2010
2010 Contents
1
2
4
6
9
22
26
39
50
Summary
Performance indicators
Chairman’s review
Managing Director’s review
Management discussion of fi nancial results
Company overview
Governance
Remuneration report
Security holder information
Financial contents
54
60
110
Financial statements
Notes to the fi nancial statements
Audit report
111
Corporate directory
The 2010 Annual Meeting of Contact Energy Limited shareholders will be
held at the Christchurch Convention Centre, 95 Kilmore Street, Christchurch
on Wednesday 27 October 2010, commencing at 10:30am [NZDST].
The Notice of Annual Meeting and shareholder voting/proxy form are provided
separately to shareholders.
Contact Energy Limited Annual Report 2010
1
Summary
For the fi nancial year ended 30 June 2010
• Portfolio infl exibility in another wet year, together with rising retail costs,
impacted on Contact Energy’s result for the fi nancial year ended 30 June 2010,
with Underlying Earnings after Tax for the fi nancial year of $150 million down
six per cent from $159 million for the 12 months to 30 June 2009
• Te Huka geothermal power station (23 MW) was handed over to Contact for
commercial operation on 23 May 2010, under budget and ahead of schedule
• Chosen as joint venture partner by the Taheke 8C and Adjoining Blocks
Incorporation for the exploration and possible development of the Taheke
geothermal fi eld
• Lodged applications for resource consents with the Environmental
Protection Authority for the proposed Tauhara 2 geothermal development
project in Taupo
• Continued to advance plans for the Te Mihi geothermal power station
(having obtained fi nal resource consents in 2008)
• Continued construction of the 200 MW Stratford peaker plant
• Injected a further 5.2 PJ into the Ahuroa gas storage facility and continued to
invest in infrastructure to enable the extraction, as well as injection of gas
• Grew Contact’s time of use customer base by seven per cent
• Signifi cantly improved our health and safety performance, reducing our total
recordable injury frequency rate by 25 per cent
• Continued to advance the resource consent applications for the proposed
raki and Waitahora wind farm projects (located in the Waikato and
_
uru ma
_
Haua
southern Hawke’s Bay respectively)
For more information, please visit our website at www.contactenergy.co.nz or contact:
Investor Relations
PO Box 10742
The Terrace
Wellington 6143
Phone: 64 4 499 4001
Email: annualreport@contactenergy.co.nz
2
Contact Energy Limited Annual Report 2010
Performance indicators
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45
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35
30
25
20
15
10
5
600
500
400
300
200
100
130
120
110
100
90
80
70
60
Underlying earnings for the period1
Total operating revenue
241.7
231.3
230.4
158.7
149.8
2,757
2,330
1,998
2,220
2,164
s
n
o
i
l
l
i
M
$
3,000
2,500
2,000
1,500
1,000
500
2006A
2007B
2008B
2009B
2010B
2006
2007
2008
2009
2010
EBITDAF2
Operating cash fl ow per share3
557.0
543.7
567.2
445.3
427.0
70.6
72.8
71.2
61.8
82.9
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90
80
70
60
50
40
30
20
10
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Underlying earnings per share1,3
Net debt/debt+equity1
40.53
38.78
38.65
26.62
25.13
23
25
25
32
29
t
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35
30
25
20
15
10
5
2006A
2007B
2008B
2009B
2010B
2006
2007
2008
2009
2010
Capital and investment expenditure1
Underlying return on total assets1
285.2
134.9
150.7
492.1
468.7
t
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c
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P
6
5
4
3
2
1
5.3
5.0
4.8
3.2
2.9
2006
2007
2008
2009
2010
2006A
2007B
2008B
2009B
2010B
CEN relative to the NZX50
Shareholder return
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2006
2007
2008
2009
2010
Contact Energy Limited Annual Report 2010
3
Generation by fuel source4
Wholesale electricity price
6,649
5,413
623
5,351
417
4,094
1,820
3,065
1,968
2,180
2,311
3,639
3,504
3,543
3,760
492
3,654
2,277
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125
100
75
50
25
92.84
106.90
53.70
56.08
52.23
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Hydro
Geothermal
Thermal
Swaption
Retail electricity sales4
Customer numbers (including LPG franchisees)
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14,000
12,000
10,000
8,000
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10,000
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7,877
7,703
7,674
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79
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600
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400
300
200
100
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Electricity
Gas
LPG
Underlying return on shareholders’ equity1
Total assets1
10
9.48
8.82
8.79
4,576
4,585
4,837
5,026
5,148
5.97
5.40
s
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$
6,000
5,000
4,000
3,000
2,000
1,000
2006A
2007B
2008B
2009B
2010B
2006
2007
2008
2009
2010
Profi t distribution and dividends per share
Shareholders’ equity1
26.0
27.0
28.0
28.0
25.0
2,549
2,621
2,621
2,660
2,777
s
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$
3,000
2,500
2,000
1,500
1,000
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2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Notes to the graphs
Comparatives have been restated to refl ect current period presentation where appropriate.
• The above fi nancial statistics, returns and ratios are based on Financial Statements prepared in accordance with New Zealand equivalents to International Financial
Reporting Standards (NZ IFRS).
A Excludes gain on disposal of subsidiaries and change in fair value of fi nancial instruments, both net of tax.
B Excludes change in fair value of fi nancial instruments and other signifi cant one-off items both net of tax where appropriate.
1 Comparative fi nancial statistics, returns and ratios have been restated due to a voluntary change in accounting policy in 2010 that has been retrospectively applied.
2 Earnings before net interest expense, income tax, depreciation, amortisation, change in fair value of fi nancial instruments and other signifi cant items.
3 Underlying earnings per share and operating cash fl ow per share for each year have been calculated using the weighted average number of shares on issue in 2010,
in order to eliminate the impact of changes in share base on these performance indicators. Comparatives have been restated as appropriate.
4 Generation by fuel source and retail electricity sales have been adjusted to refl ect the change in reportable segments. Comparatives have been restated as appropriate.
4
Contact Energy Limited Annual Report 2010
Chairman’s review
The fi nancial year ending 30 June 2010 was not without its challenges for Contact, with wet weather hindering
Contact’s performance. However, considerable progress was made during the year on the investments that will
restore fl exibility, the benefi ts of which were beginning to be seen during the fi nancial year, as well as on the future
options that will deliver growth.
