and at-risk/variable remuneration.
The determination of fixed remuneration is based on responsibilities, individual performance and experience,
and market data. At-risk/variable remuneration comprises short term incentives and, for senior and key
employees, long term incentives.
Managing Director remuneration
David Baldwin, Managing Director of Contact, has been seconded to the role by his employer, Origin Energy
Limited. During the term of the secondment, Contact will reimburse Origin Energy Limited for the cost of David
Baldwin’s salary and other employment benefits, except for restricted shares and options, which are provided
directly by Contact. David Baldwin does not receive any director fees. The following table details the nature and
amount of the remuneration earned by David Baldwin for the year ended 30 June 2009.
Remuneration paid
Equity rights (options and restricted shares)1
David Baldwin
Managing Director
Fixed
remuneration
$
Variable
remuneration2
$
Number
of options
issued3
Total
$
Value of
equity
rights
issued and
amortising
during year4
$
Value of
equity
rights
issued in
past years
amortising
during year4
$
Number of
restricted
shares
issued3
Total
$
Year ended
30 June 2009
Year ended
30 June 2008
838,856
246,000
1,084,856
220,652
31,020
143,030
395,642
1,623,528
725,000
431,375
1,156,375
98,485
17,269
81,250
268,333
1,505,958
1 Although options and restricted shares are granted in October each year, they pertain to the at-risk component of the prior financial year’s remuneration.
2 Variable remuneration for the financial year is based on achieving personal goals and satisfying specific performance criteria. The short term incentive is for performance
during the relevant financial year. The amount was determined following the end of the relevant financial year after performance reviews.
3 Contact Energy Limited equity securities.
4 Options and restricted shares are subject to performance hurdles as described on page 48. The fair value of the options is calculated at the date of grant using a
combination of Monte-Carlo simulation and binomial option pricing model. Restricted shares are valued based on the market price at date of grant adjusted for
distributions that are not received until the restricted share vests. The value disclosed is the portion of the fair value of the equity rights allocated to the relevant
reporting period. Options and restricted shares will only be convertible into ordinary unrestricted shares to the extent that performance hurdles are met. No options
or ordinary shares vested in the 2008 or 2009 financial year.
David Baldwin has participated in Contact’s long term incentive scheme for employees (LTI Scheme) since its
inception. Contact relies on NZSX Listing Rule 7.3.9 to allow Mr Baldwin to continue to participate in the LTI
Scheme following his appointment as Managing Director. On 23 July 2009, NZX Regulation granted a waiver in
respect of NZSX Listing Rule 7.6.4(b)(iii) to allow Mr Baldwin to continue to receive financial assistance under
the LTI Scheme. The full version of the waiver can be found on the company’s website.
Contact Energy Limited Annual Report 2009
43
Movement during the reporting period in the number of options over ordinary shares and restricted shares held
in Contact Energy Limited is set out in the following tables.
Restricted shares
Held at 1 July 2008
Granted as compensation
Vested during the year
Held at 30 June 2009
David Baldwin
Managing Director
Options
David Baldwin
Managing Director
57,322
31,020
–
88,342
Held at
1 July 2008
Granted as
compensation
Exercised
Held at
30 June 2009
Vested during
the year
Vested and
excercisable at
30 June 2009
304,895
220,652
–
525,547
–
–
Short term incentives
Contact’s variable remuneration recognises and rewards high-performing individuals whose contribution supports
business goals and objectives, whilst meeting the goals set for the individual.
Contact’s short term incentives (STIs) comprise cash payments based on performance measured against key
performance indicators (KPIs). For the year ended 30 June 2009, different levels of incentives were determined
reflecting the nature of roles in the company. KPIs generally comprise company, team and individual targets.
These targets are designed to create goals that will support an achievement and performance-oriented culture.
The STI programme is designed to differentiate and reward exceptional, outstanding and good performance.
The Board reserves the right to adjust STI awards if health, safety and environment targets are not met.
Long term incentives
The principal objective of long term incentives is to align executives’ performance with shareholder interests and
provide equity-based incentives that help retain valuable employees.
Legacy Long Term Incentive Scheme
Up until 30 June 2006, because a review was pending, only a limited number of senior executives participated
in the then-existing long term incentive scheme (Legacy LTI Scheme). Upon completion of that review, a new
employee long term incentive scheme was introduced for the year ended 30 June 2007 and beyond.
Following the satisfaction of performance hurdle measurements, shares were purchased on-market for the benefit
of participants in the Legacy LTI scheme in August 2007 and August 2008. Those share purchases were disclosed
in the 2008 Annual Report. No further shares were purchased during the financial year.
There will be six-monthly reassessments of performance in relation to hurdles not met until 30 June 2010.
Therefore, within the next 12 months, Contact may provide financial assistance for both the purchase of the shares
on-market and in connection with the ongoing operation of the scheme. A disclosure document relating to this
financial assistance was sent to shareholders in September 2009 and is available on the company’s website.
44
Contact Energy Limited Annual Report 2009
Employee Long Term Incentive Scheme
In formulating the new employee long term incentive scheme (LTI Scheme) in 2006, Contact determined
that a combination of share options and restricted shares was desirable to ensure incentives align senior and
key employees’ performance with shareholders’ interests, both in favourable and unfavourable sharemarket
conditions.
Therefore, for the year ended 30 June 2007 and beyond, Contact introduced a new employee long term incentive
plan for participating employees – consisting of a Share Option Plan and a Restricted Share Plan (together, the
‘Plans’). Details of the Plans are set out below.
The Board determined that long term incentives should be awarded to reflect individual participants’ performance
in the preceding financial year and potential in future years.
Under the Plans, for the year ended 30 June 2009, the Board allocated long term incentive awards that are, by
value, 50 per cent share options and 50 per cent restricted shares. Under the Plans, the share options will only
be exercisable, and the restricted shares will only become unrestricted, to the extent that the relevant performance
hurdles are satisfied. The performance hurdles for the share options and restricted shares in relation to the year
ended 30 June 2009 are set out on page 48. The number of share options and restricted shares awarded are
calculated by dividing the value of the long term incentive award (being a percentage of the relevant participant’s
salary) by the fair value of the share options and restricted shares.
In the year ended 30 June 2009, there were 19 participants in the LTI Scheme. The Board intends to extend
participation in the LTI Scheme to approximately 40 additional senior and key employees of the company in
the October 2009 allocation of share options and restricted shares. The Board has decided to expand the current
LTI Scheme to these additional individuals, in order to acknowledge not only their present worth to the business,
but also their potential to add significant future value. This will bring the total number of participants under the
LTI Scheme to approximately 60 employees.
Share Option Plan
Under the Share Option Plan, the Board issues share options to participants to acquire ordinary shares in Contact
at the market price determined at the effective grant date. For share options granted in the year ended 30 June
2009, the market price was the weighted average market price of Contact’s ordinary shares traded on the NZSX
over the 20 business days prior to the effective grant date.
As noted above, the options are exercisable subject to performance hurdles as determined by the Board. The
performance hurdles for share options issued in the year ended 30 June 2009 are described on page 48. There is
a vesting period of approximately three years from the effective grant date before share options may be exercised.
Following the end of that period, the performance hurdles are measured on three annual test dates. There is a
two-year, two-month exercise period following the first test date during which share options may be exercised,
again, to the extent that the performance hurdles are met.
The share options may also be exercised if, between the effective grant date and the exercise date, a change of
control of Contact occurs. In addition, the Board may, at its discretion, permit share options to be exercised prior
to the commencement of the relevant exercise period where Contact shares cease to be listed on the NZSX or other
circumstances occur where such an early exercise is considered appropriate by the Board.
Contact Energy Limited Annual Report 2009
45
The share options will lapse:
•
•
•
•
if the performance hurdles are not met by the final measurement date
if the share options are not exercised by the lapse date
on the date on which the participant ceases to be employed by the company (except in the case of
redundancy), or
on the death of the participant (provided however, that the Board may, in its discretion, allow the participant’s
successor to exercise the share options).
In the event of redundancy, the Share Option Plan will continue, except that the number of share options will be
recalculated on a proportionate basis.
The share options are unlisted and are personal to the employee and therefore cannot be traded.
In May 2007, NZX Regulation granted approval under NZSX Listing Rule 8.1.4 for the issue of share options under
the Share Option Plan with effective grant dates of 1 July 2006 and 20 November 2006. NZX Regulation also
granted a ruling that NZSX Listing Rule 7.10 (being additional requirements for rights issues) does not apply to the
granting of share options under the Share Option Plan. The full version of the waiver and approval can be found on
the company’s website.
The number of options issued and their exercise status as at the date of this report are set out in the table below.
Number of
options issued
Effective
grant date
Exercise
price per
option
First exercise date
Number
lapsed
Final lapse date
Vested
Number
exercisable
365,322
1 July 2006
18,361
20 November 2006
13,413
15 January 2007
490,326
1 October 2007
22,706
1 February 2008
881,769
1 October 2008
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
1 October 2009
81,2451
30 November 2011
1 October 2009
18,3612
30 November 2011
1 October 2009
Nil
30 November 2011
1 October 2010
176,2953
30 November 2012
1 October 2010
7,6984
30 November 2012
1 October 2011
210,8505
30 November 2013
No
No
No
No
No
No
Nil
Nil
Nil
Nil
Nil
Nil
1
2
3
4
5
Due to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Plan Rules on the following dates: 7 September
2007 (14,103 options), 30 June 2008 (20,513 options), 2 July 2008 (13,808 options) and 31 July 2009 (32,821 options).
Due to the cessation of employment of participants, all 18,361 options from this tranche lapsed pursuant to the Share Option Plan Rules on 31 December 2008.
Due to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Plan Rules on the following dates: 3 December
2007 (6,591 options), 2 April 2008 (18,136 options), 30 June 2008 (20,000 options), 2 July 2008 (33,656 options), 31 December 2008 (47,457 options) and
31 July 2009 (50,455 options).
Due to the cessation of employment of participants, 7,698 options from this tranche lapsed pursuant to the Share Option Plan Rules on 24 December 2008.
Due to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Plan Rules on the following dates: 24 December
2008 (19,871 options), 31 December 2008 (57,065 options) and 31 July 2009 (133,914 options).
46
Contact Energy Limited Annual Report 2009
Restricted Share Plan
Under the Restricted Share Plan, the Board issues restricted shares to the participants at the market price
determined at the effective grant date. Although the participant has beneficial title to the restricted shares,
under the terms of the Restricted Share Plan:
•
•
the restricted shares are issued to a trustee to be held on trust for the participant, and
the trustee will not exercise any voting rights attaching to the restricted shares and has forgone the right to
distributions.
Legal title cannot be transferred to the participant, and therefore traded by the participant, unless and until the
restricted shares become unrestricted.
For restricted shares issued in the year ended 30 June 2009, the market price or allocation price of the
restricted shares was the weighted average market price of Contact’s ordinary shares traded on the NZSX
over the 20 business days prior to the effective grant date. Payment of the allocation price for the restricted
shares was funded by an interest-free loan from the company in an amount equal to the allocation price for
the shares. Financial assistance disclosures were sent to shareholders in September 2009 and are available
on the company’s website.
If the performance hurdles are met, the restricted shares will be released from the trust to the participant following
the relevant test date. There is a vesting period of approximately three years from the effective grant date before
restricted shares that vest may be released from the restrictions and transferred to the participant. Following the
end of that period, the exercise hurdles are measured on three annual test dates. To the extent the hurdles are met
on each of these test dates, restricted shares must be released from the restrictions and transferred from the
trustee to the participant.
For restricted shares that a participant becomes entitled to, the company pays a taxable bonus, out of which
the participant must repay the loan. Upon repayment of the loan, the trustee transfers legal title to the restricted
shares to the participant.
The participants must transfer to the trustee their rights to any restricted shares that have not been released to
the participant by the final test date. The allocation price for those restricted shares transferred to the trustee will
be applied to the trustee to immediately repay the loan to the company.
The restricted shares may be released from the restrictions and transferred to the participants if, between the
grant date and a test date, a change of control of Contact occurs.
The rights to the restricted shares will lapse:
•
•
•
if the performance hurdles are not met by the final test date
on the date on which the participant ceases to be employed by the company (except in the case of
redundancy), or
on the death of the participant (provided, however, that the Board may, in its discretion, allow legal title to
the restricted shares to be transferred to the participant’s successors).
In the event of redundancy, the Restricted Share Plan will continue, except that the number of restricted shares
will be recalculated on a proportionate basis.
While restricted, the restricted shares are unlisted and are personal to the employee and therefore cannot be
traded nor used for security.
Contact Energy Limited Annual Report 2009
47
In May 2007, NZX Regulation granted approval under NZSX Listing Rule 8.1.4 for the issue of restricted shares
under the Restricted Share Plan with effective grant dates of 1 July 2006 and 20 November 2006. NZX Regulation
also granted an ongoing waiver from NZSX Listing Rule 8.1.3 for issues of reallocated shares under the Restricted
Share Plan (being those restricted shares that are not released to a participant at the final transfer date, but are
instead purchased by the trustee and then reallocated to a participant). The full version of the waiver and approval
can be found on the company’s website.
The number of restricted shares issued and their status as at the date of this report are set out in the table below.
Number of
restricted
shares
issued
Number
reallocated from
unallocated pool
(see following)
Effective
grant date
Allocation
price per
share
First test date
Final test date
Number
transferred to
unallocated pool
(see following)
Number
released
70,890
3,581
2,504
83,242
3,091
Nil
Nil
Nil
2,737
1,156
1 July 2006
$7.35
1 October 2009
1 October 2011
20 November 2006
$7.55
1 October 2009
1 October 2011
15 January 2007
$8.28
1 October 2009
1 October 2011
1 October 2007
$9.15
1 October 2010
1 October 2012
1 February 2008
$7.63
1 October 2010
1 October 2012
104,712
19,247
1 October 2008
$8.60
1 October 2011
1 October 2013
15,765
3,581
Nil
30,913
1,440
29,641
Nil
N/A
Nil
Nil
Nil
Nil
Pursuant to the Restricted Share Plan rules, where a participant ceases employment, beneficial ownership of
restricted shares is transferred to the trustee to hold on trust in an unallocated pool to be reallocated to a
participant at a future date. As at the date of this report, there were 58,200 restricted shares held by the trustee in
the unallocated pool. The following table sets out the movements of the unallocated pool to the date of this report.
Original issue date
21 June 2007
31 October 2007
25 February 2008
11 November 2008
Number of restricted
shares transferred to
unallocated pool
2,737
3,980
2,679
3,581
6,369
1,156
3,180
3,507
5,901
8,322
8,847
1,440
2,794
8,022
Date of transfer to
unallocated pool
7 September 2007
30 June 2008
2 July 2008
31 December 2008
31 July 2009
3 December 2007
2 April 2008
30 June 2008
2 July 2008
31 December 2008
31 July 2009
24 December 2008
24 December 2008
31 December 2008
18,825
31 July 2009
Number of shares
reallocated to a
participant
2,737
3,980
2,679
Nil
Nil
1,156
3,180
3,507
5,901
Nil
Nil
Nil
Nil
Nil
Nil
Date of reallocation to
participant
31 October 2007
11 November 2008
11 November 2008
N/A
N/A
25 February 2008
11 November 2008
11 November 2008
11 November 2008
N/A
N/A
N/A
N/A
N/A
N/A
48
Contact Energy Limited Annual Report 2009
Hurdles
Broadly, the number of unrestricted ordinary shares to which a participant is entitled under the Plans is
determined by achievement of a predetermined hurdle or hurdles. For the restricted shares and share options
issued in the year ended 30 June 2009, the hurdle is a comparison of Contact’s total shareholder return (TSR)
against the average TSR of a reference group comprising the NZX50 index over the relevant period, commencing on
the effective grant date.
For the restricted shares and share options issued in the year ended 30 June 2009, participants’ vesting
entitlements will be calculated on three test dates, being 1 October 2011, 1 October 2012 and 1 October 2013.
Contact’s TSR will be determined as follows:
(i) The volume weighted average market price of Contact ordinary shares for the three months prior to the
effective grant date is subtracted from the price of the shares as determined by measuring the volume
weighted average market price of the shares over the three-month period prior to the relevant test date.
(ii) Adjusting the calculation in (i) above to reflect the assumed reinvestment of distributions (excluding
imputation credits) over the period from the effective grant date to the relevant test date.
The participant’s vesting entitlements will be based on a predetermined formula relative to achievement of the
predetermined hurdle or hurdles. For the restricted shares and share options issued in the year ended 30 June
2009, these are:
(i) zero per cent vesting, if Contact’s TSR over the performance period does not exceed the 50th percentile of
the TSR of those companies that are in the NZX50 at both grant date and the relevant test date
(ii) 50–100 per cent vesting (on a sliding scale, i.e. the percentage of restricted shares released/share options
exercisable increases proportionately on a straight-line sliding scale from the 50th up to the 75th percentile),
if Contact’s TSR is between the 50th percentile and the 75th percentile TSR of those companies that are in the
NZX50 at both grant date and the relevant test date
(iii) 100 per cent vesting, if Contact’s TSR is at or above the 75th percentile TSR of those companies that
are in the NZX50 at both grant date and the relevant test date.
Contact Energy Limited Annual Report 2009
49
Number of employees
Parent
Subsidiaries
Employee remuneration
The following table shows the number of employees
and former employees of Contact who, in their capacity
as employees, received remuneration and other benefit
entitlements (including redundancy payments) during
the year ended 30 June 2009 of at least $100,000. As at
30 June 2009, no Contact subsidiary held any employees.
The remuneration figures analysed include all monetary
payments actually paid during the course of the year
ended 30 June 2009, including the short term variable
remuneration relating to the 30 June 2008 financial year.
The figures do not include amounts paid post 30 June 2009
that related to the period ended 30 June 2009.
The value of remuneration benefits analysed includes
both fixed, short term and long term variable/risk
components of remuneration, and redundancy and other
payments made on termination of employment. The value
of the equity-based incentives included in the remuneration
band analysis represents the portion of the grant date fair
value of the equity instruments allocated to the reporting
period ended 30 June 2009.
The remuneration (and any other benefits) of the Managing
Director, David Baldwin, is disclosed in the Managing
Director remuneration section on page 42.
Remuneration bands
$100,000–$110,000
$110,001–$120,000
$120,001–$130,000
$130,001–$140,000
$140,001–$150,000
$150,001–$160,000
$160,001–$170,000
$170,001–$180,000
$180,001–$190,000
$190,001–$200,000
$200,001–$210,000
$210,001–$220,000
$220,001–$230,000
$230,001–$240,000
$240,001–$250,000
$250,001–$260,000
$260,001–$270,000
$270,001–$280,000
$280,001–$290,000
$310,001–$320,000
$340,001–$350,000
$360,001–$370,000
$370,001–$380,000
$440,001–$450,000
$450,001–$460,000
$490,001–$500,000
$540,001–$550,000
$550,001–$560,000
$560,001–$570,000
$580,001–$590,000
$620,001–$630,000
$730,001–$740,000
Total
261
45
49
44
18
17
18
11
6
5
7
6
3
2
4
6
2
1
1
1
1
1
1
2
1
1
2
1
1
1
1
1
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50
Contact Energy Limited Annual Report 2009
Contact subsidiaries – directors and remuneration
Other than Paul Smith, who received the Australian dollar equivalent of $57,489 in the year ended 30 June 2009 in
his capacity as a consultant to Contact Australia Pty Limited and Contact Operations Australia Pty Limited, no other
director of any of Contact’s subsidiaries received additional remuneration or benefits in respect of their directorships.
The table below lists the directors of Contact subsidiary companies as at 30 June 2009.
Contact subsidiary
Contact Aria Limited
Contact Australia Pty Limited
Contact Operations Australia Pty Limited
Contact Wind Limited
Empower Limited1
Rockgas Limited2
Rockgas Holdings Limited2
Stratford Power Limited3
Directors
David Baldwin
Elizabeth Kelly
David Baldwin
Elizabeth Kelly
Paul Smith
David Baldwin
Elizabeth Kelly
Paul Smith
David Baldwin
Mark Trigg
Alistair Yates
David Baldwin
Jason Delamore
David Baldwin
Mark Trigg
David Baldwin
Mark Trigg
Elizabeth Kelly
Mark Trigg
1 Kim Josling was a director of Empower Limited until 13 March 2009, when she was replaced by David Baldwin.
2
John Cumming was a director of Rockgas Limited and Rockgas Holdings Limited until 22 December 2008.
3 Kim Josling was a director of Stratford Power Limited until 13 March 2009, when she was replaced by Elizabeth Kelly.
Effective from 31 July 2009, Mark Trigg resigned as a director of Contact Wind Limited, Rockgas Limited,
Rockgas Holdings Limited and Stratford Power Limited. Graham Cockroft was appointed as a director of
Contact Wind Limited on 31 July 2009.