For the fi nancial year ending 30 June 2010, Contact achieved Earnings Before Net Interest Expense, Income Tax,
Depreciation, Amortisation, Change in Fair Value of Financial Instruments and Other Signifi cant Items (EBITDAF)
of $427 million, down 4 per cent from $445 million in the 2009 fi nancial year. Underlying Earnings after Tax for
the year were $150 million, down 6 per cent from $159 million.
Performance during the year was impacted by higher than normal rainfall, resulting in lower wholesale electricity
prices, which consequentially constrained the extent to which higher gas and network costs could be recovered.
The wet conditions also resulted in higher levels of hydro generation at a time when Contact was contracted to
take, or pay for, relatively high volumes of gas. To mitigate the impact of surplus gas during the year, the company
expedited the delivery of additional gas compression equipment to the Ahuroa underground gas storage project,
which resulted in about half of the 10 petajoules of surplus gas being injected into Ahuroa. Although the company
incurred about $24 million of additional gas costs due to the wet conditions, injecting gas into Ahuroa saved about
$30 million during the year, which indicates how important the Ahuroa gas storage project is to Contact in
re-establishing gas supply fl exibility.
Another project that the company initiated in 2007 to restore operational fl exibility is the 200 megawatt Stratford
peaker project. The project is currently commissioning and expected to be operational in the fi rst half of the 2011
fi nancial year.
During the fi nancial year Contact completed the Te Huka geothermal power station, the fi rst in a series of
developments that leverage the company’s position in geothermal energy. Te Huka was delivered into commercial
operation on 23 May 2010, under budget, ahead of schedule and exceeding planned generation output.
The company was also selected by the Taheke 8C and Adjoining Blocks Incorporation to jointly develop the Taheke
geothermal project. The partnership represents a signifi cant step forward for Contact in the joint development of
energy resources with iwi.
Distribution to shareholders
The Contact Board of Directors resolved that the fi nal distribution to shareholders would be the equivalent of
14.0 cents per share, resulting in a total distribution for the year of 25.0 cents per share per year, a reduction
of 3.0 cents from the prior fi nancial year. The 2010 distribution to shareholders refl ects the company’s fi nancial
performance in the year in review, which was impacted primarily by wet conditions. The distribution represents
a payout ratio of 100 per cent of Contact’s underlying earnings per share. Directors considered this approach
prudent under the circumstances.
Financial position
Based on the NZD equivalent of borrowings, after foreign exchange hedging and before deferred fi nancing costs,
and net of short-term deposits, net debt as at 30 June 2010 was $1,347.1 million, compared with $1,124.2
million as at 30 June 2009. This is largely due to the ongoing capital expenditure associated with the three major
growth projects under construction.
Contact remains in good fi nancial health and well positioned for the future.
The company remains conservatively geared, with a net debt to net debt plus equity ratio at the end of the fi nancial
year of 32 per cent. The operating cash fl ow for the fi nancial year ended 30 June 2010 was $368 million – while
this was $56 million lower than in the prior fi nancial year as a result of the weather conditions, it represents a
strong basis from which to fund the ongoing growth in the business.
Contact Energy Limited Annual Report 2010
5
Governance
There have been two changes to the Board over the year in review. In March 2010, Whaimutu Dewes joined
the Board as an independent director. Whaimutu has held numerous directorships in organisations including
Television New Zealand and the AMP New Zealand Advisory Board and acted as Deputy Chair of Sealord Group
between 1992 and 2008. He is of Ngati Porou and Ngati Rangitihi descent.
In June 2010, John Milne, one of the founding directors, retired from the Board after 15 years of service. John
served the company from the time it was created as a state-owned enterprise in 1995 and over that time has
made a tremendous contribution to the company’s continued success and development. John has been integral
to a range of signifi cant processes and achievements. Following the split up of ECNZ, John’s skills contributed
greatly to bringing the relevant assets together, and ensuring the company could operate as a successful business.
The Board has valued John’s impeccable recollection of the many issues that have marked the development of
Contact and his status as a senior independent director has stood the company in good stead through the years.
On behalf of the Board I thank John for his contribution and commitment to the company and its people, and wish
him well for his future endeavours.
Outlook
In light of the range of market and operating uncertainties, particularly in relation to hydrology, it would be
inappropriate to provide specifi c quantitative guidance for the 2011 full-year performance.
The 2011 fi nancial year will be a year of two halves. Continuing high levels of take-or-pay gas and high hydro
infl ows are likely to result in the fi rst half being broadly similar to the fi rst half of the 2010 fi nancial year. EBITDAF
in the second half of the 2011 fi nancial year is expected to benefi t from increased operational fl exibility as the
Ahuroa gas storage and Stratford peaker plant are brought into commercial operation, and as take-or-pay gas
levels reduce from January 2011.
With the portfolio well on its way to restoring fl exibility, geothermal development will become Contact’s priority
generation investment.
Grant King
Chairman
6
Contact Energy Limited Annual Report 2010
Managing Director’s review
Strategic initiatives position Contact well for the future
Strategy for portfolio fl exibility
The ability to adjust the volume of gas to suit demand requirements is central to Contact’s ability to perform
well in either wet or dry conditions. Until 2006, highly fl exible Maui 367 gas supply contracts enabled Contact
to reduce generation from its gas-fi red stations during periods of low gas demand (during summer or high-hydro
infl ow periods for example) and increase gas supplies during low-hydro or high electricity demand periods.
By 2007, Contact’s Maui 367 gas contracts had been replaced with signifi cantly more expensive and highly
infl exible gas supply arrangements. To illustrate: in FY06 Contact’s gas costs were approximately $4.70 per
gigajoule1 – and the amount of gas Contact required could be tailored to suit requirements. By contrast, in
FY10, Contact’s gas costs were approximately $8.50 per gigajoule1 – with a requirement to take, or pay for,
52 petajoules of gas (which is appropriate for a dry year but signifi cantly more gas than required for a high-hydro
year). Essentially, Contact’s gas costs rose from $244 million in FY06 to $445 million per year in FY10 (on an
equivalent volume basis), and the amount of gas can no longer be tailored to suit the operating environment.
The combination of higher gas costs and the requirement to take, or pay for, gas – irrespective of whether the
gas is needed or not – has signifi cantly constrained the value of Contact’s portfolio diversity. For this reason,
in 2007, Contact initiated two projects which, upon completion, will restore fl exibility back into the portfolio.
The development and construction of both of these projects will be complete by the end of 2010.
The fi rst is the Ahuroa underground gas storage project. The $170 million Ahuroa project will provide Contact
with the ability to store gas in periods of low demand and to extract gas during periods of high demand. Although
still in the development phase, Ahuroa made a signifi cant contribution to Contact’s FY10 results by allowing
Contact to inject fi ve petajoules – half of the volume of gas that Contact was unable to utilise during the year
but was required to pay for.
The Contact team’s eff orts to accelerate the development of the Ahuroa gas storage project, to enable the injection
of this volume of gas during the fi nancial year, saved the company tens of millions of dollars.
The second project Contact initiated in 2007 is the Stratford peaker project. The $250 million fast-start power
station will add to New Zealand’s security of supply by balancing weather-dependent renewables such as wind
and hydro, and adding to supply during periods of peak electricity demand. The Stratford peaker is currently
commissioning and is expected to be operational in November 2010.
Strategy for growth
Contact’s strategy for growth remains focussed on pursuing a range of options across the major fuel types – gas,
geothermal, wind and hydro – that the company can execute at the right time.
Geothermal developments
Contact’s geothermal development team did an outstanding job in delivering the $100 million Te Huka geothermal
plant (formerly known as Tauhara 1) into commercial operation in May 2010, under budget and ahead of schedule.
The team is also continuing to develop the Te Mihi geothermal project (having obtained fi nal resource consents
in 2008), in addition to progressing the consent process for the 250 megawatt Tauhara 2 geothermal project.
The Tauhara 2 consent application was lodged in February 2010 and is the fi rst major energy project to be
accepted under the new fast-track process managed by the Environmental Protection Authority. A decision
on the application is due in early 2011.
1 Including transmission costs
Contact Energy Limited Annual Report 2010
7
Another accomplishment in FY10 was the Taheke 8C and Adjoining Blocks Incorporation (Taheke Inc) selecting
Contact to be its joint development partner for the Taheke geothermal project. We are excited to be partnering
with Taheke Inc and are looking forward to commencing exploration drilling this year.
Wind, hydro and gas developments
In addition to the array of geothermal projects the company is developing, Contact is continuing to advance the
_
_
raki and Waitahora wind farm projects (located in north-west
uru ma
resource consent applications for the Haua
Waikato and southern Hawke’s Bay respectively). Also, Contact is continuing to engage with community groups
on potential hydro projects on the Clutha River, and is investigating several North Island sites for new gas-fi red
generation projects.
Our people
Safety
Contact made good progress in its health and safety performance, reducing the total recordable injury frequency
rate for staff and contractors by 25 per cent in FY10. Safety is Contact’s highest priority and during FY10
Contact invested in systems and training to foster the company’s safety culture in order to progress toward our
aspiration of zero harm.
Enterprise Transformation programme
Contact is currently implementing new systems to support the business’s fi nancial, generation and asset
management, and retail functions, in a project known as Enterprise Transformation. The fi rst wave of Enterprise
Transformation is on track to be delivered later in 2010, with subsequent waves (for asset management and
retail) rolling out in 2011 and 2012.
Our customers
Retail competition continued to intensify during the year, with the number of customers switching retailers
increasing from an average of 20,000 per month in July 2009 to around 25,000 per month in July 2010.
During FY10, Contact grew its larger commercial and industrial (time of use) customer volumes – which were up
seven per cent on the previous year – while maintaining residential customers, despite the competitive intensity
and rising prices.
Our communities
One of our biggest achievements this year was the opening of the Te Huka geothermal power station. We
celebrated the launch with the unveiling of a pou Te Huka, a sculpture and guardian carved by local master
carver Delani Brown.
Delani also carved the waharoa, a nine metre high entranceway, gifted by Contact to the community in November
2009 to celebrate 50 years of geothermal energy generation at Wairakei power station. The waharoa provides a
symbolic new landmark for Taupo and a tangible link between Contact and all local community interests. It is
located in front of the cenotaph on Tongariro Street, Taupo.
8
Contact Energy Limited Annual Report 2010
Conclusion
Over the coming fi nancial year, the benefi ts of the strategy we initiated in 2007 will start to be realised,
particularly through the completion of the Stratford peaker and Ahuroa gas storage projects. We are also
looking forward to favourable decisions on major new resource consent applications – which form the
basis of the company’s future growth.
With the fi rst elements of our strategy coming to fruition, we are entering a new phase of development. I look
forward to engaging with our people, our customers, the communities with which we’re involved and Contact’s
many other stakeholders to ensure we meet the challenges of the years ahead.
David Baldwin
Managing Director
Contact Energy Limited Annual Report 2010
9
Management discussion
of fi nancial results
for the twelve-month period ended 30 June 2010
Financial results to 30 June 2010
Key fi nancial information
12 months ended
30 June 2010
$ million
12 months ended
30 June 2009
$ million
$ million
Variance
Operating revenue and other income
Operating expenses (1)
EBITDAF (2)
Depreciation and amortisation
Equity accounted earnings of associates
Change in fair value of fi nancial instruments
Removal of New Plymouth asbestos and related costs
Impairment of Gasbridge assets
Retail transaction processing outsourcing costs
Earnings Before Net Interest Expense and Income Tax (EBIT)
Net interest expense
Income tax expense
Profi t for the period
Underlying earnings after tax (3)
Shareholders’ equity
2,164.4
(1,737.4)
427.0
(161.9)
3.3
4.5
(5.6)
–
(3.3)
264.0
(56.0)
(53.3)
154.7
149.8
2,220.1
(1,774.8)
445.3
(165.9)
3.6
(57.5)
–
(2.8)
–
222.7
(62.7)
(44.4)
115.6
158.7
(55.7)
37.4
(18.3)
4.0
(0.3)
62.0
(5.6)
2.8
(3.3)
41.3
6.7
(8.9)
39.1
(8.9)
2,776.8
2,659.6
117.2
%
(3%)
2%
(4%)
2%
(8%)
(108%)
–
–
–
19%
11%
(20%)
34%
(6%)
4%
1 Includes electricity purchases.
2 Earnings before net interest expense, income tax, depreciation, amortisation, change in fair value of fi nancial instruments and other signifi cant items.