Contact Energy Limited Annual Report 2009
51
Security holder information
The following information is provided in accordance with the Listing Rules of New Zealand Exchange Limited.
20 largest registered holders of Quoted Equity Securities as at 3 August 2009 (including holdings within
New Zealand Central Securities Depository Limited)
Origin Energy Pacific Holdings Limited
HSBC Nominees (New Zealand) Limited A/C State Street
National Nominees New Zealand Limited
New Zealand Superannuation Fund Nominees Limited
Accident Compensation Corporation
Citibank Nominees (New Zealand) Limited
Premier Nominees Limited – ING Wholesale Australasian Share Fund
Custodial Services Limited
NZGT Nominees Limited – AIF Equity Fund
Tea Custodians Limited
HSBC Nominees (New Zealand) Limited
FNZ Custodians Limited
Origin Energy Universal Holdings Limited
AMP Investments Strategic Equity Growth Fund
Asteron Life Limited
ANZ Nominees Limited
Investment Custodial Services Limited
Custody and Investment Nominees Limited
Masfen Securities Limited
Guardian Trust Investment Nominees (RWT) Limited
Total top 20 holders (excluding Treasury Stock)
Total other shares (excluding Treasury Stock)
Total issued shares1 (excluding Treasury Stock)
Total Treasury Stock (held by Contact Energy Limited)
Total issued shares1
1 Calculations exclude 268,020 restricted ordinary shares issued pursuant to Contact’s employee long term incentive scheme.
296,487,002
23,451,830
23,024,228
15,072,756
9,674,910
7,999,557
6,769,380
5,827,956
5,793,463
5,071,853
4,669,907
3,724,884
3,670,257
3,265,154
3,046,537
2,833,268
2,783,064
2,681,746
2,544,863
2,383,476
430,776,091
154,538,533
585,314,624
2,571,104
587,885,728
52
Contact Energy Limited Annual Report 2009
Distribution of Quoted Security Holders and security holdings as at 3 August 2009
Ordinary Shares
Size of holding
1 – 99 shares
100 – 199 shares
200 – 499 shares
500 – 999 shares
1,000 – 1,999 shares
2,000 – 4,999 shares
5,000 – 9,999 shares
10,000 – 49,999 shares
50,000 – 99,999 shares
100,000 – 499,999 shares
500,000 – 999,999 shares
1,000,000 shares and above
Total
Number of holders
% of holders
Number of shares1
% of shares
847
565
14,061
37,419
17,703
8,187
2,874
1,403
70
50
7
29
1.02
0.68
16.90
44.97
21.27
9.84
3.45
1.69
0.08
0.06
0.01
0.03
83,215
100.00
22,446
80,430
5,368,663
28,718,069
21,037,904
24,393,202
18,353,359
22,985,083
4,621,363
9,616,796
5,228,028
444,889,281
585,314,624
0.00
0.01
0.92
4.91
3.59
4.17
3.14
3.93
0.79
1.64
0.89
76.01
100.00
1 Calculations are based on the number of ordinary shares quoted and listed on the New Zealand Stock Market as at 3 August 2009 and exclude 2,571,104 ordinary
shares held as treasury stock and 268,020 restricted ordinary shares issued pursuant to Contact’s employee long term incentive scheme.
Bonds
Size of holding
5,000 – 10,000 bonds
10,001 – 25,000 bonds
25,001 – 50,000 bonds
50,001 – 100,000 bonds
100,001 – 500,000 bonds
500,001 – 1,000,000 bonds
1,000,001 bonds and above
Total
Number of holders
% of holders
Number of bonds
% of bonds
2,974
2,977
2,321
766
360
32
30
31.44
31.47
24.53
8.10
3.80
0.34
0.32
25,096,000
58,987,000
96,001,000
67,988,000
85,353,000
28,658,000
187,917,000
4.56
10.72
17.46
12.36
15.52
5.21
34.17
9,460
100.00
550,000,000
100.00
Contact Energy Limited Annual Report 2009
53
Substantial security holders
As at 1 August 2009, the following persons had notified the company in accordance with the Securities Markets
Act 1988 that they were currently substantial security holders in the company.
Substantial security holder
Origin Energy New Zealand Limited and its related bodies corporate (including
Origin Energy Limited and Origin Energy Vic Holdings Limited)
Nature of relevant
interest
Number of listed
voting securities
Class
Shareholder
300,956,306
Ordinary shares
The total number of shares of Contact as at 1 August 2009 was 588,153,748, consisting of 585,314,624 listed
ordinary shares, 2,571,104 ordinary shares held as treasury stock and 268,020 restricted ordinary shares issued
pursuant to the Contact Energy employee long term incentive scheme (the treasury stock and restricted ordinary
shares are not tradeable and are not listed or quoted on the NZSX). The ordinary shares and restricted ordinary
shares are voting securities, except the trustee holding the restricted ordinary shares on behalf of the participants
has waived all voting rights in relation to those shares. The shares held as treasury stock are not voting securities.
Accordingly, the total number of listed voting securities of Contact as at 1 August 2009 was 585,314,624.
Securities of the company in which each director has a relevant interest as at 30 June 2009
Director
G King
P Pryke
D Baldwin
B Beeren
J Milne
K Moses
S Sheldon
T Saunders
Number of
ordinary shares
Number of bonds
4,781
89,282
Nil
14,881
89,379
2,390
540
30,665
Nil
Nil
Nil
Nil
150,000
Nil
10,000
Nil
Number of
restricted
ordinary shares
N/A
N/A
Number of
options
N/A
N/A
88,342
525,547
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Directors’ statement
This Annual Report is dated 4 September 2009 and is signed on behalf of the Board by
G King
Chairman
P Pryke
Deputy Chairman
54
Contact Energy Limited Annual Report 2009
Contact Energy Limited Annual Report 2009
55
Financial Statements
for the year ended 30 June 2009
Income Statement
Statement of Changes in Equity
Balance Sheet
Statement of Cash Flows
Notes to the financial statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Statement of accounting policies
Underlying earnings after tax
Impairment of Gasbridge assets
New Plymouth power station
Sale of Mokai geothermal land and rights
Segment reporting
Operating expenses
Net interest expense
Income tax
Distributions and dividends
Earnings and net tangible assets per share
Share capital
Reserves
Share-based payments
Cash and cash equivalents
Receivables and prepayments
Inventories
Property, plant and equipment
Intangible assets
Gas storage – cushion gas
Investment in jointly controlled entity
Investment in subsidiaries
Investment in associates
Available-for-sale financial assets
Borrowings
Financial instruments
Payables and accruals
Provisions
Deferred tax
Commitments
Resource consents
Related party transactions
Key management personnel
Whirinaki generation plant
Contingent liabilities
Subsequent events
Audit report
56
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Income Statement for the year ended 30 June 2009
Operating revenue
Wholesale electricity revenue
Retail electricity revenue
Gas revenue
LPG revenue
Steam revenue
Other revenue
Operating expenses
Electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
LPG purchases
Labour costs
Other operating expenses
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
594,267
1,147,988
594,267
1,147,988
1,286,265
1,244,326
1,086,197
1,010,846
154,962
153,779
12,927
19,984
181,520
145,233
11,038
26,620
154,962
207,319
–
12,927
35,280
–
11,038
42,733
2,222,184
2,756,725
1,883,633
2,419,924
(544,234)
(954,923)
(477,501)
(792,581)
(479,122)
(486,843)
(412,519)
(407,903)
(399,533)
(412,430)
(400,804)
(439,152)
(112,078)
(105,207)
–
–
7
3, 7
(80,396)
(82,191)
(73,499)
(70,531)
(161,562)
(147,967)
(151,411)
(129,694)
(1,776,925)
(2,189,561)
(1,515,734)
(1,839,861)
Earnings before net interest expense, income tax, depreciation, amortisation,
financial instruments and other significant items (EBITDAF)
445,259
567,164
367,899
580,063
Depreciation and amortisation
Impairment of Gasbridge assets
Equity accounted earnings of associates
Change in fair value of financial instruments
Removal of New Plymouth asbestos and related costs
Gain on sale of Mokai geothermal land and rights
Earnings before net interest expense and income tax (EBIT)
Net interest expense
Profit before income tax
Income tax expense
Profit for the year
18, 19
(161,954)
(146,540)
(156,811)
(141,400)
3
23
26
4
5
8
9
(2,830)
3,624
(57,511)
–
–
–
2,793
(1,926)
(33,747)
21,319
–
–
(57,511)
–
–
–
–
(1,926)
(33,747)
21,319
(218,671)
(158,101)
(214,322)
(155,754)
226,588
(62,601)
409,063
(69,942)
153,577
(62,492)
424,309
(69,851)
163,987
339,121
91,085
354,458
(46,451)
(102,055)
(27,497)
(106,142)
117,536
237,066
63,588
248,316
Basic and diluted earnings per share (cents)
11
20.02
40.33
10.83
42.24
Supplementary disclosure
Underlying earnings after tax is presented to allow readers to make an assessment and comparison of underlying earnings after
removing significant one-off items and the non-cash change in fair value of financial instruments.
Underlying earnings after tax
Underlying earnings per share (cents)
2
11
160,624
232,798
108,991
243,980
27.35
39.60
18.56
41.50
The accompanying notes form an integral part of these financial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2009
57
Statement of Changes in Equity for the year ended 30 June 2009
Profit for the year
Change in foreign currency translation reserve
Change in asset revaluation reserve
Change in cash flow hedge reserve
Total recognised revenues and expenses for the year
Distributions and dividends
Share-based payments
Share capital issued
Change in business combination of commonly controlled entities
Changes in equity for the year
Equity at start of the year
Equity at end of the year
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
13
13
13
10
13
12
13
117,536
237,066
63,588
248,316
(86)
(2,307)
35,619
346
(2,335)
(74,572)
–
(2,307)
35,495
–
(2,335)
(75,008)
150,762
160,505
96,776
170,973
(161,722)
(161,458)
(161,722)
(161,458)
362
48,795
–
467
285
93
362
48,795
–
467
285
93
38,197
(108)
(15,789)
10,360
2,904,071
2,904,179
2,878,112
2,867,752
2,942,268
2,904,071
2,862,323
2,878,112
The accompanying notes form an integral part of these financial statements.
58
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Balance Sheet as at 30 June 2009
Shareholders’ equity
Represented by:
Current assets
Cash and short term deposits
Receivables and prepayments
Tax receivable
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Gas storage – cushion gas
Investment in subsidiaries
Investment in associates
Available-for-sale financial assets
Derivative financial instruments
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Borrowings
Current portion of term borrowings
Derivative financial instruments
Payables and accruals
Tax payable
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Deferred tax
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
12, 13
2,942,268
2,904,071
2,862,323
2,878,112
15
16
17
26
18
19
20
22
23
24
26
25
25
26
27
28
25
26
28
29
179,220
253,836
–
15,906
14,987
2,542
517,365
162
21,111
52,940
177,848
224,786
–
6,600
14,987
–
488,987
662
7,014
52,940
463,949
594,120
424,221
549,603
4,644,973
4,381,600
4,568,630
4,309,769
252,159
46,252
214,552
23,622
193,525
155,918
46,252
23,622
–
8,687
2,935
6,597
5,987
–
132,788
132,788
8,015
2,935
13,554
2,945
1,579
–
6,597
5,987
1,579
–
13,554
2,945
4,967,590
4,647,223
4,955,358
4,640,175
5,431,539
5,241,343
5,379,579
5,189,778
4,311
132,811
2,982
130,384
141,662
72,368
304,235
2,218
8,195
–
139,282
540,619
–
20,954
141,662
72,317
338,246
2,968
7,953
–
139,024
522,949
–
20,746
532,989
833,666
566,128
813,103
1,091,106
554,725
1,091,066
85,905
33,750
744,092
1,429
194,925
33,618
718,462
1,876
85,905
32,116
741,238
803
554,695
194,925
31,701
717,242
–
1,956,282
1,503,606
1,951,128
1,498,563
2,489,271
2,337,272
2,517,256
2,311,666
2,942,268
2,904,071
2,862,323
2,878,112
The Directors of Contact Energy Limited authorised these financial statements for issue.
On behalf of the Board
Grant King
Chairman, 13 August 2009
Phillip Pryke
Deputy Chairman, 13 August 2009
The accompanying notes form an integral part of these financial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2009
59
Statement of Cash Flows for the year ended 30 June 2009
Cash flows from operating activities
Cash provided from:
Receipts from customers
Dividends received
Cash applied to:
Payments to suppliers and employees
Supplementary dividends paid to shareholders
Tax paid
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
2,492,488
2,469,732
2,157,053
2,135,952
3,842
1,854
2,865
1,794
2,496,330
2,471,586
2,159,918
2,137,746
(2,035,904)
(1,938,986)
(1,712,259)
(1,619,853)
10
(10,776)
(25,000)
(16,790)
(81,900)
(10,776)
(25,000)
(16,790)
(81,900)
(2,071,680)
(2,037,676)
(1,748,035)
(1,718,543)
Net cash inflow from operating activities
424,650
433,910
411,883
419,203
Cash flows from investing activities
Cash provided from:
Proceeds from sale of Mokai geothermal land and rights
5
–
27,252
Interest received
Repayment of loan to investee
Loan from associate
Cash applied to:
Purchase of property, plant and equipment
Purchase of intangibles
New Plymouth asbestos removal and related costs
4
Purchase of gas storage rights
Purchase of cushion gas
Repayment of loan to associate
4,961
–
80
5,133
125
1,051
–
4,961
–
–
27,252
5,062
125
–
5,041
33,561
4,961
32,439
(385,715)
(216,222)
(372,982)
(198,771)
(25,750)
(17,280)
–
(41,271)
(1,317)
(1,357)
(11,147)
(28,457)
–
–
(25,750)
(17,280)
–
(41,271)
–
(1,357)
(11,147)
(28,457)
–
–
(471,333)
(257,183)
(457,283)
(239,732)
Net cash (outflow) to investing activities
(466,292)
(223,622)
(452,322)
(207,293)
Cash flows from financing activities
Cash provided from:
Proceeds from other short term loans
Proceeds from borrowings
Cash applied to:
Interest paid
Distributions and dividends paid to shareholders
Financing related costs
Profit distribution related costs
Repayment of borrowings
11,024
550,000
6,846
11,024
6,846
127,500
550,000
127,500
561,024
134,346
561,024
134,346
(79,019)
(75,057)
(78,909)
(75,036)
(112,582)
(161,458)
(112,582)
(161,458)
(11,151)
(432)
(150)
(11,151)
–
(432)
(150)
–
–
(277,778)
–
(277,778)
Repayment of other short term loans and finance lease liabilities
(139,443)
(7,349)
(139,438)
(7,338)
Net cash inflow/(outflow) from/to financing activities
218,397
(387,446)
218,512
(387,414)
Net increase/(decrease) in cash and cash equivalents
Add: cash and cash equivalents at start of the year
176,755
(177,158)
178,073
(175,504)
790
177,948
(2,184)
173,320
Cash and cash equivalents at end of the year
177,545
790
175,889
(2,184)
(342,627)
(521,792)
(342,512)
(521,760)
Cash and cash equivalents is comprised of:
Bank overdraft
Cash and short term deposits
(1,675)
179,220
(1,752)
2,542
(1,959)
177,848
(2,184)
–
15
177,545
790
175,889
(2,184)
The accompanying notes form an integral part of these financial statements.
60
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Statement of Cash Flows for the year ended 30 June 2009 (continued)
Reconciliation of profit for the year
to cash flows from operating activities
Profit for the year
Items classified as investing/financing
Removal of New Plymouth asbestos and related costs
Proceeds from sale of Mokai geothermal land and rights
Net interest expense
Non-cash items
Bad and doubtful accounts receivable
Movement in provisions
Share-based payments
Write-off of advance to subsidiary
Impairment of Gasbridge assets
Depreciation and amortisation
Equity accounted (earnings) of associates net of dividends received
Change in fair value of financial instruments
Increase in deferred tax
Impact of change in corporate income tax rate
Other
Movement in working capital
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
117,536
237,066
63,588
248,316
4
5
8
28
14
3, 7
3
18, 19
23
26
9, 29
9
–
–
62,601
62,601
11,531
165
868
–
2,830
161,954
(739)
57,511
8,849
–
(2,872)
33,747
(21,319)
69,942
–
–
62,492
33,747
(21,319)
69,851
82,370
62,492
82,279
5,954
917
933
–
–
9,431
165
868
5,145
–
4,584
917
933
–
–
146,540
156,811
141,400
(939)
1,926
5,126
(409)
(723)
–
57,511
8,590
–
(1,601)
–
1,926
3,767
(477)
200
240,097
159,325
236,920
153,250
Decrease/(increase) in receivables and prepayments
251,998
(288,044)
249,625
(283,734)
Increase in tax payable
Decrease in inventories
(Decrease)/increase in payables and accruals
(Increase) in other non-current assets
2,567
5,205
1,555
227
3,817
414
7,061
9,332
(252,312)
244,356
(201,931)
205,644
(3,042)
(2,945)
(3,042)
(2,945)
4,416
(44,851)
48,883
(64,642)
Net cash inflow from operating activities
424,650
433,910
411,883
419,203
The accompanying notes form an integral part of these financial statements.
Reconciliation of profit for the year
to cash flows from operating activities
Profit for the year
Items classified as investing/financing
Removal of New Plymouth asbestos and related costs
Proceeds from sale of Mokai geothermal land and rights
Net interest expense
Non-cash items
Bad and doubtful accounts receivable
Movement in provisions
Share-based payments
Write-off of advance to subsidiary
Impairment of Gasbridge assets
Depreciation and amortisation
Change in fair value of financial instruments
Increase in deferred tax
Impact of change in corporate income tax rate
Other
Movement in working capital
Increase in tax payable
Decrease in inventories
(Decrease)/increase in payables and accruals
(Increase) in other non-current assets
Equity accounted (earnings) of associates net of dividends received
30 June 2009
30 June 2008
30 June 2009
30 June 2008
Note
$000
$000
$000
Group
Parent
Parent
Group
$000
117,536
237,066
63,588
248,316
82,370
62,492
82,279
4
5
8
28
14
3, 7
3
18, 19
23
26
9, 29
9
–
–
62,601
62,601
11,531
165
868
–
2,830
161,954
(739)
57,511
8,849
–
(2,872)
33,747
(21,319)
69,942
5,954
917
933
–
–
(939)
1,926
5,126
(409)
(723)
–
–
–
–
–
62,492
9,431
165
868
5,145
57,511
8,590
(1,601)
33,747
(21,319)
69,851
4,584
917
933
–
–
–
1,926
3,767
(477)
200
146,540
156,811
141,400
240,097
159,325
236,920
153,250
2,567
5,205
1,555
227
3,817
414
7,061
9,332
(252,312)
244,356
(201,931)
205,644
(3,042)
(2,945)
(3,042)
(2,945)
4,416
(44,851)
48,883
(64,642)
Decrease/(increase) in receivables and prepayments
251,998
(288,044)
249,625
(283,734)
Net cash inflow from operating activities
424,650
433,910
411,883
419,203
Contact Energy Limited Annual Report 2009
61
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
1 Statement of accounting policies
Reporting entity
Contact Energy Limited (the Parent) is a profit-oriented company domiciled in New Zealand, registered under the Companies
Act 1993 and listed on the New Zealand Stock Exchange (NZSX). It also has bonds listed on the New Zealand Debt Exchange
(NZDX). The Parent is an issuer in terms of the Financial Reporting Act 1993. The Group financial statements of Contact Energy
Limited as at, and for the year ended, 30 June 2009 comprise the Parent and its subsidiaries, interests in associates and jointly
controlled entities (together referred to as Contact or the Group).
Contact is a diversified and integrated energy group, focusing on the wholesale generation of electricity and the retail sale of
electricity, natural gas and liquefied petroleum gas (LPG), and related services in New Zealand.
Basis of preparation
The functional and reporting currency used in the preparation of the financial statements is New Zealand dollars, rounded to the
nearest thousand ($000).
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZGAAP).
They comply with the New Zealand Equivalents to International Financial Reporting Standards (NZIFRS), and other applicable
Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International
Financial Reporting Standards (IFRS).
The financial statements were approved by the Board of Directors (the Board) on 13 August 2009.
The measurement basis adopted in the preparation of these financial statements is historical cost modified by the valuation of
certain assets and liabilities. The following assets and liabilities are stated at their fair value: derivative financial instruments
and property, plant and equipment, as identified in the specific accounting policies below. Recognised assets and liabilities that
are hedged in a fair value hedging relationship are stated at fair value in respect of the risk that is hedged.
The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
Presentational changes have been made to the Statement of Cash Flows to allow stakeholders to make an assessment of proceeds
from and repayments of borrowings and to identify the cash outflow for purchase of intangible assets. These changes, which have
been applied retrospectively, relate to:
•
•
•
reclassification of ‘proceeds from other short term loans’ from ‘proceeds from borrowings’,
reclassification of ‘repayment of other short term loans and finance lease liabilities’ from ‘repayment of borrowings’,
reclassification of ‘purchase of intangibles’ from ‘purchase of property, plant and equipment’.
Certain presentational changes have been made to the Balance Sheet, Income Statement and related notes to ensure consistency
with current year treatment. These changes, which have been applied retrospectively, are listed below:
•
•
•
presentation of derivative financial instruments – individual derivative financial assets and financial liabilities are offset
where there is a legally enforceable right to set-off the recognised amounts and there is the intention to settle simultaneously.
In addition the current and non-current split of derivative financial instruments has been amended to reflect the timing of the
underlying cash flows rather than the contractual maturity dates of the instruments,
certain deferred financing costs have been reclassified from ‘other non-current assets’ to ‘borrowings’,
reclassification of certain fee income from ‘other operating expenses’ to ‘other income’.
Adoption status of relevant new financial reporting standards and interpretations
Contact has chosen to early adopt the revised NZIAS 23 Borrowing Costs, NZIAS 27 Consolidated and Separate Financial Statements
(amended), NZIFRS 3 Business Combinations and Amendments to NZIAS 39 Financial Instruments: Recognition and Measurement –
Eligible Hedged Items.
Contact has elected not to early adopt the following standards, considered relevant to the financial statements, which have been
issued but are not yet effective:
•
•
NZIFRS 2 Share-Based Payment – revisions approved February 2008 and effective for annual reporting periods beginning on
or after 1 January 2009.
NZIFRS 8 Operating Segments – approved December 2006 and effective for annual reporting periods beginning on or after
1 January 2009.
62
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
•
•
•
•
NZIAS 1 Presentation of Financial Statements – revisions approved September 2007 and effective for annual reporting periods
beginning on or after 1 January 2009.
NZIAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate – amendment approved June 2008 and
effective for annual reporting periods beginning on or after 1 January 2009.
NZIFRS 7 Amendment: Financial Instruments Disclosures – amendment issued March 2009 and effective for annual reporting
periods beginning on or after 1 January 2009.
NZIAS 39 Amendment: Embedded Derivatives – amendment issued March 2009 and effective for annual reporting periods
beginning on or after 1 January 2009.
Contact does not currently intend to early adopt any of these standards before their effective date. The adoption of these
standards is not expected to have a material impact on the recognition and measurement of Contact’s assets, liabilities,
income and expenses.
Accounting estimates and judgements
Contact’s significant areas of estimation and critical judgements in these financial statements are as follows:
Financial instruments
Note 26 contains information about the assumptions and the risk factors relating to financial instruments and their valuation.
The base future settlement price path for electricity derivatives is derived from the energy hedge market price path overlaid
with Contact’s financial model for future electricity prices. Accounting judgements have been made in determining the hedge
designation for the different types of derivatives employed by Contact to hedge its risk exposures.
Generation plant and equipment
Contact’s generation plant and equipment (including land and buildings) and generation capital work in progress are stated
at fair value as assessed by an independent valuer. The basis of the valuation is the net present value of the future earnings
of the assets, excluding any reduction for costs associated with restoration and environmental rehabilitation. The major inputs
and assumptions used in the valuation model that require judgement include the forecast of the future electricity price path,
sales volume forecasts, projected operational and capital expenditure profiles, capacity and life assumptions for each generation
plant and the relevant discount rates. The key inputs and assumptions are reassessed at each balance sheet date between
valuations to ensure there has been no significant change that may impact on the valuation. Refer to note 18.
Intangible assets – gas storage rights
Management has exercised judgement in determining the useful life of the gas storage rights. The useful life has been based
on the current assumption of the period over which future economic benefits are expected. This life, however, is subject to the
assumption that the contractual agreement under which the rights were acquired continues in existence and that any petroleum
mining or other permit that may be required, can be successfully renewed. The useful life is reviewed annually. Refer to
note 19.
Intangible assets – goodwill
The carrying value of goodwill is subject to an annual impairment test to ensure the carrying value does not exceed the
recoverable amount at balance sheet date. For the purpose of impairment testing, goodwill is allocated to the individual
cash-generating units to which it relates. Any impairment losses are recognised in the Income Statement.
In determining the recoverable amount of goodwill, Contact uses a valuation model to calculate the net present value of the
expected future cash flows of the cash-generating units. The major inputs and assumptions that are used in the model that
require management judgement include sales forecasts, cost to serve, customer numbers and customer churn, interest rates,
discount rates and a forecast of the future electricity price path. Refer to note 19.
Provision – restoration and environmental rehabilitation
Liabilities are estimated for the abandonment and site restoration of areas from which natural resources are extracted. Such
estimates are valued at the net present value of the expenditures expected to settle the obligation. Key assumptions have been
made as to the expected amount and timing of expenditures to remediate based on the expected life of the assets employed on
the sites. Refer to note 28.
Retail revenue
Management has exercised judgement in determining estimated retail sales for unread gas and electricity meters at balance
sheet date. Specifically, this involves an estimate of consumption for each unread meter, based on the customer’s past
consumption history.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
63
Useful life of property, plant and equipment and finite life intangible assets
Management has exercised judgement in determining the useful life of the property, plant and equipment and finite life intangible
assets. Useful lives are reviewed and, where appropriate, adjusted at each balance sheet date.
Basis of consolidation
Subsidiaries
Subsidiaries are those entities controlled, directly or indirectly, by the Parent. The purchase method of accounting is used to
account for the acquisition of subsidiaries by the Parent. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent
of any minority interest. The excess of the cost of an acquisition over the fair value of the Parent’s share of the identifiable net
assets acquired is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the Income Statement.
Business combinations of commonly controlled entities
Business combinations involving entities or businesses under common control are those in which all of the combining entities
or businesses are ultimately controlled by the same party or parties both before and after the business combination.
Assets and liabilities assumed in business combinations of commonly controlled entities are measured initially at acquisition
date at the book value of the acquired entities. Any difference between the cost of acquisition and the book values of the assets
and liabilities acquired is recorded directly in equity against retained earnings.
Associates
Associates are entities in which Contact has significant influence, but not control, over the operating and/or financial policies.
Associates are reflected in the Group financial statements by applying the equity accounting method. The equity accounting
method recognises Contact’s share of the current period retained surpluses or deficits in the Group Income Statement and its
share of post acquisition increases or decreases in net assets in the Group Balance Sheet.
Jointly controlled assets and jointly controlled entities
Jointly controlled assets and jointly controlled entities are joint arrangements with other parties in which Contact jointly
controls or owns one or more asset or entity and is consequently entitled to a share of the future economic benefits through its
share of the jointly controlled asset or entity. Contact’s share of the assets, liabilities, outputs (revenues) and expenses of jointly
controlled assets or entities is incorporated into the Group financial statements on a proportionate line-by-line basis.
Acquisition or disposal during the period
Where an entity becomes or ceases to be part of the Group during the period, the results of that entity are included in the Group
results from the date of acquisition or up to the date of disposal.
Transactions and balances eliminated on consolidation
The effects of intra-group transactions and balances are eliminated in preparing the Group financial statements.
Borrowings
Borrowings are recognised initially at fair value less attributed transaction costs and are subsequently stated at amortised cost.
Borrowings designated in a hedge relationship are carried at fair value and are subject to measurement under hedge accounting
requirements. Refer to the accounting policy for derivative financial instruments and hedging.
Discounts, premiums, prepaid interest and financing costs such as origination, commitment and transaction fees are amortised to
interest expense on a yield-to-maturity basis over the period of the borrowing. Any difference between the cost and redemption
value is recognised in the Income Statement over the period of the borrowings on an effective interest basis.
All borrowing costs are recognised in the Income Statement using the effective interest method with the exception of borrowing
costs directly associated with the acquisition or construction of qualifying assets, which are capitalised. Refer to the accounting
policies on property, plant and equipment and intangible assets.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held on call with banks and other short term highly liquid investments
with original maturities of three months or less, net of outstanding bank overdrafts.
Cash and short term deposits exclude bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities on the Balance Sheet.
64
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Derivative financial instruments and hedging
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and
are periodically re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether
the derivative financial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged.
Contact designates certain derivative financial instruments as either:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge), or
• hedges of highly probable forecast transactions (cash flow hedge), or
• hedges of net investments in foreign operations (net investment hedge).
Fair value hedge
Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recorded
in the Income Statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk.
Cash flow hedge
The effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash
flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the
Income Statement.
Amounts accumulated in equity are recycled to the Income Statement in the year when the hedged item will affect the Income
Statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example,
inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial
measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge
relationship such that the derivative financial instrument no longer qualifies for hedge accounting, but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance
with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative
unrealised gain or loss recognised in equity is recognised immediately in the Income Statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in equity, and the gain or loss relating to the ineffective
portion is recognised immediately in the Income Statement. Gains and losses accumulated in equity are included in the Income
Statement when the foreign operation is disposed of.
Derivative financial instruments that do not qualify for hedge accounting
Certain derivative financial instruments do not qualify for hedge accounting. Changes in the fair value of any derivative financial
instruments that do not qualify for hedge accounting are recognised immediately in the Income Statement.
Employee benefits
Annual, long service and retirement leave benefits estimated to be payable to employees are accounted for on the basis of
statutory and contractual requirements.
Long term service benefits
Contact’s net obligation in respect of long term service benefits, other than pension plans, is the amount of future benefit
that employees have earned in return for their service in the current and prior periods. The obligation is calculated using an
actuarial technique.
Share-based payments
Share-based payments are provided to executives via a Share Option Plan and a Restricted Share Plan.
The fair value of the employee services received in exchange for the grant of the options and restricted shares is recognised as
an expense, with a corresponding increase in equity, over the vesting period during which the employees become unconditionally
entitled to the options and restricted shares.
The fair value is measured at grant date by reference to the fair value of the equity instruments granted, taking into account
market performance conditions only. Non-market vesting conditions are included in the assumptions determining the number
of options and restricted shares that are expected to become exercisable or vest.
At each balance sheet date, Contact revises the amount to be recognised as an expense to reflect the number of options and
restricted shares that are expected to become exercisable or vest.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
65
Exploration and evaluation expenditure
Exploration and evaluation expenditure is accounted for in accordance with the area of interest method. The application of
this method is based on the partial capitalisation model closely aligned to the successful efforts approach.
All exploration and evaluation costs, including directly attributable overheads, general permit activity, geological and
geophysical costs are expensed as incurred except the cost of drilling exploration wells and the cost of acquiring new interests.
The costs of drilling exploration wells are initially capitalised as development capital work in progress pending the determination
of the success of the area. Costs are expensed where the area of interest does not result in a successful discovery.
Exploration and evaluation expenditure is partially or fully capitalised where either:
•
•
the expenditure is expected to be recouped through successful development and exploration of the area of interest
(or alternatively, by its sale), or
the exploration and evaluation activities in the area of interest have not, at the balance sheet date, reached a stage
that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active
and significant operations in, or in relation to, the area of interest are continuing.
Capitalised costs are reviewed at each balance sheet date to determine whether economic quantities of reserves have been
found or whether further exploration and evaluation work is underway or planned to support the continued carry forward of
the capitalised costs. Exploration and evaluation expenditure is impaired in the Income Statement under the successful efforts
method of accounting in the period that exploration work demonstrates that an area of interest is no longer prospective for
economically recoverable reserves or when the decision to abandon an area of interest is made.
Foreign currencies
Foreign currency transactions are recorded at the exchange rates in effect at the date of the transaction. Monetary assets and
monetary liabilities denominated in a foreign currency are translated at the rates of exchange ruling at balance sheet date.
Non-monetary assets and non-monetary liabilities denominated in a foreign currency that are measured at fair value are
translated to the functional currency at the exchange rate at the date that the fair value was determined.
Hedged assets and liabilities are translated at the spot rate with the underlying hedge contract being separately recorded on
the Balance Sheet at fair value.
Group entities
The results and financial position of all Group entities (none of which have a currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
•
•
•
income and expenses are translated at average exchange rates,
assets and liabilities are translated at the closing exchange rate at the date of that Balance Sheet,
all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings
and other foreign currency instruments designated as hedges of such investments, are taken to the foreign currency translation
reserve account. When a foreign operation is sold, such exchange differences are recognised in the Income Statement as part of
the gain or loss on sale.
Gas entitlements
Where Contact has take-or-pay gas sale contracts, such receipts are recorded as current or non-current liabilities respectively,
depending on the contracted terms applicable to such tranche quantities. These liabilities are credited to the Income Statement
as customers uplift their prepaid gas.
Where Contact has take-or-pay gas purchase contracts, such payments are expensed to the Income Statement in the month the
payment obligation crystallises, or as Contact uplifts the gas, depending on the contracted terms.
Gas storage – cushion gas
Cushion gas is necessary to develop and maintain operation of a gas storage facility and represents a long term investment in
natural gas reserves. Cushion gas is recognised at cost and not depreciated on the basis that it is economically recoverable at
the end of the life of the gas storage facility. The carrying amount is reviewed at each balance sheet date to determine whether
there is any objective evidence of impairment. Refer to the impairment accounting policy. Gas reserves in excess of that required
for cushion gas are treated as inventory.
66
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Generation and other research and development expenditure
Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and
understanding is recognised in the Income Statement as an expense as incurred.
Expenditure on generation and other development activities is capitalised if the process is technically and commercially
feasible, future economic benefits are probable and Contact intends to and has sufficient resources to complete development
and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and an appropriate
proportion of directly attributable overheads and capitalised interest.
Capital work in progress is reviewed at each balance sheet date to determine whether further work is planned to support the
continued carrying value of the capitalised costs.
Upon the commencement of commercial operations, assets are transferred from capital work in progress and depreciated in
accordance with the relevant accounting policy for each asset over the period of its expected economic benefit.
Goods and services tax (GST)
The Income Statement and Statement of Cash Flows have been prepared so that all components are stated exclusive of GST.
All items in the Balance Sheet are stated net of GST, with the exception of receivables and payables, which include GST.
Impairment
The carrying amounts of Contact’s assets, other than inventories and deferred tax assets, are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such indication exists, the asset’s net recoverable
amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the Income Statement unless the asset is recorded at a
revalued amount. Impairment losses on revalued assets are first taken to the asset revaluation reserve if there is a revaluation
surplus in respect of that asset.
The recoverable amount of receivables is calculated as the present value of expected future cash flows.
For retail receivables that are not significant on an individual basis, collective impairment is assessed on a portfolio basis,
based on historic delinquency rates and historical losses.
The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use,
the estimated future cash flows are discounted to their net present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely
independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Insurance
Contact has property, plant and equipment, which is predominantly concentrated at power station locations that have the
potential to sustain major physical losses through damage to plant with resultant consequential business interruption and
other costs.
To minimise the financial impact of such exposures, the major portion of these risks are insured by taking out appropriate
insurance policies with appropriate creditworthy counterparties.
Any uninsured loss is charged to the Income Statement in the year in which the loss is incurred.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of Contact’s share of the net identifiable assets
of the acquired subsidiary/associate at the date of acquisition. Goodwill on the acquisition of subsidiaries is included in
intangible assets. Goodwill on the acquisition of associates is included in investments in associates. Goodwill is tested annually
for impairment and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold.
For the purpose of impairment testing, goodwill is allocated to the individual cash-generating unit to which it relates.
Each cash-generating unit represents Contact’s lowest level of assets generating revenue independent of each other.
Other intangible assets
Other intangible assets with finite lives are stated at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is charged to the Income Statement on a straight-line basis over the estimated useful lives of intangible assets from
the date they are available for use. In the case of the gas storage rights, this will be when the gas storage facility is operational.
Contact Energy Limited Annual Report 2009
67
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
The amortisation rates are as follows:
Type of asset
Computer software
Gas storage rights
Patents
Amortisation rate
10–33%
4%
10%
Asset residual values and useful lives are reviewed annually and adjusted if appropriate.
Borrowing costs incurred on the construction or acquisition of a qualifying asset project are capitalised during the period of
time that is required to complete and prepare the intangible asset for its intended use. The amount of borrowing costs capitalised
is determined using either the actual borrowing costs incurred, where qualifying assets have been specifically project funded,
less any investment income from the temporary investment of those borrowings, or a capitalisation rate representing Contact’s
weighted average borrowing cost applicable to the general borrowings (excluding any specific borrowings) that were outstanding
during the period. Costs cease to be capitalised as soon as the intangible asset is ready for use or production is temporarily
suspended, and do not include any inefficiency costs.
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of materials, consumable supplies and maintenance
spares is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses. Gas reserves in excess of that required for cushion gas are treated as
inventory. Refer to the gas storage – cushion gas accounting policy.
Investments – financial instruments
Contact classifies its investments in the following categories:
•
•
•
financial assets at fair value through the Income Statement,
held-to-maturity financial assets, or
available-for-sale financial assets.
The classification depends on the purpose for which the investments were acquired. Management determines the classification
of its investments at initial recognition and re-evaluates this designation at each balance sheet date.
Purchases and sales of financial assets are recognised on the trade date.
When financial assets are initially recognised, they are measured at fair value plus, in the case of financial assets not at fair value
through the Income Statement, directly attributable transaction costs.
Financial assets at fair value through the Income Statement
A financial asset is classified as a financial asset at fair value through the Income Statement if it is acquired principally for the
purpose of selling in the short term or if so designated by management. Derivatives are also categorised as fair value through the
Income Statement unless they are designated as hedges. Assets in this category are classified as current assets if they are either
held for trading or are expected to be realised within 12 months of the balance sheet date.
Subsequent to initial recognition, financial assets at fair value through the Income Statement are measured at fair value, with
changes in fair value recognised immediately in the Income Statement.
Held-to-maturity financial assets
Held-to-maturity financial assets are stated at amortised cost less impairment losses.
Available-for-sale financial assets
Investments in unlisted shares are classified as being available-for-sale and are stated at fair value, with any resultant gain
or loss being recognised directly in equity, except for impairment losses and foreign exchange gains and losses, which are
recognised in the Income Statement. If the fair value of an unlisted equity instrument cannot be reliably determined, the
investment is held at cost. When these investments are derecognised, the cumulative gain or loss previously recognised
directly in equity is recognised in the Income Statement.
Operating leases
Contact leases certain plant, equipment, land and buildings. Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating leases.
Operating lease payments are representative of the pattern of benefits derived from the leased assets and, accordingly,
are charged to the Income Statement on a straight-line basis.
68
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Other revenue
Dividend income
Dividend income is recognised in the Income Statement on the date that the dividend is declared.
Interest income
Interest income is recognised in the Income Statement as it accrues using the effective interest rate method.
Payables
Payables are stated at cost.
Property, plant and equipment
Contact’s generation plant and equipment and generation capital work in progress are stated at fair value less accumulated
depreciation and accumulated impairment losses. All other property, plant and equipment are carried at historical cost less
accumulated depreciation and accumulated impairment losses.
The cost of purchased property, plant and equipment, including strategic spares, is the value of the consideration given to
acquire the assets and the value of other directly attributable costs that have been incurred in bringing the assets to the location
and condition necessary for their intended service.
The cost of assets constructed by Contact, including capital work in progress, includes the cost of all materials used in
construction, direct labour specifically associated with construction, resource management consent costs and an appropriate
proportion of directly attributable variable and fixed overheads. Borrowing costs incurred on the construction of a qualifying
asset project are capitalised during the period of time that is required to complete and prepare the asset for its intended use.
The amount of borrowing costs capitalised is determined using either the actual borrowing costs incurred, where qualifying
assets have been specifically project funded, less any investment income from the temporary investment of those borrowings,
or a capitalisation rate representing Contact’s weighted average borrowing cost applicable to the general borrowings (excluding
any specific borrowings) that were outstanding during the period. Costs cease to be capitalised as soon as the asset is ready for
productive use, or the development is suspended, and do not include any inefficiency costs.
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted
for as separate items of property, plant and equipment.
Subsequent expenditure is capitalised where it is incurred to replace a component of an item of property, plant and equipment
that is accounted for separately, including major inspection and overhaul expenditure. Other subsequent expenditure is
capitalised only when it is probable the future economic benefits embodied in the item of property, plant and equipment
will flow to the entity and can be reliably measured. All other expenditure is recognised in the Income Statement as an expense
as incurred.