3 Underlying earnings after tax removes signifi cant one-off items and the non cash change in fair value of fi nancial instruments.
EBITDAF
For the year ending 30 June 2010 (‘FY10’), Contact’s Earnings Before Net Interest Expense, Income Tax,
Depreciation, Amortisation, Change in Fair Value of Financial Instruments and Other Signifi cant Items (EBITDAF)
was $427 million, $18 million (four per cent) lower than the prior corresponding period (‘FY09’).
FY10 was, in many respects, not dissimilar to FY09. Both years were impacted by weather conditions and
increasing retail competition. However, FY10 did not see the signifi cant constraints aff ecting the operation
of the Cook Strait cable that materially impacted Contact’s fi nancial performance in the fi rst half of FY09.
The wet conditions, which characterised the second, third and fourth quarters of FY09, were prevalent across the
majority of FY10. As a result, FY10 commenced with above-mean hydro storage levels, which then continued to be
above mean through most of the fi nancial year.
High hydro infl ows can result in periods of low wholesale electricity prices, making it uneconomic to convert
take-or-pay gas into electricity in Contact’s combined-cycle gas-fi red power stations. In FY10, Contact was
obligated to take or pay for 52 petajoules (PJ) of gas (approximately 5 PJ higher than FY09). 58 per cent (30 PJ) of
that volume was used in generation, 12 per cent (4 PJ) less than FY09. This was due, in part, to the relatively high
hydro infl ows, and in part because of an extended outage at the Otahuhu B combined-cycle gas-fi red plant from
December 2009 through March 2010. A further 23 per cent (12 PJ) was sold to Contact’s residential, commercial
and industrial gas customers during the year.
10
Contact Energy Limited Annual Report 2010
Contact was able to expedite the delivery of gas compression equipment to the company’s Ahuroa gas storage
project to enable 5 PJ of the remaining 10 PJ take-or-pay commitment to be injected into the Ahuroa gas
reservoir. A further 1.5 PJ were sold to an industrial customer and the remainder was not uplifted.
The costs associated with take-or-pay gas (gas paid for and not taken, and the loss on the 1.5 PJ sale to an
industrial customer), and the lower capacity factors of Contact’s combined-cycle gas-fi red stations, contributed
toward fi ve per cent higher unit generation operating costs relative to FY09.
Underlying increases in generation costs (particularly gas and maintenance costs of combined-cycle gas plants)
were, to a large extent, mitigated by an increase in the proportion of Contact’s renewable generation in FY10.
Renewables (geothermal and hydro) contributed 60 per cent of total generation volume in FY10, up from 55 per
cent in FY09.
As discussed earlier, high infl ows and surplus fuel resulted in periods of low wholesale electricity prices during
FY10. The average wholesale electricity price during FY10 was $52 per megawatt hour (MWh), compared with
$56 per MWh in FY09 and $107 per MWh in FY08 (which was a drier than average year). It was encouraging to
note, however, that wholesale prices from November 2009 through February 2010 were higher than the prior
corresponding period, even though hydro storage levels were higher than they were the prior year. This suggests
that the electricity market is adjusting to refl ect the costs and the role of thermal generation in balancing
weather dependent renewables such as hydro and wind. However, it is also clear that the market has yet to fully
refl ect the costs associated with thermal generation’s role of providing security of supply in a predominantly
renewable system.
Wholesale price volatility impacts the contribution from Contact’s exposed (unhedged) generation. The six
per cent decrease in average prices for the exposed generation relative to FY09 was more than off set by a
32 per cent increase in exposed generation volumes. The $40 million contribution to EBITDAF from exposed
generation, while 25 per cent higher than FY09, was about 60 per cent of a mean hydro year contribution.
The predominately wet conditions through the year negatively impacted Contact’s FY10 EBITDAF by at least
$30 million.
Retail competition intensifi ed across the country during the year, with national churn increasing from an average
of approximately 20,000 customers per month in July 2009 to approximately 25,000 customers per month in
July 2010.
While Contact largely maintained its customer numbers over the year, this did not come without higher costs.
Higher churn results in higher costs to retain and acquire customers, and increased customer debt write-off s
due to some customers switching away without paying their fi nal bill.
Network costs were $27 million (six per cent) higher than FY09, and, as mentioned earlier, energy costs were
also higher.
The intensity of the competition during FY10 constrained the extent to which these higher retail costs could
be passed on to consumers. Of the $48 million increase in retail costs, only $18 million (38 per cent) was
passed on to consumers through tariff increases. As a consequence, retail margins contracted from fi ve per
cent in FY09 to two per cent in FY10.
Retail margins are unsustainably low for the degree of risk electricity retailers are required to take. August 2008
clearly illustrated how events, such as extreme weather and transmission constraints, can combine to materially
impact the fi nancial performance of energy retailers. While the winter and spring events of 2008/09 were, in
part, due to extreme weather, retailers continue to be exposed to location and price risks arising from events
such as capacity constraints on the national transmission grid, the narrowing of capacity reserve margins, and
the increasingly ‘peaky’ demand for electricity. Retail prices will need to continue to rise to refl ect increasing
costs and risks.
Wholesale and retail gas and LPG sales contributed $40 million EBITDAF in FY10, up $7 million relative to FY09
due to an improvement in margins.
Contact Energy Limited Annual Report 2010
11
Depreciation
Depreciation expense decreased by $4 million or two per cent. The key movements largely refl ect the impact of
the periodic review of asset lives for Contact’s fi xed assets.
Change in fair value of fi nancial instruments
The reported profi t for FY09 was negatively aff ected by a non-cash pre-tax movement of $57.5 million in fi nancial
instruments. In the period ended 30 June 2010 a positive pre-tax adjustment of $4.5 million has been made for
the movement in fi nancial instruments.
Interest expense
Net interest expense for the period reduced by $6.7 million or 11 per cent to $56.0 million for FY10. While the
total net debt increased to $1.35 billion from $1.12 billion as at 30 June 2009, interest costs were lower primarily
due to the fact that interest on strategic initiatives, such as the Stratford peaker project, the Te Huka geothermal
project and the Ahuroa gas storage project is capitalised until construction is completed. In FY10, $48.2 million of
interest has been capitalised compared with $21.5 million in FY09.