Revaluations
Contact’s generation plant and equipment (including land and buildings) and capital work in progress are stated at fair value
as determined every three years by an independent valuer, with interim revaluations where there is deemed to be a significant
change to the valuation of these assets. The basis of the valuation is the net present value of the future earnings of the assets,
excluding any reduction for costs associated with restoration and environmental rehabilitation.
Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount and the net carrying
amount is restated to the revalued amount of the asset. Any increase in value is recognised directly in equity. Any decrease
in value that offsets a previous increase in value of the same asset is charged against reserves in equity and any other decrease
in value is charged to the Income Statement.
Leased assets
Leases in which Contact assumes substantially all the risks and rewards of ownership are classified as finance leases. Any asset
acquired by the way of a finance lease is stated at an amount equal to the lower of its fair value or net present value of the future
minimum lease payments at inception of the lease.
Depreciation
Depreciation is charged to the Income Statement on a straight-line basis so as to allocate the cost of the assets, or the revalued
amounts, less estimated residual value, over their expected remaining useful lives. The range of annual depreciation rates for
each class of asset is as follows:
Type of asset
Land
Generation plant and equipment (including buildings)
Other buildings
Other plant and equipment
Depreciation rate
Not depreciated
1–33%
1–18%
1–33%
Asset residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
69
Receivables
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less impairment loss. An impairment loss is recognised when there is objective evidence that Contact will not be able
to collect amounts due according to the original terms of the receivable. The amount of the impairment loss is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest
rate. The amount of the impairment loss is recognised in the Income Statement.
Restoration and environmental rehabilitation
Liabilities are estimated for the abandonment and site restoration of areas from which natural resources are extracted. Such
estimates are valued at the present value of the expenditures expected to be required to settle the obligation. The cost primarily
represents geothermal field restorations.
Estimations are also made for the expected cost of environmental rehabilitation of commercial sites that require reinstatement
of conditions resulting from present obligations. The liability is immediately recognised when exposure is identified and
rehabilitation costs can be reasonably estimated.
Revenue
Revenue comprises the amounts received and receivable at balance sheet date for electricity, gas, LPG, steam and related
services supplied to customers in the ordinary course of business, including estimated amounts for unread meters. Sales revenue
is recognised in accordance with contractual arrangements, where applicable, and only once the significant risks and rewards
of ownership of the goods passes from Contact to the customer or when services have been rendered to the customer and
collection is reasonably assured.
Other revenue from meter leases is recognised in the Income Statement on a straight-line basis over the term of the lease.
Share capital
Ordinary and restricted shares are classified as share capital. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Where the Parent purchases its own equity share capital (treasury stock), the consideration paid, including any directly
attributable incremental costs, is deducted from equity attributable to equity holders until the shares are cancelled or re-issued.
Where such shares are subsequently re-issued, any consideration received, net of any directly attributable incremental
transaction costs are included in equity.
Statement of Cash Flows
The following are the definitions used in the Statement of Cash Flows:
•
cash and cash equivalents includes cash on hand, deposits held on call with banks and other short term highly liquid
investments with original maturities of three months or less, net of outstanding bank overdrafts,
• operating activities include all transactions and other events that are not investing or financing activities,
•
•
investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment,
intangible assets and investments,
financing activities are those activities that result in changes in the size and composition of the capital structure of Contact.
This includes both equity and debt not falling within the definition of cash. Dividends and interest paid in relation to the
capital structure are included in financing activities.
Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:
•
cash receipts and payments on behalf of customers where the cash flows reflect the activities of the customer rather than
those of Contact, or
•
cash receipts and payments for financing activities where the maturities are short.
Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Income
Statement except to the extent that it relates to items recognised directly in equity, in which case the income tax is recognised
in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted
at the balance sheet date, together with any adjustment to tax payable in respect of previous years.
70
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they
will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Changes in accounting policies
There have been no changes in accounting policies in the year other than the addition of a policy on share capital.
2 Underlying earnings after tax
Underlying earnings after tax for the year is presented to allow stakeholders to make an assessment and comparison of
underlying earnings after removing significant one-off items and the non-cash change in fair value of financial instruments.
Profit for the year
117,536
237,066
63,588
248,316
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
Change in fair value of financial instruments
Removal of New Plymouth asbestos and related costs
Impairment of Gasbridge assets
Write-off of advance to subsidiaries*
Gain on sale of Mokai geothermal land and rights
Gain on disposal of fuel oil reserves**
Adjustments before income tax
Income tax expense***
Adjustments after income tax
Underlying earnings after tax
26
4
3
3
5
4
57,511
–
2,830
–
–
–
1,926
33,747
–
–
(21,319)
(9,613)
57,511
–
–
5,145
–
–
60,341
4,741
62,656
(17,253)
(9,009)
(17,253)
43,088
(4,268)
45,403
1,926
33,747
–
–
(21,319)
(9,613)
4,741
(9,077)
(4,336)
160,624
232,798
108,991
243,980
* Write-off of advance to subsidiaries is included in other operating expenses, a component of EBITDAF.
** Gain on disposal of fuel oil reserves is included in other revenue, a component of EBITDAF.
*** Tax has been applied at 30 per cent (2008: 33 per cent) on relevant items.
3 Impairment of Gasbridge assets
During the year Contact and Genesis Power Limited decided to put on hold development of the land based liquefied natural gas
(LNG) terminal. As a result of this decision, Contact has written off its share of the assets of the Gasbridge Joint Venture relating
to the previously planned onshore LNG storage and land based regasification facility. An impairment loss of $2.8 million has
been taken to the Income Statement relating to this write-off.
As a result of this decision, the Parent has written off an amount of $5.1 million receivable from its subsidiary Contact Aria
Limited in relation to its investment in the Gasbridge Joint Venture.
Contact Energy Limited Annual Report 2009
71
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
4 New Plymouth power station
In December 2007, Contact announced the decommissioning of its 31-year-old New Plymouth power station following the
discovery of asbestos in areas of the station where it was not previously recorded on the station’s asbestos register. In May 2008,
Contact announced the temporary recommissioning of one 100 megawatt gas-fired generator unit in response to tight electricity
supply conditions over the winter period. In January 2009, this unit was decommissioned.
The financial impact of the decision to decommission the plant was recorded in the year ended 30 June 2008 and was an expense
of $33.7 million. This expense principally represented an estimate of the cost to remove asbestos at the plant and other related
costs, including a $1.5 million write-down in inventory. These costs were not impacted by the partial recommissioning and
remain consistent with the estimated cost as at 30 June 2009. No impairment of the New Plymouth asset has been recorded on
the basis that the recoverable amount of the asset, based on an assessed fair value less cost to sell, exceeds the carrying amount.
Following the decommissioning, the New Plymouth asset has been transferred from generation plant and equipment to other land
and buildings at 30 June 2009. Refer to note 18.
Contact held reserves of fuel oil at New Plymouth. These reserves were sold for $20.3 million, and a gain on disposal of
$9.6 million was recorded in other revenue during the year ended 30 June 2008.
Contact has entered into derivative arrangements in the wholesale electricity market that are expected to provide a broadly
equivalent degree of flexibility to that provided by the operation of the New Plymouth power station. These are accounted for
as cash flow hedges.
5 Sale of Mokai geothermal land and rights
In November 2007, Contact sold geothermal land and rights relating to the Mokai geothermal field, north of Taupo, to Mighty
River Power and the Tuaropaki Trust. Contact received $27.2 million for the sale of the Mokai land and rights, giving rise to a
non-taxable gain of $21.3 million.
6 Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and
returns that are different from those of other business segments. A geographical segment is engaged in providing products or
services in a particular economic environment, where the risks and returns are different from those of segments operating in
other economic environments.
Contact’s primary reporting format is business segments. All business segments are fully integrated within New Zealand.
Contact comprises the following main business segments:
Retail
The retail segment encompasses any activity that is associated with Contact’s supply of energy and related services to end
user customers.
Generation
The generation segment encompasses any activity that is associated with Contact’s generation of electricity or steam and
Contact’s sales to the wholesale electricity market. It includes all activities in relation to the gas storage facility at the Ahuroa
reservoir, including the cushion gas required to enable the field to be used for storage.
The segment result includes items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Items not directly attributable to, or those that cannot be allocated on a reasonable basis to, the retail or generation segments
are included in the other segment.
Wholesale electricity purchase costs for the retail segment are based on spot prices prevailing in the New Zealand wholesale
electricity market at the relevant time and at the relevant grid exit purchase node. Similarly, the revenues received by the
generation segment are determined by the spot prices received at the relevant grid injection points.
The cost of gas purchases across the portfolio is allocated between these segments in proportion to consumption.
Gas transmission and distribution charges are allocated to the segments within which they are incurred.
72
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Group
2009
Segment revenue
EBITDAF
Depreciation and amortisation of segment assets
Segment result
Change in fair value of financial instruments
Equity accounted earnings of associates
Impairment of Gasbridge assets
Net interest expense
Income tax expense
Profit for the year
Segment assets
Segment liabilities
Capital and investment expenditure
Group
2008
Segment revenue
EBITDAF
Depreciation and amortisation of segment assets
Segment result
Change in fair value of financial instruments
Equity accounted earnings of associates
Removal of New Plymouth asbestos and related costs
Gain on sale of Mokai geothermal land and rights
Net interest expense
Income tax expense
Profit for the year
Segment assets
Segment liabilities
Capital and investment expenditure
Retail
$000
Generation
$000
Other
$000
Total
$000
1,610,926
611,258
–
2,222,184
236,857
208,402
(19,768)
(142,186)
217,089
66,216
–
–
–
445,259
(161,954)
283,305
(57,511)
3,624
(2,830)
(62,601)
(46,451)
117,536
515,649
148,806
43,451
4,713,575
202,315
5,431,539
195,117
445,384
2,145,348
2,489,271
–
488,835
Retail
$000
Generation
$000
Other
$000
Total
$000
1,582,975
1,173,750
–
2,756,725
(278,254)
845,418
(20,264)
(126,276)
(298,518)
719,142
–
–
–
567,164
(146,540)
420,624
(1,926)
2,793
(33,747)
21,319
(69,942)
(102,055)
237,066
485,523
375,996
4,689,120
66,700
5,241,343
221,276
1,740,000
2,337,272
27,609
254,343
–
281,952
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
7 Operating expenses
Other operating expenses include:
Auditors’ remuneration
– Audit services: KPMG*
– Other assurance services: KPMG*
Auditors’ remuneration: KPMG
Donations
Write-off of advance to subsidiaries**
Write-off of accounts receivable
Provision for impairment of accounts receivable
Rental expense on operating leases
Labour costs include:
Contributions to KiwiSaver
Contact Energy Limited Annual Report 2009
73
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
691
35
726
94
–
7,568
2,431
5,969
683
–
683
56
–
3,985
304
5,506
649
35
684
94
5,145
5,969
1,945
4,358
612
–
612
56
–
3,005
280
3,903
1,475
238
1,475
238
*
In addition, KPMG charged $186,000 for additional audit services and $28,000 for other assurance services in relation
to the debt prospectus for the retail bond issue. These amounts have been included in the transaction costs of the retail
bond issue.
** During the year, Contact wrote off an advance to a subsidiary in relation to its investment in the Gasbridge Joint Venture,
following the decision to put on hold the development of the liquefied natural gas terminal. Refer to note 3.
8 Net interest expense
Interest expense
Interest expense capitalised
Interest income
Net interest expense
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
89,860
(21,473)
(5,786)
76,687
(1,617)
(5,128)
89,685
(21,473)
(5,720)
76,525
(1,617)
(5,057)
62,601
69,942
62,492
69,851
Contact commenced capitalising interest from 1 July 2007. The weighted average capitalisation rate on funds borrowed is
7.1 per cent per annum (2008: 8.0 per cent).
74
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
9 Income tax
Income tax expense
Profit before income tax
Tax thereon at 30% (2008: 33%)
Plus/(less) tax effect of adjustments:
Effect of different tax rates of associate operating in other jurisdiction
Gain on sale of Mokai geothermal land and rights
Temporary differences no longer expected to reverse
Other differences
Change in corporate income tax rate
Income tax (over)/under provided in prior year
Income tax expense
Comprised of:
Current tax
Deferred tax
Imputation credits
Opening balance credit
Imputation credits attached to dividends paid
Imputation credits attached to dividends received
New Zealand income tax paid
Closing balance credit
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
163,987
339,121
49,196
111,910
91,085
27,326
354,458
116,971
–
–
21
456
–
(83)
(7,035)
47
414
(409)
(3,222)
(2,789)
–
–
–
1,055
–
(884)
–
(7,035)
–
(535)
(477)
(2,782)
46,451
102,055
27,497
106,142
37,602
8,849
92,673
9,382
18,907
8,590
98,934
7,208
46,451
102,055
27,497
106,142
Group
30 June 2009
$000
Group
30 June 2008
$000
206,535
(44,675)
1,172
23,187
190,269
(62,734)
–
79,000
186,219
206,535
The imputation credits are available to shareholders of the Parent through the consolidated imputation group.
The imputation credit account balance representing tax paid at 30 per cent amounts to $23.2 million. The remaining
imputation credit account balance of $163.0 million represents tax paid at 33 per cent.
Opening balance credit
Imputation credits attached to dividends paid
Imputation credits attached to dividends received
New Zealand income tax paid
Closing balance credit
30 June 2009
30 June 2008
Group
$000
206,535
(44,675)
1,172
23,187
Group
$000
190,269
(62,734)
–
79,000
186,219
206,535
Contact Energy Limited Annual Report 2009
75
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
10 Distributions and dividends
The Parent declared the following distributions and dividends during the year:
Distribution/dividend
payment date
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Parent
30 June 2009
cents per share
Parent
30 June 2008
cents per share
Dividends
2007 year final dividend
25 September 2007
2008 year interim dividend
26 March 2008
2008 year final dividend
Supplementary dividend
Foreign investor tax credit
Distributions
23 September 2008
2009 year interim distribution (PDP)
31 March 2009
Supplementary dividend
Foreign investor tax credit
–
–
98,028
10,197
(10,197)
63,694
579
(579)
98,028
63,430
–
16,790
(16,790)
–
–
–
–
–
17
–
–
11
–
–
17
11
–
–
–
–
–
–
Total distributions and dividends
161,722
161,458
On 23 February 2009 the Board approved the introduction of a Profit Distribution Plan (PDP).
Under the PDP, all shareholders receive distributions in the form of non-taxable bonus shares with the option to have the shares,
or a portion of them, bought back by the Parent for cash. Shareholders who elect to have their bonus shares bought back by the
Parent at equivalent cost under the off-market buy back facility, are treated as having received a fully imputed cash dividend.
On 31 March 2009, the Parent allotted 11,251,746 bonus shares under the PDP, at an issue price of $5.6608609 per share.
This bonus issue represented a distribution equivalent to 11 cents per share, for shares on issue at 10 March 2009, the record
date. Under the buy back facility the Parent completed an off-market buy back of 2,571,104 shares on 31 March 2009. These are
held as treasury stock at 30 June 2009. Refer to note 12.
On 13 August 2009, the Board declared a distribution in the form of a non-taxable bonus issue under the PDP equivalent to
17 cents per share, for shares on issue at 28 August 2009, the record date. Refer to note 36.
11 Earnings and net tangible assets per share
Underlying earnings per share (cents)
Basic earnings per share (cents)
Diluted earnings per share (cents)
Net tangible assets per share (cents)
Group
30 June 2009
Group
30 June 2008
27.35
20.02
20.02
39.60
40.33
40.33
458.10
457.49
The calculation of underlying earnings per share is based on underlying earnings after tax after removing significant one-off
items and the non-cash change in fair value of financial instruments attributable to ordinary shareholders. Refer to note 2.
The calculation of basic earnings per share at 30 June 2009 is based on the profit attributable to ordinary shareholders of
$117.5 million (2008: $237.1 million) and a weighted average number of ordinary shares outstanding during the year ended
30 June 2009 of 587,237,669 (2008: restated to 587,885,728).
The weighted average number of shares outstanding during the prior year has been restated to reflect the effect of the issue
of bonus shares under the PDP, as if the bonus issue had occurred at the beginning of the earliest period presented (2008 as
previously reported: 576,633,982).
For the purposes of the earnings per share calculations, the shares issued under the Restricted Share Plan are excluded until
shares become unrestricted. Refer to note 14.
The dilutive effect of share options and restricted shares has not been taken into account in the calculation of diluted earnings
per share at 30 June 2009 and 30 June 2008 as the relevant performance conditions have not been fulfilled at the balance sheet
dates presented.
76
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
The calculation of net tangible assets per share for the years ended 30 June 2009 and 30 June 2008 is based on the total net
assets less intangible assets. Net tangible assets per share would increase if total net assets were adjusted for the deferred tax
on the revaluation of generation plant and equipment and generation capital work in progress, which is unlikely to crystallise
under existing income tax legislation. Contact holds its property, plant and equipment on capital account for income tax
purposes. Where the generation plant and equipment and generation capital work in progress is revalued, but there is no similar
adjustment to the tax base, a taxable temporary difference is created that is recognised in deferred tax. The deferred tax liability
($535.7 million, 2008: $563.5 million) on these revaluations is unlikely to crystallise under existing income tax legislation.
12 Share capital
Parent and Group
Ordinary shares – unrestricted
Balance at start of the year
Issued
Transaction costs
Balance at end of the year
Ordinary shares – restricted
Balance at start of the year
Issued
Balance at end of the year
Shares issued and authorised
Treasury stock from PDP
Total share capital
30 June 2009
30 June 2008
Number
$000
Number
$000
576,633,982
780,037
576,633,982
780,037
11,251,746
–
63,694
(563)
–
–
–
–
587,885,728
843,168
576,633,982
780,037
163,308
104,712
268,020
444
219
663
76,975
86,333
163,308
159
285
444
588,153,748
843,831
576,797,290
780,481
(2,571,104)
(14,555)
–
–
585,582,644
829,276
576,797,290
780,481
The holders of unrestricted ordinary shares are entitled to receive dividends or distributions as declared from time to time
and are entitled to one vote per share at meetings of the Parent. Ordinary shares have no par value and are fully paid.
On 31 March 2009, the Parent issued 11,251,746 new ordinary shares at the per share price of $5.6608609, pursuant to the
Parent’s PDP. The PDP allowed shareholders to elect to have the Parent buy back the shares issued to them at the issue price.
As a result of shareholder elections, the Parent completed an off-market buy back of 2,571,104 shares at an equivalent cost on
31 March 2009, which remain held as treasury stock at 30 June 2009.
Restricted ordinary shares are issued pursuant to Contact’s Employee Long Term Incentive Scheme and are held in trust.
While restricted ordinary shares confer the same rights on the holder as unrestricted shares, restricted shares are subject to
the terms of the Restricted Share Plan that restrict the right to vote and to receive dividends or distributions. Refer to note 14.
At 30 June 2009, Contact had 585,314,624 (2008: 576,633,982) ordinary shares (excluding shares held as treasury stock
and restricted shares) quoted on the NZSX.
Contact Energy Limited Annual Report 2009
77
Cash flow
hedge
reserve
$000
Share-based
payment
reserve
$000
Retained
earnings
$000
Total
$000
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
13 Reserves
Group
Balance as at 1 July 2007
Profit for the year
Cash flow hedges:
Profit/(Loss) taken to equity
Translation of foreign operations
Asset revaluation:
Re-estimate of restoration provision
Movement in deferred tax liability
attributable to equity
Re-measurement of deferred tax on
change in corporate income tax rate
Total recognised revenues
and expenses
Dividends paid to shareholders
Business combination of commonly
controlled entities
Share-based payments
Balance as at 30 June 2008
Balance as at 1 July 2008
Profit for the year
Cash flow hedges:
Profit/(Loss) taken to equity
Translation of foreign operations
Asset revaluation:
Re-estimate of restoration provision
Movement in deferred tax liability
attributable to equity
Total recognised revenues
and expenses
Distributions and dividends
Share-based payments
Balance as at 30 June 2009
28
29
29
10
14
28
29
10
14
Foreign
currency
translation
reserve
$000
Note
50
–
–
606
Asset
revaluation
reserve
$000
1,900,718
–
–
–
293
–
(106,450)
–
–
–
(3,272)
(260)
1,080
35,129
–
(143)
(3,251)
346
(2,335)
(74,572)
–
–
–
–
–
–
–
–
–
396
1,898,383
(74,279)
396
1,898,383
(74,279)
–
–
(106)
–
20
–
–
–
(3,295)
–
52,091
–
–
988
(16,472)
(86)
(2,307)
35,619
–
–
–
–
–
–
260
222,662
2,123,983
–
–
–
–
–
–
–
–
–
467
727
727
–
–
–
–
–
–
–
237,066
237,066
–
–
–
–
–
(106,450)
606
(3,272)
35,949
(3,394)
237,066
160,505
(161,458)
(161,458)
93
–
93
467
298,363
2,123,590
298,363
2,123,590
117,536
117,536
–
–
–
–
52,091
(106)
(3,295)
(15,464)
117,536
150,762
(161,722)
(161,722)
362
–
362
310
1,896,076
(38,660)
1,089
254,177
2,112,992
78
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
Foreign
currency
translation
reserve
$000
Note
Balance as at 1 July 2007
Profit for the year
Cash flow hedges:
Profit/(Loss) taken to equity
Asset revaluation:
Re-estimate of restoration provision
Movement in deferred tax liability
attributable to equity
Re-measurement of deferred tax on
change in corporate income tax rate
Total recognised revenues
and expenses
Dividends paid to shareholders
Business combination of commonly
controlled entities
Share-based payments
Balance as at 30 June 2008
Balance as at 1 July 2008
Profit for the year
Cash flow hedges:
Profit/(Loss) taken to equity
Asset revaluation:
Re-estimate of restoration provision
Movement in deferred tax liability
attributable to equity
Total recognised revenues
and expenses
Distributions and dividends
Share-based payments
Balance as at 30 June 2009
28
29
29
10
28
29
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Asset
revaluation
reserve
$000
1,707,304
–
–
905
–
(107,110)
(3,272)
–
1,080
35,345
(143)
(3,243)
(2,335)
(75,008)
–
–
–
–
–
–
1,704,969
(74,103)
1,704,969
(74,103)
–
–
–
51,889
(3,295)
–
988
(16,394)
(2,307)
35,495
–
–
–
–
Cash flow
hedge
reserve
$000
Share-based
payment
reserve
$000
Retained
earnings
$000
Total
$000
260
379,087
2,087,556
–
–
–
–
–
–
–
–
467
727
727
–
–
–
–
–
–
248,316
248,316
–
–
–
–
(107,110)
(3,272)
36,425
(3,386)
248,316
170,973
(161,458)
(161,458)
93
–
93
467
466,038
2,097,631
466,038
2,097,631
63,588
63,588
–
–
–
51,889
(3,295)
(15,406)
63,588
96,776
(161,722)
(161,722)
362
–
362
1,702,662
(38,608)
1,089
367,904
2,033,047
14 Share-based payments
Contact has a Long Term Incentive Scheme for executives whereby the value of the long term incentive award is allocated, by
value, 50 per cent in share options under a Share Option Plan and 50 per cent in restricted shares under a Restricted Share Plan
(together the Plans). Under the Plans, the share options will only be exercisable, and the restricted shares will only become
unrestricted, to the extent that the relevant performance hurdles are satisfied. For the restricted shares and share options issued
under the Plans, the hurdle is a comparison of Contact’s total shareholder return (TSR) against the average TSR of a reference
group comprising the NZX50 index over the relevant period, commencing on the effective grant date.
The share options and unrestricted shares are unlisted and are personal to the employee and therefore cannot be traded.
The total expense recognised for share-based payments under the Plans during the year ended 30 June 2009 was $0.9 million
(2008: $0.9 million).
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
(a) Share Option Plan
Contact Energy Limited Annual Report 2009
79
Under the Share Option Plan, the Board issues share options to executives to acquire ordinary shares in the Parent at the
market price determined at the effective grant date. For share options granted in the years ended 30 June 2009 and 30 June
2008, the market price was the weighted average market price of the Parent’s ordinary shares traded on the NZSX over the
20 business days prior to the effective grant date.
The share options do not entitle the executives to receive dividends or other distributions from, nor vote in respect of, the
shares subject to the options.
There is a vesting period of approximately three years from the effective grant date before share options may be exercised.
Following the end of that period, the performance hurdles are measured on three annual test dates. There is a two-year,
two-month exercise period following the first test date during which share options may be exercised, again, to the extent
that the performance hurdles are obtained.
The share options may also be exercised if, between the effective grant date and the exercise date, a change of control of the
Parent occurs. In addition, the Board may, at its discretion, permit share options to be exercised prior to the commencement
of the relevant exercise period where the shares cease to be listed on the NZSX or other circumstances occur where such an
early exercise is considered appropriate by the Board.
The share options will lapse:
•
•
if the performance hurdles are not met by the last measurement date, or
if the share options are not exercised by the lapse date, or
• on the date on which the participant ceases to be employed by the Parent (except in the case of redundancy), or
•
on the death of the participant (provided, however, that the Board may, in its discretion, allow the participant’s successor
to exercise the share options).
In the event of redundancy, the Share Option Plan will continue, except that the number of share options will be recalculated
on a proportionate basis.
Group and Parent
2009
Effective
grant date
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
Group and Parent
2008
Effective
grant date
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
First
exercise
date
Expiry date
Exercise
price per
option
Balance at
1 July 2008
Granted
Lapsed
Balance at
30 June
2009
Exercisable
at 30 June
2009
1 Oct 2009
30 Nov 2011
1 Oct 2009
30 Nov 2011
1 Oct 2009
30 Nov 2011
1 Oct 2010
30 Nov 2012
1 Oct 2010
30 Nov 2012
1 Oct 2011
30 Nov 2013
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
330,706
18,361
13,413
445,599
22,706
–
–
–
–
–
(13,808)
316,898
(18,361)
–
–
13,413
(81,113)
364,486
(7,698)
15,008
–
881,769
(76,936)
804,833
830,785
881,769
(197,916)
1,514,638
–
–
–
–
–
–
–
First
exercise
date
Expiry date
Exercise
price per
option
Balance at
1 July 2007
Granted
Lapsed
Balance at
30 June
2008
Exercisable
at 30 June
2008
1 Oct 2009
30 Nov 2011
1 Oct 2009
30 Nov 2011
1 Oct 2009
30 Nov 2011
1 Oct 2010
30 Nov 2012
1 Oct 2010
30 Nov 2012
$7.35
$7.55
$8.28
$9.15
$7.63
365,322
18,361
13,413
–
–
–
–
–
(34,616)
330,706
–
–
18,361
13,413
490,326
(44,727)
445,599
22,706
–
22,706
397,096
513,032
(79,343)
830,785
–
–
–
–
–
–
A further 217,190 share options lapsed on 31 July 2009.
80
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
(b) Restricted Share Plan
Under the Restricted Share Plan the Board issues restricted shares to the participants at the market price determined at the
effective grant date. Although the participant has beneficial title to the restricted shares, under the terms of the Restricted
Share Plan:
(i) the restricted shares are issued to an independent trustee to be held on trust for the participant; and
(ii) the trustee will not exercise any voting rights attaching to the restricted shares and has forgone the right to distributions.
Legal title cannot be transferred to the participant, and therefore traded by the participant, unless, and until, the restricted
shares become unrestricted. A participant may not transfer, assign, or otherwise dispose of, or create any interest (including
any security, or legal or equitable interest) in, a restricted share until it becomes unrestricted.
For restricted shares issued in the years ended 30 June 2009 and 30 June 2008, the market price or allocation price of
the restricted shares was the weighted average market price of the Parent’s ordinary shares traded on the NZSX over the
20 business days prior to the effective grant date. Payment of the allocation price for the restricted shares is funded by
an interest-free loan from the Parent in an amount equal to the allocation price for the shares.
If the performance hurdles are met, the restricted shares will be released from the trust to the participant following the
relevant test date. There is a vesting period of approximately three years from the effective grant date before restricted
shares that vest may be released from the restrictions and transferred to the participant. Following the end of that period,
the exercise hurdles are measured on three annual test dates. To the extent the hurdles are met on each of these test dates,
restricted shares must be released from the restrictions and transferred from the trustee to the participant.
For restricted shares that a participant becomes entitled to, the Parent pays a bonus, which the participant must use to repay
the loan. Upon repayment of the loan, the trustee transfers legal title to the restricted shares to the participant and the shares
become unrestricted.
The restricted shares may be released from the restrictions and transferred to the participants if, between the grant date and
a test date, a change of control of the Parent occurs.
The rights to the restricted shares will lapse:
•
if the performance hurdles are not met by the last test date, or
• on the date on which the participant ceases to be employed by the Parent (except in the case of redundancy), or
•
on the death of the participant (provided, however, that the Board may, in its discretion, allow legal title to the restricted
shares to be transferred to the participant’s successors).
In the event of redundancy, the Restricted Share Plan will continue, except that the number of restricted shares will be
recalculated on a proportionate basis.
Group and Parent
2009
Effective
grant date
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
First test date
Final test date
1 Oct 2009
1 Oct 2011
1 Oct 2009
1 Oct 2011
1 Oct 2009
1 Oct 2011
1 Oct 2010
1 Oct 2012
1 Oct 2010
1 Oct 2012
1 Oct 2011
1 Oct 2013
Allocation
price per
share
Unvested
balance at
1 July 2008
number
Granted
number
Vested
number
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
70,890
3,581
2,504
83,242
3,091
–
–
–
–
–
–
104,712
163,308
104,712
–
–
–
–
–
–
–
Unvested
balance at
30 June 2009
number
70,890
3,581
2,504
83,242
3,091
104,712
268,020
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
81
Group and Parent
2008
Effective
grant date
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
First test date
Final test date
1 Oct 2009
1 Oct 2011
1 Oct 2009
1 Oct 2011
1 Oct 2009
1 Oct 2011
1 Oct 2010
1 Oct 2012
1 Oct 2010
1 Oct 2012
Allocation
price per
share
Unvested
balance at
1 July 2007
number
Granted
number
Vested
number
$7.35
$7.55
$8.28
$9.15
$7.63
70,890
3,581
2,504
–
–
76,975
–
–
–
83,242
3,091
86,333
–
–
–
–
–
–
Unvested
balance at
30 June 2008
number
70,890
3,581
2,504
83,242
3,091
163,308
Pursuant to the Restricted Share Plan’s rules, where the rights to the restricted shares lapse, beneficial ownership of the
restricted shares is transferred to the trustee to hold in trust in an unallocated pool, to be reallocated by the Board to
a participant at a future date.
As at 30 June 2009, 24,159 (2008: 10,667) restricted shares were held by the trustee in the unallocated pool. A further
34,041 restricted shares were transferred to the unallocated pool on 31 July 2009.
(c) Fair value of share-based payments
The fair value of services received in return for share options granted is based on the fair value of share options granted,
measured using a combination of Monte-Carlo simulation and a binomial option pricing model. The valuation of the options
granted in the year ended 30 June 2009 was based on the following weighted average assumptions:
Risk free interest rate
Expected dividend yield
Expected option life (in years)
Expected share price volatility
Weighted average remaining contractual life (in years)
30 June 2009
30 June 2008
5.6%
3.9%
5.1
21.0%
3.7
6.7%
3.7%
5.1
18.5%
4.0
Restricted shares are valued based on the market price at the effective grant date, adjusted for dividends and distributions
that are not received until the restricted shares vest. Volatility is based on historic volatility in Contact’s share price. The
performance hurdles noted above are included in the valuation model used in determining the fair value of share options
and restricted shares issued during the year.
15 Cash and cash equivalents
Unrestricted cash
Cash and short term deposits
Bank overdrafts (refer to note 25)
Cash and cash equivalents in the Statement of Cash Flows
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
179,220
2,542
177,848
179,220
(1,675)
177,545
2,542
(1,752)
177,848
(1,959)
790
175,889
(2,184)
–
–
(2,184)
82
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
16 Receivables and prepayments
Retail electricity, other receivables and accruals
Wholesale electricity receivables
Provision for impairment
Net receivables
Prepayments
Interest receivable
Advances to subsidiaries
Other receivables
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
170,184
70,080
(7,192)
188,694
332,024
(4,761)
128,031
70,080
(5,321)
144,464
332,024
(3,376)
233,072
515,957
192,790
473,112
1,340
637
–
18,787
1,408
–
–
–
1,333
637
11,239
18,787
1,276
–
14,599
–
Total receivables and prepayments
253,836
517,365
224,786
488,987
Included in retail electricity, other receivables and accruals are $29.9 million of receivables (2008: $26.3 million) that
are past due but not impaired. These relate to a number of customers who are currently outside normal commercial payment
terms and for whom there is no recent history of default.
Included in other operating expenses for the Group are receivables written off during the year totalling $7.6 million
(2008: $4.0 million).
Average wholesale electricity sales prices per megawatt hour that the Parent received for its generation in June 2009
were considerably lower than June 2008 prices due to the national hydro shortage conditions during winter 2008.
Consequently, wholesale electricity receivables were higher at June 2008.
Provision for impairment
Provision for impairment at start of year
Charge to Income Statement
Provision for impairment at end of year
17 Inventories
LPG
Consumables and spare parts
Total inventories
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
(4,761)
(2,431)
(7,192)
(4,457)
(304)
(4,761)
(3,376)
(1,945)
(5,321)
(3,096)
(280)
(3,376)
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
9,004
6,902
15,906
13,876
7,235
21,111
–
6,600
6,600
–
7,014
7,014
Retail electricity, other receivables and accruals
Wholesale electricity receivables
Provision for impairment
Net receivables
Prepayments
Interest receivable
Advances to subsidiaries
Other receivables
30 June 2009
30 June 2008
30 June 2009
30 June 2008
Group
Parent
Parent
$000
$000
$000
Group
$000
170,184
70,080
(7,192)
1,340
637
–
18,787
233,072
515,957
192,790
473,112
188,694
332,024
(4,761)
1,408
–
–
–
128,031
70,080
(5,321)
1,333
637
11,239
18,787
144,464
332,024
(3,376)
1,276
14,599
–
–
Total receivables and prepayments
253,836
517,365
224,786
488,987
Contact Energy Limited Annual Report 2009
83
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
18 Property, plant and equipment
Group
Cost or fair value
Generation
plant and
equipment
(including
land and
buildings) at
fair value
$000
Other
land and
buildings
at cost
$000
Other
plant and
equipment
at cost
$000
Generation
capital work
in progress at
fair value
$000
Development
capital work
in progress
at cost
$000
Other
capital work
in progress
at cost
$000
Total
$000
Balance as at 1 July 2007
4,027,138
Additions
Transfers to/(from) capital
work in progress
Disposals
70,394
77,731
–
25,209
13,139
888
(2,992)
272,009
10,718
94,286
50,055
14,914
(64,889)
–
–
32,795
60,761
(11,165)
(3,038)
21,874
4,473,311
23,343
228,410
(17,479)
–
–
(6,030)
Balance as at 30 June 2008
4,175,263
36,244
297,641
79,452
79,353
27,738
4,695,691
Balance as at 1 July 2008
4,175,263
36,244
297,641
79,452
79,353
27,738
4,695,691
Reclassification of New
Plymouth land and buildings
Additions
Transfers to/(from) capital
work in progress
Disposals
Transfer to intangibles
–
–
(6,467)
(14,259)
100,876
14,259
6,517
–
9,709
55,307
243,871
16,723
433,003
–
–
–
–
(5,132)
(11,599)
–
–
64,538
–
117
(874)
15,608
(52,731)
(62,627)
–
(1,723)
–
(15,913)
–
–
(53,605)
Balance as at 30 June 2009
4,326,418
56,263
263,760
72,132
321,501
23,416
5,063,490
Depreciation and impairment losses
Balance as at 1 July 2007
–
(2,624)
(168,156)
Depreciation charge
(122,461)
(446)
(20,404)
Balance as at 30 June 2008
(122,461)
(3,070)
(188,560)
Balance as at 1 July 2008
(122,461)
(3,070)
(188,560)
Transfer to intangibles
–
–
6,085
Reclassification of New
Plymouth land and buildings
Depreciation charge
Disposals
Impairment losses recognised
in Income Statement*
1,185
(138,716)
–
–
(1,185)
(1,086)
874
–
(21,043)
52,290
–
–
Balance as at 30 June 2009
(259,992)
(4,467)
(151,228 )
Carrying value
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,830)
(2,830)
(123)
123
–
–
–
–
–
–
–
–
(170,903)
(143,188)
(314,091)
(314,091)
6,085
–
(160,845)
53,164
(2,830)
(418,517)
As at 30 June 2008
4,052,802
33,174
109,081
79,452
79,353
27,738
4,381,600
As at 30 June 2009
4,066,426
51,796
112,532
72,132
318,671
23,416
4,644,973
* Refer to note 3.
84
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
Cost or fair value
Generation
plant and
equipment
(including
land and
buildings) at
fair value
$000
Other
land and
buildings
at cost
$000
Other
plant and
equipment
at cost
$000
Generation
capital work
in progress at
fair value
$000
Development
capital work
in progress
at cost
$000
Other
capital work
in progress
at cost
$000
Total
$000
Balance as at 1 July 2007
4,027,138
Additions
70,394
22,538
13,139
163,750
10,712
94,286
50,055
Transfers to/(from) capital
work in progress
Disposals
77,731
–
9,522
(64,889)
–
(2,992)
–
–
30,665
54,411
(11,165)
(3,038)
13,075
4,351,452
12,690
211,401
(11,199)
–
–
(6,030)
Balance as at 30 June 2008
4,175,263
32,685
183,984
79,452
70,873
14,566
4,556,823
Balance as at 1 July 2008
4,175,263
32,685
183,984
79,452
70,873
14,566
4,556,823
Transfer to intangibles
–
–
(6,467)
(14,259)
100,876
14,259
5,954
–
2,803
55,307
238,414
16,723
420,077
–
–
–
–
(5,132)
(11,599)
–
–
Reclassification of New
Plymouth land and buildings
Additions
Transfers to/(from) capital
work in progress
Disposals
64,538
–
–
(874)
7,966
(52,159)
(62,627)
–
(1,723)
–
(8,154)
–
–
(53,033)
Balance as at 30 June 2009
4,326,418
52,024
136,127
72,132
307,564
18,003
4,912,268
Depreciation and impairment losses
Balance as at 1 July 2007
–
(2,094)
(106,664)
Depreciation charge
(122,461)
(327)
(15,508)
Balance as at 30 June 2008
(122,461)
(2,421)
(122,172)
Balance as at 1 July 2008
(122,461)
(2,421)
(122,172)
Transfer to intangibles
–
–
6,085
Reclassification of New
Plymouth land and buildings
Depreciation charge
Disposals
1,185
(1,185)
(138,716)
–
(945)
874
–
(16,041)
52,159
Balance as at 30 June 2009
(259,992)
(3,677)
(79,969)
Carrying value
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(108,758)
(138,296)
(247,054)
(247,054)
6,085
–
(155,702)
53,033
(343,638)
As at 30 June 2008
4,052,802
30,264
61,812
79,452
70,873
14,566
4,309,769
As at 30 June 2009
4,066,426
48,347
56,158
72,132
307,564
18,003
4,568,630
Generation plant and equipment and capital work in progress carried at fair value
Deloitte revalued Contact’s generation plant and equipment and generation capital work in progress at 30 June 2007.
Deloitte is an independent valuer.
The key assumptions used in the valuation model include a forecast electricity price path, sales volume forecasts, projected
operational and capital expenditure profiles, capacity and life assumptions for each generation plant and a discount rate
assumption.