Income tax expense
Income tax expense for FY10 was $53.3 million, up $8.9 million on FY09. This is due to the profi t before tax for
FY10 of $208.0 million being 30 per cent higher than the $160.1 million reported for the prior fi nancial year as
a result of:
•
•
a $62.0 million pre-tax positive movement in the value of fi nancial instruments;
changes arising from the recent tax legislation impacting the deferred tax liability ($7.9 million) composed of:
–
–
a reduction of $42.7 million: The corporate income tax rate changes from 30 per cent to 28 per cent from
1 July 2011. As a result, the portion of the deferred tax liability/asset held at 30 June 2010 that will not
crystallise until after 1 July 2011 has been restated to 28 per cent. The restated tax predominantly relates
to deferred tax on property, plant and equipment; and
an increase of $34.8 million: Tax depreciation on buildings with an estimated useful life of 50 years or
more can no longer be claimed from 1 July 2011. This has resulted in an increased deferred tax liability
on buildings, refl ecting the future income tax payable on the use of the buildings against which no tax
deduction is now available.
Reported profi t
NZ$ millions
EBITDAF
Depreciation and amortisation
Equity accounted earnings of associates
Change in fair value of fi nancial instruments
Removal of New Plymouth asbestos and related costs
Impairment of Gasbridge assets
Retail transaction processing outsourcing costs
Net interest expense
Income tax expense
Profi t for the period
12 months ended
1 July 2010
12 months ended
1 July 2009
Variance
$ million
427
(162)
3
5
(6)
–
(3)
(56)
(53)
155
445
(166)
4
(57)
–
(3)
–
(63)
(44)
116
(18)
4
(1)
62
(6)
3
(3)
7
(9)
39
%
(4%)
2%
(25%)
109%
–
100%
–
11%
(20%)
34%
12
Contact Energy Limited Annual Report 2010
In addition to the items infl uencing reported profi t discussed above, there were two signifi cant one-off items,
being an increase in the provision related to asbestos removal at the New Plymouth site of $5.6 million (pre-tax),
and a provision related to the costs of restructuring Contact’s back offi ce retail functions that are being outsourced
co-incident with Contact’s Enterprise Transformation project for retail operations of $3.3 million (pre-tax).
On a net basis, profi t for FY10 was $155 million, up $39 million (34 per cent) compared with FY09, primarily due
to the change in the fair value of fi nancial instruments.
Underlying earnings after tax
Underlying earnings after tax adjusts reported profi t for signifi cant one-off items and the non-cash change in the
fair value of fi nancial instruments. In FY10, notable adjustments were for the impact of the recent budget tax
changes, the New Plymouth asbestos related costs, and retail back offi ce outsourcing costs.
Underlying earnings after tax for FY10 were $150 million, down $9 million (six per cent) from the prior year. This
reduction is primarily due to the $18 million reduction in EBITDAF partially off set by an $11 million reduction in
depreciation and interest cost.
NZ$ millions
12 months ended
30 June 2010
12 months ended
30 June 2009
Variance
$ million
Profi t for the year
155
116
Removal of New Plymouth asbestos and related costs (after tax)
Impairment of Gasbridge assets
Retail transaction processing outsourcing costs (after tax)
Change in fair value of fi nancial instruments (after tax)
Change in corporate income tax rate
Removal of tax depreciation on buildings
Underlying earnings after tax
4
–
2
(3)
(43)
35
150
–
3
–
40
–
–
159
39
4
(3)
2
(43)
(43)
35
(9)
%
34%
–
(100%)
–
(108%)
–
–
(6%)
Distributions to shareholders
The Contact Board of Directors resolved that the fi nal distribution to shareholders would be the equivalent of
14 cents per share, resulting in a total distribution of 25 cents per share, a reduction of three cents from the
prior fi nancial year. The 2010 distribution to shareholders refl ects the fi nancial performance of the fi nancial year
in review, which was impacted primarily by wet conditions. The possibility that the distribution might be adjusted
if hydrology (among other things) continued to impact Contact’s performance in the near-to-medium term was
signalled in August 2009 and February 2010. The distribution represents a payout ratio of 100 per cent of Contact’s
underlying earnings per share. The distribution will be made via a non-taxable bonus issue under Contact’s Profi t
Distribution Plan (PDP).
Financial performance and liquidity
Based on the New Zealand dollar (NZD) equivalent of borrowings, after foreign exchange hedging and before
deferred fi nancing costs, and net of short-term deposits, net debt as at 30 June 2010 was $1,347.1 million,
compared with $1,124.2 million as at 30 June 2009. This is largely due to the ongoing capital expenditure
associated with the three major growth projects under construction.
Existing term debt is comprised of US$330 million (NZ$587.3 million notional equivalent) of various maturities,
$550 million of fi xed rate retail bonds and $100 million of fi xed rate wholesale bonds, which mature in May 2014
and April 2017 respectively.
Contact has additional liquidity available from $520 million of committed bank facilities, of which $106 million
was drawn at 30 June 2010.
Contact Energy Limited Annual Report 2010
13
Capital expenditure and investments
Contact’s capital expenditure and investments for FY10 was $468.7 million (including capitalised interest). Of
this, $75.6 million was ‘stay in business’ and $393.1 million was growth capital expenditure (including investment
in gas storage). This compares with $106.5 million and $385.6 million respectively for FY09.
The decrease in the stay in business capital expenditure is mainly due to the fact that FY09 included costs
associated with the scheduled major overhaul at Otahuhu B combined cycle power station. While there were
also signifi cant outages associated with thermal plant in FY10, the impact on stay in business capital expenditure
was signifi cantly less than the extended planned outage in FY09.
The capital expenditure in growth projects refl ects the ongoing activities associated with Contact’s new projects
including the completed Te Huka geothermal project, the Ahuroa gas storage and the Stratford peaker projects.
Outlook
In light of the range of market and operating uncertainties, particularly in relation to hydrology, it would be
inappropriate to provide specifi c quantitative guidance for the 2011 full-year performance.
Near-term forecasts suggest a continuation of relatively high hydro infl ows which, when coupled with Contact’s
CAL2010 relatively high take-or-pay gas obligations, are expected to result in fi rst half EBITDAF being broadly
similar to the fi rst half of FY10.
EBITDAF in the second half of FY11 is expected to benefi t from increased operational fl exibility as the Ahuroa gas
storage and Stratford peaker plant are brought into commercial operation, and as take-or-pay gas levels reduce
from the beginning of CAL2011.
Overview of performance for the period
Electricity market conditions
The average wholesale electricity price for FY10 was $52 per MWh compared with $56 per MWh for FY09. While
FY10 did not have the extremes of hydrology experienced in FY09, conditions were very similar, with periods of
high hydrology leading to relatively low prices on average.
1H
500
400
300
200
100
)
h
W
M
/
$
(
e
c
i
r
P
FY10 began with
wet conditions
FY09 began with
dry conditions
2H
High infl ows in
both FY09 and
FY10 resulting in
lower prices
5,000
4,000
3,000
2,000
1,000
)
h
W
G
(
e
g
a
r
o
t
S
9
0
l
u
J
9
0
g
u
A
9
0
p
e
S
9
0
t
c
O
9
0
v
o
N
9
0
c
e
D
0
1
n
a
J
0
1
b
e
F
0
1
r
a
M
0
1
r
p
A
0
1
y
a
M
0
1
n
u
J
National storage FY10
National storage FY09
National mean storage
North Island prices FY10
North Island prices FY09
14
Contact Energy Limited Annual Report 2010
Change to reported segments
Historically, Contact reported fi nancial results based on the retail and generation segments. To improve the quality
of fi nancial reporting, Contact has now established the following two segments:
•
Electricity (retail and generation)
• Other (retail and wholesale gas, LPG and meters)
Adopting an ‘Electricity’ segment better refl ects the integrated nature of Contact’s business and removes the
volatility in the prior segment results caused by wholesale price movements.
Conceptually, the Electricity segment is refl ected in the chart below.
Thermal
Exposed generation
Unhedged volume
Unit generation operating cost
Average wholesale price
CfD volume
n
o
i
t
a
r
e
n
e
G
Hydro
Hedged generation
Retail volume
Unit generation operating cost
Energy transfer price
Geothermal
TOU volume
Retail
Residential/SME volume
Energy purchase price
Line losses
Location factor (LWAP/GWAP)
Network costs
Cost to serve
Average sales price
Retail margin
Total sales volume
The chart illustrates the way Contact’s generation is sold through two primary channels to market: the ‘hedged’
channel and the ‘exposed’ (unhedged) channel. The majority of Hedged generation is ‘sold’ (by internal transfer
price) to Contact’s retail markets and on to time-of-use sales and residential customers. The balance of Hedged
generation is sold to industrial customers through wholesale (CfD) sales. Exposed generation volumes are sold into
the wholesale electricity market.
Consequentially, EBITDAF from the Electricity segment is the aggregate of the contributions from Hedged
generation, Exposed generation and Retail.
Contact Energy Limited Annual Report 2010
15
Segment results
The operational performance data for FY10 (FY09 in parentheses) is provided in the chart below, and in the table
on the following page.
Thermal
4,146 GWh (4,511)
(including swaption)
Exposed generation
Unhedged volume: 1,379 GWh (1,046)
Unit generation operating cost:
$29.2/MWh (30.8)
Average wholesale price: $58/MWh (62)
CfD volume: 845 GWh (1,116)
Hydro
3,760 GWh (3,543)
Hedged generation
Retail volume: 7,959 GWh (8,203)
Energy transfer price: $80/MWh (76)
Unit generation operating cost:
$47.0/MWh (44.6)
(including LTMA costs: $54.2/MWh (50.1))
TOU volume
2,999 GWh (2,808)
Retail
Residential/SME volume:
4,675 GWh (4,895)
Geothermal
2,277 GWh (2,311)
Energy purchase price: $80/MWh (76)
Line losses: 3.7% (6.5)
Location factor (LWAP/GWAP): 109% (109)
Network costs: $62/MWh (59)
Cost to serve: $15/MWh (14)
Average sales price: $170/MWh (167)
Retail margin: 2% (5%)
Total sales volume: 7,674 GWh (7,703)
h
W
G
3
8
1
0
1
,
:
n
o
i
t
a
r
e
n
e
G
16
Contact Energy Limited Annual Report 2010
Electricity segment
Wholesale electricity revenue
Retail electricity revenue
Steam revenue
Total electricity revenue
Electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
Meter lease internal charge (1)
Labour costs and other operating expenses
Total operating expenses
EBITDAF
Depreciation and amortisation
Segment result
Average wholesale electricity price ($ per MWh) (2)
Cost of exposed generation ($ per MWh)
Cost of hedged generation ($ per MWh)
Hedged generation margin ($ per MWh)
Gas used in internal generation (PJ)
Swaption generation – hedged (GWh)
Swaption generation – exposed (GWh)
Thermal generation – hedged (GWh)
Thermal generation – exposed (GWh)
Geothermal generation (GWh)
Hydro generation (GWh)
Total generation including swaption (GWh)
Average electricity purchase price ($ per MWh) (2)
Retail electricity purchases (GWh)
Generation – exposed (GWh)
Contracts for Diff erences (CfD) sales (GWh)
Retail electricity sales (GWh)
Electricity customer numbers
12 months ended
30 June 2010
$ million
12 months ended
30 June 2009
$ million
Variance
$ million
539.4
1,301.9
17.9
1,859.2
(480.8)
(509.7)
(265.0)
(29.0)
(187.3)
594.3
1,284.5
12.9
1,891.7
(528.9)
(492.5)
(253.7)
(29.0)
(174.6)
(1,471.8)
(1,478.7)
387.4
(153.3)
234.1
$52.23
($29.15)
($46.97)
$36.13
29.5
–
492
2,767
887
2,277
3,760
10,183
($58.95)
7,959
1,379
845
7,674
413.0
(153.8)
259.2
$56.08
($30.76)
($44.61)
$34.47
33.4
116
301
3,349
745
2,311
3,543
10,365
($65.79)
8,203
1,046
1,116
7,703
(54.9)
17.4
5.0
(32.5)
48.1
(17.2)
(11.3)
–
(12.7)
6.9
(25.6)
0.5
(25.1)
($3.85)
$1.61
($2.36)
$1.66
(3.9)
(116)
191
(582)
142
(34)
217
(182)
$6.84
(244)
333
(271)
(30)
477,000
479,000
(2,000)
%
(9%)
1%
39%
(2%)
9%
(3%)
(4%)
0%
(7%)
0%
(6%)
0%
(10%)
(7%)
5%
(5%)
5%
(12%)
(100%)
63%
(17%)
19%
(1%)
6%
(2%)
10%
(3%)
32%
(24%)
(0%)
(0%)
1 Inter-segment meter lease internal charge of $29.0 million is eliminated upon consolidation of the two segments.
2 This price excludes Contracts for Diff erences (CfD).
Contact Energy Limited Annual Report 2010
17
Generation
Contact’s thermal generation in FY10 was 3,654 GWh, 440 GWh lower than the prior fi nancial year. This was
largely due to extended outages at both the Otahuhu B and TCC power stations to carry out necessary maintenance.