Under the Treaty of Waitangi Act 1975, the Waitangi Tribunal has the power to recommend, in appropriate circumstances,
that some of the land and interest in land purchased from the Electricity Corporation of New Zealand (ECNZ) and now owned
by Contact be resumed by the Crown in order that it be returned to the Maori claimants. In the event that the Tribunal’s initial
recommendation is confirmed and the land is to be returned, compensation will be paid to Contact under the provisions of
the Public Works Act 1981.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
85
The carrying amount of generation plant and equipment and generation capital work in progress, had they been recognised
under the cost model, are as follows:
Depreciated cost
Generation plant and equipment
Generation capital work in progress
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
1,612,992
1,562,172
1,612,992
1,562,172
72,132
79,452
72,132
79,452
1,685,124
1,641,624
1,685,124
1,641,624
19 Intangible assets
Group
Cost
Balance as at 1 July 2007
Additions
Balance as at 30 June 2008
Balance as at 1 July 2008
Transfer from property, plant and equipment
Additions
Disposals
Goodwill
$000
Patents
$000
Gas storage
rights
$000
Computer
software
$000
Total
$000
181,941
1,222
–
–
–
28,563
8,777
1,357
191,940
29,920
181,941
181,941
–
–
–
1,222
1,222
–
–
–
28,563
10,134
221,860
28,563
–
2,305
–
10,134
11,599
30,897
(733)
221,860
11,599
33,202
(733)
Balance as at 30 June 2009
181,941
1,222
30,868
51,897
265,928
Amortisation and impairment losses
Balance as at 1 July 2007
Amortisation charge
Balance as at 30 June 2008
Balance as at 1 July 2008
Transfer from property, plant and equipment
Amortisation charge
Disposals
Balance as at 30 June 2009
Carrying value
As at 30 June 2008
As at 30 June 2009
–
–
–
–
–
–
–
–
(974)
(248)
(1,222)
(1,222)
–
–
–
(1,222)
–
–
–
–
–
–
–
–
(2,982)
(3,104)
(6,086)
(6,086)
(6,085)
(1,109)
733
(3,956)
(3,352)
(7,308)
(7,308)
(6,085)
(1,109)
733
(12,547)
(13,769)
181,941
181,941
–
–
28,563
30,868
4,048
214,552
39,350
252,159
86
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
Cost
Balance as at 1 July 2007
Additions
Balance as at 30 June 2008
Balance as at 1 July 2008
Transfer from property, plant and equipment
Additions
Disposals
Balance as at 30 June 2009
Amortisation and impairment losses
Balance as at 1 July 2007
Amortisation charge
Balance as at 30 June 2008
Balance as at 1 July 2008
Transfer from property, plant and equipment
Amortisation charge
Disposals
Balance as at 30 June 2009
Carrying value
As at 30 June 2008
As at 30 June 2009
Goodwill
$000
Patents
$000
Gas storage
rights
$000
Computer
software
$000
Total
$000
123,307
–
123,307
123,307
–
–
–
123,307
–
–
–
–
–
–
–
–
123,307
123,307
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,563
8,777
1,357
132,084
29,920
28,563
10,134
162,004
28,563
–
2,305
–
10,134
11,599
30,897
(733)
162,004
11,599
33,202
(733)
30,868
51,897
206,072
–
–
–
–
–
–
–
–
(2,982)
(3,104)
(6,086)
(6,086)
(6,085)
(1,109)
733
(2,982)
(3,104)
(6,086)
(6,086)
(6,085)
(1,109)
733
(12,547)
(12,547)
28,563
4,048
155,918
30,868
39,350
193,525
Goodwill
For the purpose of impairment testing, all goodwill is allocated to the retail cash-generating unit. The unit’s impairment test
is based on a value in use discounted cash flow valuation. Cash flow projections are based on a 10 year financial forecast for
the underlying retail business and are extrapolated using an average annual growth rate of approximately 1.0 – 3.0 per cent.
The cash flow projections are discounted using post tax discount rates of 8.0 – 10.0 per cent.
Key assumptions in the value in use calculation for the retail cash-generating unit are:
Assumptions
Method of determination
Customer numbers and customer churn
Gross margin per customer
Cost to serve per customer
Review of actual customer numbers and historical data regarding movements
in customer numbers. The historical analysis is considered against expected
market trends and competition for customers.
Review of actual gross margin per customer and consideration of expected
market movements and impacts.
Review of actual cost to serve per customer and consideration of expected
market movements and impacts.
Gas storage rights
On 12 June 2008, Contact acquired the exclusive right to use the Ahuroa reservoir in order to develop an underground gas storage
facility field.
This acquisition was completed in conjunction with Contact’s ultimate parent company, Origin Energy Limited (Origin), which
acquired certain New Zealand oil and gas assets from Swift Energy New Zealand Limited (Swift). These assets included a petroleum
mining licence (PML 38139, the PML) to an area that includes the Ahuroa reservoir. Contact paid $52.0 million of the total purchase
price to Origin, subject to the final measurement of gas for reserves in situ at purchase date, in exchange for a beneficial interest in
the PML as it relates to the Ahuroa reservoir, the right to develop and undertake gas storage in the Ahuroa reservoir, and the gas and
LPG reserves contained therein.
Contact’s beneficial right in the PML shall continue until such time as the term of the PML expires and is not renewed or is no longer
required in order to undertake gas storage.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
87
As part of the acquisition of the rights, Contact has secured beneficial access to the remaining natural gas and LPG reserves
(excluding condensate) in the Ahuroa reservoir. The natural gas reserves, together with additional natural gas injections,
represent the investment necessary to enable the field to be used for gas storage and are referred to as cushion gas. Refer to
note 20.
Additions to gas storage rights for the year relate to capitalised financing costs on the original acquisition of the rights.
Impairment
No impairment exists for any intangible asset at 30 June 2009 (2008: nil).
20 Gas storage – cushion gas
As part of the acquisition of the gas storage rights (refer to note 19), Contact has secured beneficial access to the remaining
natural gas and LPG reserves (excluding condensate) in the Ahuroa reservoir. The natural gas reserves at the date of acquisition,
together with additional natural gas injections during the year, are referred to as cushion gas and represent the investment
necessary to enable the field to be used for storage of future ‘operational’ gas.
Gas injected in excess of the cushion gas requirements will be treated as inventory.
Cushion gas is recognised at cost, which includes capitalised interest, and is presented on the Balance Sheet as a separate
non-current, non-depreciable asset, referred to as gas storage – cushion gas.
21 Investment in jointly controlled entity
Name of entity
Gasbridge Joint Venture
Interest held by Group
30 June 2009
30 June 2008
Principal activity
50%
50%
LNG importation development
The Gasbridge Joint Venture is operated through Gasbridge Limited, an entity jointly controlled by Contact Aria Limited
(a 100 per cent subsidiary of Contact Energy Limited) and GP No. 1 Limited (a 100 per cent subsidiary of Genesis Power
Limited). The joint venture was set up to preserve the option of importing natural gas, if required in the future. The following
amounts represent Contact’s 50 per cent share of the assets and liabilities, and income and results of the joint venture. These
are included in the Balance Sheet and the Income Statement:
Assets
Current assets
Non–current assets*
Total assets
Liabilities
Current liabilities
Total liabilities
Net (liabilities)/assets
Income
Expenses
Loss after income tax
Proportionate interest in joint venture’s commitments
Group
30 June 2009
$000
Group
30 June 2008
$000
42
–
42
59
59
(17)
4
(344)
(340)
–
572
2,281
2,853
75
75
2,778
11
(432)
(421)
–
*
During the year, Contact wrote off its 50 per cent share of the Gasbridge Joint Venture’s non-current assets following the
decision to put on hold the development of the liquefied natural gas terminal. These assets have been excluded from the
balances above. Refer to note 3.
There are no contingent liabilities relating to Contact’s interest in the joint venture and no contingent liabilities in the joint
venture itself.
Assumptions
Method of determination
Customer numbers and customer churn
Review of actual customer numbers and historical data regarding movements
in customer numbers. The historical analysis is considered against expected
market trends and competition for customers.
Gross margin per customer
Review of actual gross margin per customer and consideration of expected
Cost to serve per customer
Review of actual cost to serve per customer and consideration of expected
market movements and impacts.
market movements and impacts.
88
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
22 Investment in subsidiaries
Name of entity
Empower Limited
Stratford Power Limited
Contact Aria Limited
Contact Wind Limited
Rockgas Holdings Limited
Rockgas Limited
Contact Australia Pty Limited
Contact Operations Australia Pty Limited
Interest held by Parent
30 June 2009
30 June 2008
Principal activity
100%
100%
100%
100%
100%
100%
100%
100%
100% Electricity retailer
100% Gas wholesaler
100% Investment holding company
100% Wind generation development
100% Holding and management company
100% LPG retailer
100% Investment holding company
Country of
incorporation
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Australia
100% Manages Australian interests relating to operation
Australia
and maintenance
All subsidiaries have a balance sheet date of 30 June.
23 Investment in associates
Interest held by Group
Name of entity
30 June 2009
30 June 2008
Principal activity
Oakey Power Holdings Pty Limited
Rockgas Timaru Limited
25%
50%
25% Electricity generation
50% LPG distribution
Country of
incorporation
Australia
New Zealand
Carrying value of associates
Carrying value at start of the year
Share of recognised revenue and expenses
Movements taken to foreign currency translation reserve
Dividends received
Carrying value at end of the year
Rockgas Timaru Limited has a balance sheet date of 31 March.
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
8,015
3,624
(67)
6,210
2,793
866
(2,885)
(1,854)
1,579
1,579
–
–
–
–
–
–
8,687
8,015
1,579
1,579
Aggregate summary financial information of associates, not adjusted for the percentage held by Contact
Total assets
Total liabilities
Total revenues
Profit for the year
Group
30 June 2009
$000
Group
30 June 2008
$000
161,644
127,416
42,138
13,244
173,901
141,547
42,889
10,934
Contact Energy Limited Annual Report 2009
89
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
24 Available-for-sale financial assets
Available-for-sale financial assets are financial assets that do not fall into any other financial instrument category. Contact does
not currently intend to sell these assets.
At cost*
Unlisted shares in Liquigas Limited
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
2,935
2,935
2,935
2,935
–
–
–
–
*
As the fair value of the investment in the unlisted shares of Liquigas Limited cannot be reliably determined, the investment
is held at cost.
25 Borrowings
This note provides information about the contractual terms of Contact’s borrowings. For more information about Contact’s
exposure to interest rate and foreign currency risk, refer to note 26.
Carrying value of borrowings
Current borrowings
Bank overdraft
Committed credit facilities
Other credit facilities
Loan from associate
Finance lease liabilities
Total current borrowings
Current portion of term borrowings
4.5% March 2010
Total current portion of term borrowings
Non-current borrowings
Non-current portion of term borrowings
4.5% March 2010
6.9% February 2013
5.3% March 2014
5.3% March 2015
5.6% March 2018
7.1% April 2018
Fixed rate senior notes
Fixed rate bonds 8.0% coupon
Total non-current portion of term borrowings
Finance lease liabilities
Total non-current borrowings
Borrowing
currency
denomination
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
NZD
NZD
NZD
AUD
NZD
USD
USD
USD
USD
USD
USD
USD
NZD
NZD
1,675
–
–
1,580
1,056
1,752
100,000
27,500
2,839
720
1,959
–
–
–
1,023
2,184
100,000
27,500
–
700
4,311
132,811
2,982
130,384
141,662
141,662
–
130,593
140,867
166,886
65,411
45,595
549,352
540,219
–
–
141,662
141,662
–
–
117,878
105,716
111,403
131,636
51,276
36,212
554,121
–
–
130,593
140,867
166,886
65,411
45,595
549,352
540,219
117,878
105,716
111,403
131,636
51,276
36,212
554,121
–
1,089,571
554,121
1,089,571
554,121
1,535
604
1,495
574
1,091,106
554,725
1,091,066
554,695
90
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Foreign currency denominated term borrowings are hedged by cross currency interest rate swaps and are measured at fair
value less deferred financing costs in the Balance Sheet. All other borrowings are held at amortised cost less deferred financing
costs. The reconciliation of the New Zealand dollar equivalent of notional borrowings to the Balance Sheet carrying value is
detailed below:
Group and Parent
2009
New Zealand dollar equivalent of notional borrowings
Deferred financing costs
Net fair value adjustment
Carrying value of term borrowings
Current
Non-current
Carrying value of term borrowings
Group and Parent
2008
New Zealand dollar equivalent of notional borrowings
Deferred financing costs
Net fair value adjustment
Carrying value of term borrowings
Current
Non-current
Carrying value of term borrowings
Fixed rate
senior notes
$000
747,527
(1,678)
(54,835)
691,014
141,662
549,352
691,014
Fixed rate
senior notes
$000
747,527
(2,126)
(191,280)
554,121
–
554,121
554,121
Fixed rate
bonds
$000
550,000
(9,781)
–
540,219
–
540,219
540,219
Fixed rate
bonds
$000
–
–
–
–
–
–
–
Total term
borrowings
$000
1,297,527
(11,459)
(54,835)
1,231,233
141,662
1,089,571
1,231,233
Total term
borrowings
$000
747,527
(2,126)
(191,280)
554,121
–
554,121
554,121
Fixed rate bonds
On 31 March 2009, the Parent issued $550.0 million of fixed rate bonds at a coupon rate of 8.0 per cent. Transaction costs
directly attributable to the bond issue were $10.1 million.
Interest is payable quarterly in arrears until the bond matures on 15 May 2014, at which point the Parent will pay the
bondholders the face value of the fixed rate bonds.
The Parent accounts for these bonds at amortised cost using the effective interest rate.
Security
Except for finance leases, Contact’s borrowings are unsecured. Contact borrows under a negative pledge arrangement, which
does not permit Contact to grant any security interest over its assets, unless it is an exception permitted within the negative
pledge arrangements. All borrowing covenants requirements were met during the year.
Credit facilities
Contact has total committed but undrawn facilities at 30 June 2009 of $685.0 million (2008: $585.0 million, of which
$100.0 million was drawn). As at 30 June 2009 $165.0 million of the facilities mature in May 2010, $270.0 million mature
in May 2011, $100.0 million mature in February 2012 and $150.0 million mature in December 2012.
These committed credit facilities also support a $250.0 million commercial paper programme. The commercial paper
programme was not utilised at 30 June 2009 and 30 June 2008.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Finance lease liabilities
Future minimum lease payments are as follows:
Not later than one year
Later than one year and not later than five years
Minimum lease payments
Future finance charges on finance leases
Present value of finance lease liabilities
The finance leases relate to computer equipment.
The present value of finance lease liabilities are as follows:
Not later than one year
Later than one year and not later than five years
26 Financial instruments
Contact Energy Limited Annual Report 2009
91
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
1,205
1,758
2,963
(372)
2,591
762
670
1,432
(108)
1,324
1,173
1,717
2,890
(372)
2,518
742
640
1,382
(108)
1,274
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
1,056
1,535
2,591
720
604
1,324
1,023
1,495
2,518
700
574
1,274
Financial risk management objectives
In the normal course of business, Contact is exposed to a variety of financial risks: market risk (including foreign currency
risk, interest rate risk and price risk), credit risk and liquidity risk. Contact’s overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise potential adverse effects on Contact’s financial performance.
Contact uses derivative financial instruments to hedge these risk exposures.
Fair value of derivative financial instruments
The fair values of the significant types of derivative financial instruments outstanding are summarised below:
Group
Cross currency interest rate swaps
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Electricity price hedges
Total derivative financial instruments
Disclosed as:
Current
Non-current
Fair value
assets
30 June 2009
$000
Fair value
liabilities
30 June 2009
$000
Fair value
assets
30 June 2008
$000
Fair value
liabilities
30 June 2008
$000
4,103
1,809
117
3,713
(58,922)
(38,544)
(2,454)
(5,940)
11,842
(52,413)
–
(191,255)
14,257
–
4,114
48,123
(800)
(6,591)
(340)
(135,221)
21,584
(158,273)
66,494
(334,207)
14,987
6,597
(72,368)
(85,905)
52,940
13,554
(139,282)
(194,925)
21,584
(158,273)
66,494
(334,207)
92
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
Cross currency interest rate swaps
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Electricity price hedges
Total derivative financial instruments
Disclosed as:
Current
Non-current
Fair value
assets
30 June 2009
$000
Fair value
liabilities
30 June 2009
$000
Fair value
assets
30 June 2008
$000
Fair value
liabilities
30 June 2008
$000
4,103
1,809
117
3,713
(58,922)
(38,544)
(2,454)
(5,889)
11,842
(52,413)
–
(191,255)
14,257
–
4,114
48,123
(800)
(6,591)
(82)
(135,221)
21,584
(158,222)
66,494
(333,949)
14,987
6,597
(72,317)
(85,905)
52,940
13,554
(139,024)
(194,925)
21,584
(158,222)
66,494
(333,949)
Changes in fair value of financial instruments
The changes in the fair values of financial instruments recognised in the Income Statement and cash flow hedge reserve are
summarised below:
Group
Favourable/(unfavourable)
Hedge
accounting
designation
Income
Statement
30 June 2009
$000
Cash flow
hedge reserve
30 June 2009
$000
Income
Statement
30 June 2008
$000
Cash flow
hedge reserve
30 June 2008
$000
Cross currency interest rate swaps
Fair value hedge
Borrowings
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Forward foreign exchange derivatives
Electricity price hedges
Electricity price hedges
Income tax on changes in fair value of financial instruments
taken to equity
No hedge
Cash flow hedge
Cash flow hedge
No hedge
Cash flow hedge
No hedge
136,436
(136,444)
(8)
(51,096)
2,444
–
56
1,814
(10,721)
–
–
–
904
1,810
(6,058)
–
55,435
–
124,317
(124,448)
(131)
(15,767)
349
–
(56)
4,807
8,872
–
–
–
802
1,778
8,336
–
(117,366)
–
–
(16,472)
–
31,878
Total change in fair value of financial instruments
(57,511)
35,619
(1,926)
(74,572)
Parent
Favourable/(unfavourable)
Hedge
accounting
designation
Income
Statement
30 June 2009
$000
Cash flow
hedge reserve
30 June 2009
$000
Income
Statement
30 June 2008
$000
Cash flow
hedge reserve
30 June 2008
$000
Cross currency interest rate swaps
Fair value hedge
Borrowings
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Forward foreign exchange derivatives
Electricity price hedges
Electricity price hedges
Income tax on changes in fair value of financial instruments
taken to equity
No hedge
Cash flow hedge
Cash flow hedge
No hedge
Cash flow hedge
No hedge
136,436
(136,444)
(8)
(51,096)
2,444
–
56
1,814
(10,721)
–
–
–
904
1,810
(6,260)
–
55,435
–
124,317
(124,448)
(131)
(15,767)
349
–
(56)
4,807
8,872
–
–
–
802
1,778
7,676
–
(117,366)
–
–
(16,394)
–
32,102
Total change in fair value of financial instruments
(57,511)
35,495
(1,926)
(75,008)
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
93
The non-cash total change in fair value of financial instruments recorded in the Income Statement of $(57.5) million
(2008: $(1.9) million) is principally due to a movement in interest rate derivatives and electricity price hedges that
have not been designated in a hedge relationship.
The interest rate derivatives are revalued applying market interest rates. As a result, the change in fair value of interest
rate derivatives is a non-cash item that fluctuates over time in accordance with changes in market interest rates.
The movement in the electricity price hedge is due to the volatility in the forecast market price path.
Movement in cash flow hedge reserve
Balance as at 1 July 2007
Effective portion of cash flow hedges recognised in the cash flow hedge reserve
Amount transferred from the cash flow hedge reserve to operating revenue
Amount transferred from the cash flow hedge reserve to operating expenses
Amount transferred from the cash flow hedge reserve to change in fair value of financial instruments
Amount transferred from the cash flow hedge reserve to property, plant and equipment
Amount transferred from the cash flow hedge reserve in relation to deferred tax
Balance as at 30 June 2008
Balance as at 1 July 2008
Effective portion of cash flow hedges recognised in the cash flow hedge reserve
Amount transferred from the cash flow hedge reserve to operating revenue
Amount transferred from the cash flow hedge reserve to operating expenses
Amount transferred from the cash flow hedge reserve to change in fair value of financial instruments
Amount transferred from the cash flow hedge reserve to property, plant and equipment
Amount transferred from the cash flow hedge reserve in relation to deferred tax
Balance as at 30 June 2009
Group
$000
293
Parent
$000
905
(88,878)
(88,711)
21,218
21,218
1,257
802
2,930
345
802
2,930
(11,901)
(11,592)
(74,279)
(74,103)
(74,279)
46,003
(10,853)
(717)
904
(2,961)
3,243
(74,103)
46,045
(10,853)
(975)
904
(2,961)
3,335
(38,660)
(38,608)
The gain from ineffectiveness recognised in the Income Statement of both the Parent and Group from cash flow hedges is
$2.1 million (2008: $0.8 million).
Risk management
Risk management is carried out by a central treasury department (Treasury) for interest rate and foreign exchange exposures.
Risk management activities in respect of the electricity exposures are undertaken by the wholesale group (Wholesale). Both
Treasury and Wholesale operate under policies approved by the Board. Treasury and Wholesale identify, evaluate and hedge
the financial risks in close co-operation with Contact’s operating units. The Board’s policies provide written principles for overall
risk management, as well as written policies covering specific areas, such as foreign currency risk, price risk, credit risk, interest
rate risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity.
(a) Market risk
(i) Foreign currency risk
Contact is exposed to foreign currency risk as a result of transactions denominated in a currency other than Contact’s
functional currency, New Zealand dollars. The currencies giving rise to this risk are primarily Australian dollar, US dollar,
Swiss franc and the Euro.
Foreign currency risk arises from future commercial transactions (including interest payments on long term borrowings
and the purchase of capital equipment and maintenance), recognised assets and liabilities (including borrowings) and
net investments in foreign operations.
Contact uses forward foreign exchange contracts to manage foreign exchange risk arising from future commercial
transactions and recognised assets and liabilities. To manage the foreign currency risk arising from the future interest
payments required on foreign currency denominated long term borrowings, Contact uses cross currency interest rate
swaps (fixed to floating), which convert the foreign currency denominated future interest payments into the functional
currency for the full term of the underlying borrowings.