Contact’s geothermal generation decreased one per cent or 34 GWh in FY10 to 2,277 GWh. While steam was
available, delays connecting some wells to the plant limited the ability of the plant to operate at full capacity at
certain times.
Contact’s hydro generation at 3,760 GWh was 217 GWh more than in FY09.
In FY10 the volumes used by hedged customers reduced by 515 GWh to 8,804 GWh, largely due to a reduction in
volumes sold through contracts for diff erence. The hedged generation earned $80 per MWh compared with $76
per MWh in the prior fi nancial year. The average operating cost of the hedged generation was $47 per MWh, up fi ve
per cent on the prior fi nancial year. The increase in revenue largely off set this increase in cost and accordingly the
contribution from hedged generation was relatively fl at between the periods.
The exposed generation increased by 333 GWh to 1,379 GWh in FY10. The average price earned by the exposed
generation was $58 per MWh, compared with $62 per MWh in FY09. Due to the increase in volume and a fi ve per
cent reduction in the costs of exposed generation, the contribution from the exposed generation increased by
about $7 million.
Gas costs
One of the key costs for generation is natural gas. Gas purchases for use in generation increased by four per cent
or $11.3 million. However, the average unit cost of gas has increased by 18 per cent from $7.60 per gigajoule (GJ)
to $9.00 per GJ. As a consequence of the hydrological conditions Contact was unable to uplift 3.2 PJ of gas and
therefore incurred a fi nancial penalty. This cost has been allocated to the Electricity segment and added 66c per GJ
to the cost of gas for generation. In addition, Contact made short-term gas sales of 1.5 PJ in order to minimise the
take or pay cost. The diff erence between the purchase price of that gas and its sale price has been allocated to the
Electricity segment. This impact of Contact’s take-or-pay gas ‘length’ in FY10 was $24 million ($19.5 million
related to gas not taken, and $4.7 million for the short-term gas sales).
Gas use in generation
)
J
P
(
e
m
u
l
o
V
40
30
20
10
0
$9.00
29.5
FY10
12
9
6
3
0
J
G
/
$
$7.60
33.4
FY09
Financial year
Gas use in generation (PJ)
Average cost per GJ for generation (including ToP and transmission)
18
Contact Energy Limited Annual Report 2010
Retail
The contribution from electricity retail was $30 million lower than in FY09. This was due to:
•
•
•
•
network costs increasing by $27 million or six per cent compared with the prior fi nancial year;
energy costs increasing by two per cent with the transfer price from hedged generation increasing from
$76 per MWh to $80 per MWh;
other retail costs up by $7 million – due mainly to a $4 million increase in cost to acquire or retain customers
and a $6 million increase in bad debt write-off s (partially off set by a $3 million positive impact of provisions);
average tariff s increasing by only two per cent due to retail market competition constraining the ability to
move tariff s to more appropriate levels.
Total retail sales in FY10 were 7,674 GWh compared with 7,703 GWh in FY09. The sales volume to the time of
use segment (large commercial and industrials) increased by seven per cent, refl ecting the success Contact has
had in that segment of the market. Mass market volumes reduced by fi ve per cent, with most of the reduction
coming from the South Island. Retail competition was intense in FY10 with churn across the industry averaging
around 17 per cent.
s
r
e
m
o
t
s
u
C
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Historic electricity market churn per month
26,134
20,085
13,403
13,233
15,287
16,002
FY05
FY06
FY07
FY08
FY09
FY10
Churn per month
12 month rolling average
Note: Data labels indicate average monthly churn for the fi nancial year.
Contact Energy Limited Annual Report 2010
19
At 30 June 2010, Contact had 477,000 retail electricity customers compared with 478,000 as at 31 December
2009 and 479,000 as at 30 June 2009.
The chart below illustrates that most of the reduction in demand has been from the South Island and
predominantly in the mass market.
Load split by customer type and island (sales)
10,000
h
W
G
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2,348
883
2,327
2,116
FY10
NI time of use
SI time of use
NI mass market
SI mass market
2,526
1,046
2,369
1,762
FY09
20
Contact Energy Limited Annual Report 2010
Other segment
The Other segment comprises Contact’s retail and wholesale gas, LPG and meters.
Other segment
Wholesale gas revenue
Retail gas revenue
LPG revenue
Meter leases revenue
Meter leases revenue – internal (1)
Other revenue
Total Other segment revenue
Gas purchases and transmission
LPG purchases
Meter lease costs
Market levies
Labour costs and other operating expenses
12 months ended
30 June 2010
$ million
12 months ended
30 June 2009
$ million
Variance
$ million
75.4
78.0
130.3
11.8
29.0
9.7
334.2
(131.7)
(99.2)
(21.0)
(1.7)
(41.0)
72.7
81.9
153.8
10.3
29.0
9.7
357.4
(145.9)
(116.8)
(20.2)
(2.0)
(40.2)
2.7
(3.9)
(23.5)
1.5
–
–
(23.2)
14.2
17.6
(0.8)
0.3
(0.8)
30.5
7.3
3.5
10.8
(0.4)
(0.7)
(6,755)
(3,000)
4,300
%
4%
(5%)
(15%)
15%
0%
0%
(6%)
10%
15%
(4%)
15%
(2%)
9%
23%
29%
53%
(4%)
(18%)
(9%)
(4%)
8%
Total operating expenses
(294.6)
(325.1)
EBITDAF
Depreciation
Segment result
Gas sales wholesale customers (PJ)
Gas sales retail customers (PJ)
Gas sales LPG customers (tonnes)
Gas customer numbers
LPG customer numbers (including franchisees)
39.6
(8.6)
31.0
10.7
3.2
70,327
64,000
58,000
32.3
(12.1)
20.2
11.1
3.9
77,082
67,000
53,700
1 Inter-segment internal meter leases revenue of $29.0 million is eliminated upon consolidation of the two segments.
Contact Energy Limited Annual Report 2010
21
The EBITDAF from the Other segment increased by $7.3 million or 23 per cent in FY10.