Treasury is responsible for managing the net position in each foreign currency within the parameters of Board policy.
Contact has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk.
Currency exposure arising from the net assets of Contact’s foreign operations is managed primarily through borrowings
denominated in the relevant foreign currencies.
94
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Forward foreign exchange contracts
The aggregate notional principal amount of the outstanding forward foreign exchange contracts at 30 June 2009
was $120.3 million (2008: $226.4 million). As at 30 June 2009, all foward foreign exchange contracts were
designated in a cash flow hedge (2008: $206.3 million).
The hedged anticipated transactions denominated in foreign currency are expected to occur at various dates
between one month to one year and three months (2008: two years and three months) from the balance sheet date.
Gains and losses recognised in the cash flow hedge reserve in equity on forward foreign exchange contracts as at
30 June 2009 will be released at dates when the cash flow from the underlying anticipated transactions will occur
and will be recognised in the Income Statement or included in the cost of any asset or liability acquired. During the
year to 30 June 2009, no hedges were de-designated, and all underlying forecast transactions remain highly probable
to occur as originally forecast.
Sensitivity analysis
At 30 June 2009, if the New Zealand dollar had weakened/strengthened by 10 per cent against the currencies with
which Contact had foreign currency risk with all other variables held constant:
•
•
post-tax profit for the year would not have been materially different,
the cash flow hedge reserve component of equity would have been $8.7 million higher/lower (2008: $15.5
million), arising from foreign exchange gains/losses on revaluation of forward foreign exchange contracts in
a cash flow hedge relationship.
(ii) Price risk
Contact is exposed to commodity price risk, primarily from electricity prices. To manage its commodity price risks
in respect of electricity, Contact utilises electricity price hedges including options, where Contact sells and buys
electricity forward at a fixed price.
Electricity price hedges
The aggregate notional volume of the outstanding fixed volume electricity derivatives at 30 June 2009 was 1,522 GWh
(2008: 2,387 GWh). The aggregate notional volume of the outstanding variable volume electricity derivatives at 30
June 2009 was 7,634 GWh (2008: 10,408 GWh).
Electricity derivatives are hedging underlying exposures over various trade periods out to December 2012. As at
30 June 2009 the fair value of the electricity price hedges was $(40.6) million (2008: $(87.1) million), $(38.8) million
of which was designated in a cash flow hedge (2008: $(96.1) million).
Gains and losses on hedged electricity derivatives recognised in the cash flow hedge reserve in equity will be
continuously released to the Income Statement in the period in which the underlying sale/purchase transactions
are recognised in the Income Statement.
Sensitivity analysis
The following table summarises the impact of increases/decreases of the relevant electricity forward prices on
Contact’s post-tax profit for the year and on other components of equity. The sensitivity analysis is based on the
assumption that the relevant market prices have increased/decreased by 10 per cent.
Group and Parent
Favourable/(unfavourable)
Impact on post-tax profit
Impact on equity
30 June 2009
+10%
$000
30 June 2009
-10%
$000
30 June 2008
+10%
$000
30 June 2008
-10%
$000
251
13,013
(786)
(12,335)
8,776
1,393
(3,774)
4,676
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
(iii) Interest rate risk (cash flow and fair value)
Contact Energy Limited Annual Report 2009
95
Contact’s income and operating cash flows are substantially independent of changes in market interest rates. Contact is
primarily exposed to interest rate risk as a result of issuing term borrowings at fixed interest rates. Contact manages the
combined interest and foreign currency risk on borrowings issued in foreign currency, by entering into cross currency
interest rate swaps to convert the proceeds into a floating rate New Zealand dollar exposure. New Zealand dollar interest
rate swaps are used to convert floating rate exposure into fixed rate exposure.
Cross currency interest rate swaps
The aggregate notional principal amount of the outstanding cross currency interest rate swap contracts at 30 June 2009
was $747.5 million (2008: $747.5 million). The cross currency interest rate swaps have been split into two components
for the purposes of hedge designation. The hedge of the benchmark interest rate is designated as a fair value hedge, and
the hedge of the issuance margin is designated as a cash flow hedge.
The hedged anticipated interest payments are expected to occur at various dates between one month to nine years
(2008: one month to ten years) from the balance sheet date as a result of the maturities of the underlying borrowings.
Interest rate swaps
The aggregate notional principal amount of the outstanding interest rate swap contracts at 30 June 2009 was
$1,016.4 million (2008: $1,041.0 million) including $355.0 million of forward starting swaps (2008: $360.0 million).
The anticipated interest payment transactions are expected to occur at various dates between one month to 10 years
(2008: one month to 10 years) from the balance sheet date.
Sensitivity analysis
At 30 June 2009, if interest rates at that date had been 100 basis points higher/lower, with all other variables held
constant, post-tax profit for the year would have been $17.0 million higher/lower (2008: $13.6 million). This is mainly
as a result of the fair value change in interest rate swaps, which are valid economic hedges but which do not qualify for
hedge accounting under NZIAS 39. There would be no effect on other components of equity.
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to Contact.
Contact is exposed to credit risk in the normal course of business arising from receivables, the purchase of commercial paper
and transactions with financial institutions.
The Board has approved a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where
appropriate, as a means of mitigating the risk of financial loss from defaults. Contact minimises its exposure to credit risk of
receivables through the adoption of counterparty credit limits. Derivative counterparties and cash transactions are limited to
high-credit-quality financial institutions and other organisations in the relevant industry. Contact’s exposure and the credit
ratings of its counterparties are continuously monitored, and the aggregate value of transactions concluded are spread amongst
approved counterparties.
The carrying amounts of financial assets recognised in the Balance Sheet best represent Contact’s maximum exposure to credit
risk at the balance sheet date without taking account of the value of any collateral obtained.
Contact does not have any significant credit risk exposure to any single counterparty or any group of counterparties having
similar characteristics. Concentration of credit risk with respect to receivables is limited due to Contact’s large customer base
in a diverse range of industries throughout New Zealand. Contact has no significant concentration of credit risk with any one
financial institution.
(c) Liquidity risk
Contact’s ability to attract cost-effective funding is largely driven by its credit standing.
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the spreading of debt maturities.
Liquidity risk is monitored by continuously forecasting actual cash flows and matching the maturity profiles of financial assets
and liabilities.
96
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contractual maturities of financial liabilities and derivative financial instruments
The amounts disclosed are the contracted undiscounted cash flows, except for the derivative financial instruments that are
the undiscounted settlements expected under the contracts. Balances due within 12 months equal their carrying value as
the impact of discounting is not significant. As the amounts presented are contracted undiscounted cash flows, the totals will
not reconcile with the Balance Sheet.
Group
2009
Outflow/(inflow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative financial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative financial instruments:
Forward foreign exchange derivatives
– Inflow
– Outflow
Cross currency interest rate swaps
– Inflow
– Outflow
Total
Group
2008
Outflow/(inflow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative financial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative financial instruments:
Forward foreign exchange derivatives
– Inflow
– Outflow
Cross currency interest rate swaps
– Inflow
– Outflow
Total
Note
27
25
25
26
26
Note
27
25
25
26
26
Total
contractual
cash flows
$000
304,235
1,604,451
2,963
Less than
1 year
$000
304,235
222,784
1,205
1–2 years
$000
2–5 years
$000
More than
5 years
$000
–
–
–
73,817
1,014,402
293,448
783
975
44,487
40,623
8,789
24,934
16,123
11,841
19,575
4,288
(111,637)
(109,654)
114,684
112,851
(1,983)
1,833
–
–
–
–
(831,010)
(175,462)
(29,809)
(332,236)
(293,503)
972,957
189,594
32,254
407,596
343,513
2,141,753
579,276
104,859
1,114,600
343,018
Total
contractual
cash flows
$000
540,619
868,756
1,432
Less than
1 year
$000
540,619
164,708
762
1–2 years
$000
2–5 years
$000
More than
5 years
$000
–
–
–
148,700
174,179
381,169
565
105
94,794
(16,554)
47,509
(9,899)
16,981
(3,401)
30,304
(2,733)
(213,879)
(175,778)
215,861
175,289
(36,421)
38,739
(1,680)
1,833
(734,736)
(30,743)
(148,643)
(174,134)
(381,216)
1,104,101
69,864
222,323
277,900
534,014
1,860,394
782,331
238,843
305,774
533,446
–
–
(440)
–
–
(521)
–
–
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
2009
Outflow/(inflow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative financial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative financial instruments:
Forward foreign exchange derivatives
– Inflow
– Outflow
Cross currency interest rate swaps
– Inflow
– Outflow
Total
Parent
2008
Outflow/(inflow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative financial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative financial instruments:
Forward foreign exchange derivatives
– Inflow
– Outflow
Cross currency interest rate swaps
– Inflow
– Outflow
Total
Note
27
25
25
26
26
Note
27
25
25
26
26
Contact Energy Limited Annual Report 2009
97
1–2 years
$000
2–5 years
$000
More than
5 years
$000
–
–
–
73,817
1,014,402
293,448
742
975
Total
contractual
cash flows
$000
338,246
1,603,154
2,890
Less than
1 year
$000
338,246
221,487
1,173
44,487
40,623
8,789
24,934
16,123
11,841
19,575
4,288
(106,071)
(104,088)
109,052
107,219
(1,983)
1,833
–
–
–
–
(831,010)
(175,462)
(29,809)
(332,236)
(293,503)
972,957
189,594
32,254
407,596
343,513
2,174,328
611,892
104,818
1,114,600
343,018
Total
contractual
cash flows
$000
522,949
866,349
1,382
Less than
1 year
$000
522,949
162,301
742
1–2 years
$000
2–5 years
$000
More than
5 years
$000
–
–
–
148,700
174,179
381,169
535
105
94,794
(16,554)
47,509
(9,899)
16,981
(3,401)
30,304
(2,733)
(203,646)
(165,545)
205,290
164,718
(36,421)
38,739
(1,680)
1,833
(734,736)
(30,743)
(148,643)
(174,134)
(381,216)
1,104,101
69,864
222,323
277,900
534,014
1,839,929
761,896
238,813
305,774
533,446
–
–
(440)
–
–
(521)
–
–
Fair values
The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair
values, with the exception of the fixed rate bonds, which have a fair value of $563.4 million, compared with a carrying value
of $540.2 million.
Estimation of fair values
The fair values and net fair values of financial assets and financial liabilities are determined as follows:
•
•
•
the fair values of financial assets and liabilities with standard terms and conditions and traded on active liquid markets are
determined with reference to quoted market prices,
the fair values of other financial assets and financial liabilities are calculated using market-quoted rates based on discounted
cash flow analysis,
the fair values of derivative financial instruments are calculated using quoted prices. Where such prices are not available,
use is made of discounted cash flow analysis using the applicable yield curve or available forward price data for the duration
of the instruments,
•
the fair value of fixed rate bonds is determined with reference to quoted market prices.
98
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Where the fair value of a derivative financial instrument is calculated as the present value of the estimated future cash flows
of the instrument, the two key types of variables used by the valuation technique are:
•
forward price curves (for the relevant underlying interest rates, foreign exchange rates or electricity prices), or
• discount rates.
The selection of variables requires significant judgement and, therefore, there is a range of reasonably possible assumptions in
respect of these variables that could be used in estimating the fair value of these derivatives. Maximum use is made of observable
market data when selecting variables and developing assumptions for the valuation techniques.
Financial instruments by category
The following tables provide an analysis of financial assets and financial liabilities by category.
Group
2009
Assets
Held for
trading
$000
Loans and
receivables
$000
Note
Available-
for-sale
financial
assets*
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash flow
hedging
instruments
$000
Other
financial
liabilities
$000
Total
$000
15
16
26
24
25
26
27
Cash and short term deposits
Receivables and prepayments
Derivative financial instruments
Available-for-sale financial assets
Total financial assets
Total non-financial assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Payables and accruals
Total financial liabilities
Total non-financial liabilities
Total liabilities
* Refer to note 24.
–
–
179,220
253,836
1,539
–
–
–
1,539
433,056
–
–
–
2,935
2,935
–
–
–
–
–
–
–
–
–
4,103
15,942
–
–
179,220
253,836
21,584
2,935
4,103
15,942
457,575
4,973,964
5,431,539
–
40,013
–
40,013
–
–
–
–
–
–
–
–
1,237,079
–
–
1,237,079
–
58,922
59,338
158,273
304,235
–
–
304,235
1,541,314
58,922
59,338
1,699,587
789,684
2,489,271
Contact Energy Limited Annual Report 2009
99
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Group
2008
Assets
Held for
trading
$000
Loans and
receivables
$000
Note
Available-
for-sale
financial
assets*
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash flow
hedging
instruments
$000
Other
financial
liabilities
$000
Total
$000
15
16
26
24
25
26
27
Cash and short term deposits
Receivables and prepayments
Derivative financial instruments
Available-for-sale financial assets
Total financial assets
Total non-financial assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Payables and accruals
Total financial liabilities
Total non-financial liabilities
Total liabilities
–
–
2,542
517,365
21,862
–
–
–
21,862
519,907
–
–
–
2,935
2,935
–
–
–
–
–
–
–
–
–
–
–
–
2,542
517,365
44,632
66,494
–
2,935
44,632
589,336
4,652,007
5,241,343
–
(577)
–
(577)
–
–
–
–
–
–
–
–
687,536
–
–
687,536
–
191,255
143,529
334,207
540,619
–
–
540,619
1,228,155
191,255
143,529
1,562,362
774,910
2,337,272
* Refer to note 24.
Parent
2009
Assets
Cash and short term deposits
Receivables and prepayments
Derivative financial instruments
Available-for-sale financial assets
Total financial assets
Total non-financial assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Payables and accruals
Total financial liabilities
Total non-financial liabilities
Total liabilities
* Refer to note 24.
Held for
trading
$000
Loans and
receivables
$000
Note
15
16
26
24
25
26
27
–
–
177,848
224,786
1,539
–
–
–
1,539
402,634
–
40,013
–
40,013
–
–
–
–
Available-
for-sale
financial
assets*
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash flow
hedging
instruments
$000
Other
financial
liabilities
$000
Total
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
177,848
224,786
4,103
15,942
21,584
–
–
–
4,103
15,942
424,218
4,955,361
5,379,579
1,235,710
–
–
1,235,710
–
58,922
59,287
158,222
338,246
–
–
338,246
1,573,956
58,922
59,287
1,732,178
785,078
2,517,256
100
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
2008
Assets
Cash and short term deposits
Receivables and prepayments
Derivative financial instruments
Available-for-sale financial assets
Total financial assets
Total non-financial assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Payables and accruals
Total financial liabilities
Total non-financial liabilities
Total liabilities
* Refer to note 24.
Held for
trading
$000
Loans and
receivables
$000
Note
15
16
26
24
25
26
27
–
–
–
488,987
21,862
–
–
–
21,862
488,987
–
(577)
–
(577)
–
–
–
–
Available-
for-sale
financial
assets*
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash flow
hedging
instruments
$000
Other
financial
liabilities
$000
Total
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
488,987
44,632
66,494
–
–
44,632
555,481
4,634,297
5,189,778
685,079
–
–
685,079
–
191,255
143,271
333,949
522,949
–
–
522,949
1,208,028
191,255
143,271
1,541,977
769,689
2,311,666
Capital risk management objectives
Contact’s capital includes share capital, reserves and retained earnings. Contact’s objectives when managing capital are to
safeguard Contact’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Board may adjust the amount and nature of distributions to shareholders,
return capital to shareholders, issue new shares or sell assets.
Contact monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital funding.
Net debt is calculated as total borrowings less short term deposits. Total borrowings are calculated using the New Zealand
dollar equivalent value of unsecured loans after the effect of foreign exchange hedging of the borrowings and before deduction
of deferred financing costs.
Total capital funding is calculated as shareholders’ equity, adjusted for the net effect of the fair value of financial instruments,
plus net debt.
The gearing ratios at 30 June 2009 and 30 June 2008 were as follows:
Net debt
Current borrowings
New Zealand dollar equivalent of term borrowings – after foreign exchange hedging and before
deferred financing costs
Fixed rate bond before deferred financing costs
Other non-current borrowings
Cash and short term deposits
Total net debt
Equity
Shareholders’ equity
Remove net effect of fair value of financial instruments after tax
Adjusted equity
Total capital funding
Gearing ratio
Group
30 June 2009
$000
Group
30 June 2008
$000
Note
25
25
25
25
15
(4,311)
(132,811)
(747,527)
(747,527)
(550,000)
(1,535)
179,220
–
(604)
2,542
(1,124,153)
(878,400)
12, 13
(2,942,268)
(2,904,071)
(57,298)
(51,210)
(2,999,566)
(2,955,281)
(4,123,719)
(3,833,681)
27%
23%
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
27 Payables and accruals
Electricity purchases accrual
Other trade payables and accruals
Advances from subsidiaries
Employee benefits
Interest payable
Total payables and accruals
Contact Energy Limited Annual Report 2009
101
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
46,012
230,999
–
14,723
12,501
250,163
263,828
–
18,681
7,947
39,943
193,467
78,250
14,085
12,501
205,756
235,608
55,741
17,897
7,947
304,235
540,619
338,246
522,949
The purchase price that Contact paid for electricity to supply its customers was considerably lower in June 2009 than in
June 2008 as a result of lower prices in the wholesale market. Consequently, the electricity purchases accrual is lower than
at 30 June 2008.
28 Provisions
Group
Balance at 1 July 2007
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance at 30 June 2008
Balance at 1 July 2008
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance at 30 June 2009
Current
Non-current
Restoration/
environmental
rehabilitation
$000
New Plymouth
$000
–
31,457
(12,620)
–
–
18,837
18,837
–
(15,352)
–
–
3,485
3,485
–
3,485
29,110
3,272
(1,388)
(481)
2,746
33,259
33,259
3,295
(3,129)
(1,215)
3,999
36,209
4,137
32,072
36,209
Other
$000
295
2,958
(652)
(125)
–
2,476
2,476
165
(390)
–
–
2,251
573
1,678
2,251
Total
$000
29,405
37,687
(14,660)
(606)
2,746
54,572
54,572
3,460
(18,871)
(1,215)
3,999
41,945
8,195
33,750
41,945
102
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Parent
Balance at 1 July 2007
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance at 30 June 2008
Balance at 1 July 2008
Provisions made during the year
Provisions used during the year
Unwind of discount rate
Balance at 30 June 2009
Current
Non-current
Restoration/
environmental
rehabilitation
$000
New Plymouth
$000
–
31,457
(12,620)
–
–
18,837
18,837
–
(15,352)
–
3,485
3,485
–
3,485
26,621
3,272
(1,365)
–
2,606
31,134
31,134
3,295
(3,068)
2,972
34,333
3,895
30,438
34,333
Other
$000
295
2,958
(652)
(125)
–
2,476
2,476
165
(390)
–
2,251
573
1,678
2,251
Total
$000
26,916
37,687
(14,637)
(125)
2,606
52,447
52,447
3,460
(18,810)
2,972
40,069
7,953
32,116
40,069
Refer to note 4 for discussion on the provision for removal of asbestos at New Plymouth power station. Cash outflows in relation
to this are expected to occur within the next year.
The restoration and environmental rehabilitation provisions include estimates of future expenditures for the abandonment
and restoration of areas from which natural resources are extracted and the expected cost of environmental rehabilitation of
commercial sites that require remediation of conditions resulting from present operations. Cash outflows are typically expected
to coincide with the end of the useful life of the sites.
Other provisions cover a range of commercial matters that are the subject of legal privilege and/or confidentiality arrangements.
Contact Energy Limited Annual Report 2009
103
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
29 Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are offset on the face of the Balance Sheet where they relate to entities within a Consolidated
Income Tax Group.
Group
Property, plant and equipment
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
Movement in deferred tax
Group
Assets
30 June 2009
$000
Assets
30 June 2008
$000
Liabilities
30 June 2009
$000
Liabilities
30 June 2008
$000
–
–
2,179
4,241
15,173
23,889
–
–
–
(783,827)
(763,392)
(2,235)
(2,071)
1,759
5,166
18,007
22,930
–
–
–
–
–
–
–
–
–
(3,512)
(861)
45,482
47,862
(789,574)
(766,324)
Assets
30 June 2009
$000
Assets
30 June 2008
$000
Liabilities
30 June 2009
$000
Liabilities
30 June 2008
$000
–
–
2,179
4,053
14,048
23,889
–
–
–
1,759
4,930
16,930
22,853
(780,996)
(761,677)
(174)
(174)
–
–
–
–
–
–
–
–
–
(4,237)
(1,863)
44,169
46,472
(785,407)
(763,714)
Balance
1 July 2008
$000
Recognised in
income
$000
Recognised in
equity
$000
Change in
tax rate*
$000
Balance
30 June 2009
$000
Property, plant and equipment**
(763,392)
(20,435)
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
(2,071)
1,759
5,166
18,007
22,930
(861)
1,133
420
(925)
(3,822)
17,431
(2,651)
–
(1,297)
–
–
988
(16,472)
–
(718,462)
(8,849)
(16,781)
–
–
–
–
–
–
–
–
(783,827)
(2,235)
2,179
4,241
15,173
23,889
(3,512)
(744,092)
104
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Group
Balance
1 July 2007
$000
Recognised in
income
$000
Recognised in
equity
$000
Change in
tax rate*
$000
Balance
30 June 2008
$000
Property, plant and equipment**
(749,850)
(15,400)
(1,516)
1,614
4,813
10,783
(9,504)
1,487
(833)
321
840
7,168
636
(2,523)
–
278
–
–
1,080
35,129
–
1,858
(763,392)
–
(176)
(487)
(1,024)
(3,331)
175
(2,071)
1,759
5,166
18,007
22,930
(861)
(742,173)
(9,791)
36,487
(2,985)
(718,462)
Balance
1 July 2008
$000
Recognised in
income
$000
Recognised in
equity
$000
Change in
tax rate*
$000
Balance
30 June 2009
$000
(174)
1,759
4,930
16,930
22,853
(1,863)
–
420
(877)
(3,870)
17,430
(2,374)
–
–
–
–
988
(16,394)
–
(717,242)
(8,590)
(15,406)
–
–
–
–
–
–
–
–
(780,996)
(174)
2,179
4,053
14,048
23,889
(4,237)
(741,238)
Balance
1 July 2007
$000
Recognised in
income
$000
Recognised in
equity
$000
Change in
tax rate*
$000
Balance
30 June 2008
$000
(174)
1,614
4,472
9,458
(9,803)
175
–
321
921
7,378
634
(2,224)
–
–
–
–
1,080
35,345
–
1,853
(761,677)
–
(176)
(463)
(986)
(3,323)
186
(174)
1,759
4,930
16,930
22,853
(1,863)
(743,073)
(7,685)
36,425
(2,909)
(717,242)
Property, plant and equipment**
(761,677)
(19,319)
Property, plant and equipment**
(748,815)
(14,715)
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
Parent
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
Parent
Investment in associate
Inventories
Employee benefits
Provisions
Financial instruments
Other
Total
*
The change in tax rate column reflects the net change in deferred tax as a result of the reduction in the corporate income tax
rate to 30 per cent enacted in May 2007 and effective for Contact’s income tax year ending 30 June 2009. The effect of the
change was recognised in the Income Statement in 2008 (Group $0.4 million and Parent $0.5 million) and in equity (Group
and Parent $3.4 million) consistent with the underlying items that gave rise to the deferred tax.
** Deferred tax on the revaluation increment of generation property, plant and equipment as at 30 June 2007 is recorded
against the asset revaluation reserve in equity. Refer to note 13. Contact holds its property, plant and equipment on capital
account for income tax purposes. Where the generation plant and equipment and generation capital work in progress is
revalued, and there is no similar adjustment to the tax base, a taxable temporary difference is created that is recognised in
deferred tax. The deferred tax liability on these revaluations would not crystallise under existing income tax legislation if the
assets were to be sold at the balance sheet date. At 30 June 2009, the amount of deferred tax relating to the revaluation of
generation plant and equipment and generation capital work in progress was $535.7 million (2008: $563.5 million).
Unrecognised deferred tax assets and liabilities
There are no unrecognised deferred tax assets and liabilities.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
30 Commitments
Capital and investment commitments
Not later than one year
Later than one year and not later than five years
Later than five years
Contact Energy Limited Annual Report 2009
105
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
173,612
75,658
551
151,429
108,481
3,814
173,426
75,658
551
151,429
108,481
3,814
Total capital and investment commitments
249,821
263,724
249,635
263,724
Operating lease commitments
The operating leases are of a rental nature and are on normal commercial terms and conditions. The majority of the lease
commitments are for building accommodation. The remainder relate to vehicles, plant and equipment.
Not later than one year
Later than one year and not later than five years
Later than five years
Total operating lease commitments
Lease commitments are stated exclusive of GST.
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
6,592
13,395
9,728
5,780
14,319
11,959
4,796
10,816
5,114
4,134
11,381
7,608
29,715
32,058
20,726
23,123
Other operating commitments
Other operating commitments comprise a portion of long term maintenance agreements entered into for generation assets,
with the remainder of commitments under these agreements included in capital and investment commitments.
Not later than one year
Later than one year and not later than five years
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
6,661
5,703
5,172
9,962
6,661
5,703
5,172
9,962
Total other operating commitments
12,364
15,134
12,364
15,134
106
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Gas commitments
Maui contracts with Maui Development Limited
Contact has entered into four contracts to secure Maui gas with Maui Development Limited, each with a 1 April 2007 first
delivery date and a 31 December 2014 expiry date. Delivery of gas from early 2014 is subject to confirmation of sufficient
Maui reserves. Under the four contracts and while the contracts remain in effect, Contact has agreed to make fixed annual
payments for the right to take gas. The contracts require Contact to have arrangements in place in order to transport the gas
in the Maui pipeline.
Shell New Zealand Limited
Contact has a contract with Energy Finance NZ Limited (a Shell New Zealand Limited subsidiary), whereby Contact has agreed
to make fixed monthly payments over the period 1 October 2007 to 31 December 2010 for the right to take gas.
OMV New Zealand Limited
Contact has contracts with OMV New Zealand Limited giving Contact rights to gas from the Pohokura gas field until 31 December
2013. Under the current contract that expires on 31 March 2012, Contact is committed to pay fixed fees and may have to pay
additional fees if the amount of gas actually uplifted is less than a contractually specified amount on each day. Under the second
contract that has a first delivery date of 1 April 2012 and expiry date of 31 December 2013, Contact has agreed to make fixed
annual payments for the right to take gas.
Both contracts require Contact to have arrangements in place to transport the gas in the Maui pipeline.
Gas transmission contracts
Contact has contracts with Vector Gas Limited relating to the transport of natural gas. Under these contracts, Contact is
committed to pay minimum fees for reserved pipeline capacity.
31 Resource consents
Contact requires resource consents (authorisations to use land, water and air obtained under the Resource Management Act
1991) to enable it to operate its geothermal, thermal and hydro power stations. The duration of resource consents may vary
up to a maximum of 35 years except for land use consents, which run for the duration of the activity they authorise. The current
resource consents within which Contact’s power stations operate are due for renewal at varying times.
In addition to consents for its existing operational power stations, Contact holds resource consents to construct and operate
a new 400 megawatt (MW) combined-cycle power station (Otahuhu C) and has the ability to construct and operate a 120 MW
open-cycle power station under its existing consents (Otahuhu A), both at its Otahuhu site. Contact also has consents to
construct and operate an up to 500 MW combined-cycle power station at its Stratford site (TCC 2). Lapse dates on the consents
for the combined-cycle plants have been extended to 2011 (Otahuhu C) and 2017 (TCC 2).
Contact also has consents to construct and operate a net 220 MW geothermal power station at Te Mihi (near Taupo), a 200 MW
gas-fired peaking power station at Stratford and a 20 MW geothermal binary plant at Taupo. Construction of the Stratford
gas-fired peaking power station and the geothermal binary plant has started. Contact is applying for a variation of consents
to allow the geothermal binary plant at Taupo to operate at 23 MW.
Contact has obtained consents to construct and operate a 17.2 MW hydro power station on the Hawea dam.
In addition, Contact has applied to vary one of its Clutha hydro consents which would provide a greater operating range
in Lake Roxburgh.
Contact has filed applications for a 177 MW wind farm at Waitahora, near Dannevirke in the Manawatu. Initial consents
have been declined, and Contact has appealed to the Environment Court and is currently awaiting formal court mediation.
Contact has also filed applications for an up to 540 MW wind farm on the west Waikato coast called Haua–uru ma– raki. The
applications were called in by the Minister for the Environment to be heard by a board of inquiry. The hearing commenced
in April 2009 and has been adjourned for 12 months until May 2010.
32 Related party transactions
Parent company
As at 30 June 2009, Origin Energy Pacific Holdings Limited was the major shareholder in the Parent, owning 50.6 per cent
(2008: 50.6 per cent) of the ordinary shares of the Parent.
Further shares amounting to 0.8 per cent (2008: 0.8 per cent) of the Parent’s ordinary shares are held by Origin Energy
Universal Holdings Limited and Origin Energy New Zealand Limited. All three companies are 100 per cent ultimately owned
by Origin Energy Limited, an Australian incorporated company.
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Contact Energy Limited Annual Report 2009
107
Identity of related parties with whom material transactions have occurred
Notes 21, 22, and 23 identify group entities, associates and joint ventures in which Contact has an interest. All of these entities
are related parties of the Parent.
Related parties also include other Origin Energy Group entities, the Directors and members of the Senior Management Team.
Material related party transactions
Transactions with ultimate parent entity
•
David Baldwin, Managing Director of Contact, is seconded to Contact from his employer Origin. Fees incurred or accrued
during the year ended 30 June 2009 in relation to David’s role as Managing Director totalled $1.0 million (2008: $1.1 million),
which includes the cost of his salary and other employment benefits including the 2008/09 short term performance incentive.
At 30 June 2009 $0.2 million (2008: $0.5 million) of this amount remained outstanding. In addition, he received share-based
payments under the Parent’s long term incentive scheme amounting to $0.5 million (2008: $0.3 million), being the fair value
of the share-based payments allocated to this reporting period. Refer to note 14.
•
•
•
•
•
In the period ending 30 June 2009, Origin was employed for consulting work on the Stratford Peaker project. Transactions
totalled $0.1 million, all of which is outstanding at 30 June 2009.
During the year Contact and Origin undertook a joint marketing project for renewal of both parties’ insurance cover. Contact and
Origin are covered under separate policies.
On 12 June 2008, Contact’s ultimate parent company Origin acquired certain New Zealand oil and gas assets from Swift for
approximately $110.0 million. Among these assets was a PML to an area that includes the Ahuroa reservoir. Contact paid
$52.0 million of the total purchase price to Origin effectively in exchange for a beneficial interest in the PML as it relates to
the Ahuroa reservoir and the gas and LPG reserves contained therein. Contact is developing the Ahuroa field as an underground
gas storage facility. Refer to notes 19 and 20.
A further payment relating to the initial gas and LPG reserves acquired as part of the acquisition of the gas storage rights of
$2.6 million was made to Origin in April 2009 following an independent reservoir measurement as at the date of acquisition.
Contact and Origin have entered into a Master Services Agreement for the provision of professional, consulting and/or
administrative services between the parties. During the year, Contact had one member of the Senior Management Team on
secondment at Origin under this agreement. The reimbursement for the secondment is at arm’s length and is outstanding at
balance sheet date. There were no other payments for services entered into under this agreement for the year ended 30 June
2009 or 30 June 2008.
- Contact and Origin are party to a Statement of Work dated 27 April 2007 relating to the provision of transitional services
in connection with the sale of the Rockgas Limited business.
- Contact and Origin are party to a Statement of Work dated 28 August 2007 relating to the acquisition of the New Zealand
assets of Swift.
Transactions with other Origin related parties
•
During the year ended 30 June 2009, Contact had transactions with Origin Energy Resources NZ Limited, a subsidiary of
Origin, in respect to the development and operation of the Ahuroa gas storage facility. During the year, the transactions
totalled $3.8 million. At 30 June 2009, there are outstanding fees of $0.6 million relating to management costs.
•
Contact and Origin Energy Resources have entered into a LPG Gas Sales Agreement for the supply of LPG from the Rimu
Production Station and any LPG produced from the Waihapa Production Station. Transactions for the year totalled $2.9 million
(2008: nil), of which $0.2 million (2008: nil) remained outstanding at 30 June 2009.
Transactions with subsidiaries
•
Advances to/from subsidiaries and loan from associate are included in notes 16, 25 and 27 respectively. Advances are repayable
on demand and are interest free.
•
•
•
The Parent had transactions with Empower Limited, a 100 per cent owned subsidiary, in respect of electricity charges, network
charges and management fees, which are calculated at arm’s length. These charges totalled $16.0 million (2008: $16.7 million).
All balances are settled through the intercompany account.
The Parent had transactions with Stratford Power Limited, a 100 per cent owned subsidiary, in respect of gas purchases, which
are calculated at arm’s length. Purchases from Stratford Power Limited totalled $115.2 million (2008: $104.2 million) of which
$11.0 million (2008: $10.1 million) was outstanding at 30 June 2009.
Contact pays various operating expenses on behalf of its wholly owned subsidiaries, which are passed directly on to those
subsidiaries.
108
Contact Energy Limited Annual Report 2009
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Transactions with Directors and key management personnel
•
Fees paid or accrued to Directors and Officers of Origin for director services totalled $0.4 million for the year
(2008: $0.1 million). Outstanding amounts at 30 June 2009 totalled $0.1 million (2008: $0.1 million).
•
New Zealand based Directors and members of the Senior Management Team purchase gas and electricity from
the Group for domestic purposes.
Transactions with other related parties
•
Rockgas Limited had transactions with Origin Energy LPG Limited, Origin Energy Contracting Limited and Origin Energy
Resources Limited, all entities within the Origin Energy Group, in respect of the purchase and shipping of LPG. The
transactions are calculated at arm’s length. During the year ended 30 June 2009, transactions totalled $45.0 million
(2008: $49.5 million). At 30 June 2009, $4.6 million (2008: $6.0 million) remained outstanding.
•
Rockgas Limited had transactions with Rockgas Timaru Limited (Rockgas Timaru), an associate, in respect of the supply of
LPG to Rockgas Timaru (30 June 2009: $1.1 million (2008: $1.0 million)) and the provision of deliveries by Rockgas Timaru
(30 June 2009: $0.3 million (2008: $0.1 million)), which are calculated at arm’s length. At 30 June 2009, a receivable of
$0.2 million (2008: $0.3 million) remained outstanding.
33 Key management personnel
The table below includes the aggregate remuneration for the Directors, the Managing Director and members of the Senior
Management Team.
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Note
Directors’ fees
853
770
853
770
Managing Director and Senior Management Team
Salary and other short term benefits
Share-based payments
Total Managing Director and Senior Management Team
Total key management personnel
14
4,911
1,050
5,961
6,814
5,566
933
6,499
7,269
4,911
1,050
5,961
6,814
5,566
933
6,499
7,269
Details of the total remuneration and the value of other benefits paid to (or accrued for) each Director of Contact are as follows:
Group and Parent
For the year ended 30 June 2009
Director**
G King
P Pryke
B Beeren
J Milne
K Moses
T Saunders
S Sheldon (appointed 16 March 2009)
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
D Baldwin (appointed 16 March 2009)***
Managing Director
Board fees
$
133,333
150,000
100,000
100,000
66,667
100,000
29,445
–
Committee
fees
$
Total
remuneration*
$
–
–
44,714
77,500
10,000
33,150
7,842
–
133,333
150,000
144,714
177,500
76,667
133,150
37,287
–
Total
679,445
173,206
852,651
Contact Energy Limited and Subsidiaries
Notes to the financial statements
for the year ended 30 June 2009
Group and Parent
For the year ended 30 June 2008
Director
G King
P Pryke
B Beeren
J Milne
K Moses
T Saunders
Total
Contact Energy Limited Annual Report 2009
109
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Board fees
$
–
150,000
100,000
100,000
–
Committee
fees
$
Total
remuneration*
$
–
214,815
27,000
50,000
–
–
364,815
127,000
150,000
–
100,000
28,150
128,150
450,000
319,965
769,965
*
Pursuant to Contact’s constitution, Directors are not entitled to any payment in connection with their retirement or
cessation of office.
** Remuneration paid and payable to Origin associated Directors Grant King, Bruce Beeren and Karen Moses is paid to them
in their individual capacities and complies with the NZX waiver dated 12 May 2008.
*** David Baldwin, as Managing Director, does not receive any fees in his capacity as an Executive Director.
34 Whirinaki generation plant
Contact is contracted to operate the Crown-owned reserve generation plant at Whirinaki in Hawke’s Bay.
Contact owns the Whirinaki site and has agreed to lease it to the Crown until June 2015. The Crown owns the plant and has
engaged Contact to operate and maintain it until June 2015.
Under the Project Development agreement entered into in 2003, the Crown agreed to pay Contact compensation for loss of
use of the site. Contact also received a fee for project managing construction of the plant, and receives an annual fee under
the Operating and Maintenance Management Services Agreement.
35 Contingent liabilities
There are no known material contingent liabilities (2008: Nil).
36 Subsequent events
On 13 August 2009, the Board declared a distribution in the form of a non-taxable bonus issue for the year ended 30 June
2009 equivalent to 17 cents per share, for shares on issue at 28 August 2009, the record date, with bonus shares allotted
and/or cash distributed if elected on 22 September 2009. Refer to note 10.
110
Contact Energy Limited Annual Report 2009
Audit Report
To the shareholders of Contact Energy Limited
We have audited the financial statements on pages 56 to 109. The financial statements provide information about the past
financial performance and financial position of the company and the group as at 30 June 2009. This information is stated in
accordance with the accounting policies set out on pages 61 to 70.
Directors’ responsibilities
The Directors are responsible for the preparation of financial statements which give a true and fair view of the financial
position of the company and group as at 30 June 2009 and the results of their operations and cash flows for the year ended
on that date.
Auditors’ responsibilities
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and report
our opinion to you.
Basis of opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements.
It also includes assessing:
•
•
the significant estimates and judgements made by the Directors in the preparation of the financial statements;
whether the accounting policies are appropriate to the company’s and group’s circumstances, consistently applied and
adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to
obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence
to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by
fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the
financial statements.
Our firm has also provided other assurance services to the company. Partners and employees of our firm may deal with
the company and group on normal terms within the ordinary course of trading activities of the business of the company
and group. These matters have not impaired our independence as auditors of the company and group. The firm has no
other relationship with or interest in the company or any of its subsidiaries.
Unqualified opinion
We have obtained all the information and explanations we have required.
In our opinion:
•
•
proper accounting records have been kept by the company as far as appears from our examination of those records;
the financial statements on pages 56 to 109:
– comply with New Zealand generally accepted accounting practice;
–
give a true and fair view of the financial position of the company and group as at 30 June 2009 and the results
of their operations and cash flows for the year ended on that date.
Our audit was completed on 13 August 2009 and our unqualified opinion is expressed as at that date.
Wellington
Contact Energy Limited Annual Report 2009
111
Corporate directory
Board of Directors
Grant King, Chairman
Phillip Pryke, Deputy Chairman
David Baldwin, Managing Director
Bruce Beeren
John Milne
Karen Moses
Sue Sheldon
Senior management
David Baldwin, Managing Director
Steve Bielby, General Counsel and Company Secretary
Graham Cockroft, Chief Operating Officer
Jason Delamore, General Manager, Retail
Luc Hennekens, Chief Information Officer and General Manager, ICT
Liz Kelly, General Manager, Development and Acquisitions
Nigel Thomson, Acting Chief Financial Officer
Head office
Level 1, Harbour City Tower
29 Brandon Street, Wellington, New Zealand
Postal address
PO Box 10742, The Terrace, Wellington 6143, New Zealand
Telephone 64 4 499 4001 Facsimile 64 4 499 4003
Email: investor.centre@contactenergy.co.nz
Website: www.contactenergy.co.nz
NZX trading code: CEN
Company number: 660760
112
Contact Energy Limited Annual Report 2009
Share registrar
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
159 Hurstmere Road
Takapuna, North Shore City 0622
Shareholder enquiries
To change your address, add or change your bank account and to view your registered details including
transactions, please visit:
www.computershare.co.nz/investorcentre
General enquiries can be directed to:
enquiry@computershare.co.nz
Private Bag 92119, Auckland 1142
Telephone +64 9 488 8777 Facsimile +64 9 488 8787
Please assist our registrar by quoting your CSN or shareholder number.
General enquiries on the company’s operating and financial performance should be made to the company at:
General Manager, Development and Acquisitions
Contact Energy Limited
PO Box 10742, The Terrace, Wellington 6143
Email: investor.centre@contactenergy.co.nz
Financial calendar
Final distribution announced
Record date for final distribution
Cut-off date for receipt of election notices for buy back of bonus shares
under Profit Distribution Plan
Final distribution date
End of first quarter
Annual meeting
Half year end
Results announcement for the half year ended 31 December 2009
End of third quarter
Financial year end
14 August 2009
28 August 2009
Noon, 17 September 2009
22 September 2009
30 September 2009
22 October 2009
31 December 2009
February 2010
31 March 2010
30 June 2010
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