Other contribution
Units
FY10A
FY09A
$ million
%
Variance
Volumes
Wholesale gas
Retail gas
LPG
Contribution
Wholesale gas
Retail gas
LPG
Meters
Other
Other EBITDAF
PJ
PJ
T
10.7
3.2
11.1
3.9
(0.4)
(0.7)
70,327
77,082
(6,755)
$ million
$ million
$ million
$ million
$ million
$ million
(2.0)
5.3
8.0
18.7
9.6
39.6
(12.1)
2.8
14.1
17.8
9.7
32.3
10.1
2.5
(6.1)
0.9
(0.1)
7.3
(4%)
(18%)
(9%)
83%
89%
(43%)
5%
(1%)
23%
Contact’s gas revenue from wholesale customers increased by $2.7 million to $75.4 million in FY10. The volume
sold was 10.7 PJ compared with 11.1 PJ in FY09. Approximately 1.5 PJ of this was by way of short term sales at a
discount to the purchase price of the gas in order to monetise gas that Contact could not inject into gas storage or
use in generation. In the Other segment this sale is refl ected as a sale at nil contribution, with the loss on sale
allocated to the Electricity segment.
Accordingly the average cost of gas (excluding transmission) for wholesale gas sales was $6.27 per GJ compared
with $6.47 per GJ in the prior fi nancial year. The average sales price for wholesale gas sales was $6.15 per GJ
compared with $5.55 per GJ in FY09. This improvement in margin is a key driver in the improvement in the Other
segment EBITDAF performance.
The other key improvement was, in the retail gas contribution where retail gas revenue decreased by $3.9 million
but the contribution increased by $2.5 million, refl ecting an increase in the average sales price of $3.34 per GJ
while the average cost of gas for retail increased by $1.17 per GJ (including gas transmission).
As at 30 June 2010 Contact had 64,000 gas customers compared with 65,000 as at 31 December 2009, and
67,000 as at 30 June 2009.
Revenue from LPG sales reduced by 15 per cent to $130.3 million in FY10. The LPG cost of goods sold declined by
15 per cent to $99.2 million. This was driven by:
•
•
a seven per cent decrease in the cost of LPG from $1,498 per tonne to $1,399 per tonne; and
a decrease in LPG volume by nine per cent to 70,327 tonnes, refl ecting a drop in the overall market for LPG
due to fuel switching by some customers.
LPG margins have dropped due to the fact that the average sales price has decreased by $145 per tonne while the
cost of LPG has only decreased by $99 per tonne. This refl ects the change in the supply position in New Zealand as
more domestic production has resulted in an excess supply for certain periods.
This margin reduction resulted in a drop in the contribution from LPG by $6 million in FY10.
22
Contact Energy Limited Annual Report 2010
Company overview
Contact Energy is one of New Zealand’s leading publicly listed
companies, with around 81,000 shareholders, a national staff of
about 1,050 and the ability to supply electricity and gas products
across New Zealand.
Retail
Contact Energy has approximately:
• 477,000 retail electricity customers,
• 64,000 reticulated natural gas customers,
• 58,000 LPG customers.
Generation
• Contact owns and operates 10 power stations across the North and South Islands.
•
•
•
In FY10, these power stations provided around 25 per cent of New Zealand’s total electricity 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 MW gas-fi red peaking power station and the country’s fi rst underground
natural gas storage facility near Stratford.
• Contact has recently completed a 23 MW geothermal binary power station, Te Huka, in Taupo.
•
Contact continues to advance development options across a range of fuel options, including thermal,
geothermal, wind and hydro.
Otahuhu B – combined-cycle gas turbine, 400 MW
Commissioned in 1999, the Otahuhu B power station is a high-effi ciency combined-cycle gas-fi red 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-fi red power station provides reactive power, which supports the stable operation
of the electricity transmission system.
Te Rapa – cogeneration, 44 MW
Commissioned in 1999, the Te Rapa cogeneration plant is effi cient, 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 MW (currently operating at 65 MW)
Commissioned in 1989, the Ohaaki geothermal power station is currently producing around 65 MW of electricity.
Wairakei – geothermal, 157 MW plus 15 MW binary plant
Commissioned in 1958, the Wairakei geothermal power station marked its 50th anniversary in FY09.
Poihipi Road – geothermal, 55 MW
Purchased by Contact in 2000, the Poihipi Road power station draws its steam from the Wairakei steamfi eld.
Te Huka – geothermal, 23 MW
Commissioned in 2010, Te Huka draws its steam from the Tauhara steamfi eld.
Contact Energy Limited Annual Report 2010
23
Taranaki – combined-cycle gas turbine, 377 MW
Commissioned in 1998 and upgraded during 2008, the Taranaki power station is a high effi ciency combined cycle
gas-fi red plant.
Clyde – hydro, 432 MW
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 MW
Commissioned in 1956, the Roxburgh dam was the fi rst large-scale hydro dam on the Clutha River.
Oakey – distillate/gas-fi red peaking station, 282 MW
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-fi red peaking station, 155 MW
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.
24
Contact Energy Limited Annual Report 2010
National
overview
Contact is one of New Zealand’s largest publicly
tact is one of New Zealand’s largest publicly
d companies, with the ability to supply
listed companies, with the ability to supply
tricity and gas products across the country.
electricity and gas products across the country.
have reticulated natural gas customers across
We have reticulated natural gas customers across
h of the North Island, reticulated LPG customers
much of the North Island, reticulated LPG customers
hristchurch, Queenstown and Wanaka, and we
in Christchurch, Queenstown and Wanaka, and we
ply bottled and automotive LPG nationwide.
supply bottled and automotive LPG nationwide.
Otahuhu A
reactive power
Otahuhu B
combined-cycle gas turbine 400 MW
Auckland Sales Team
Ohaaki
geothermal 105 MW
(currently operating at 65 MW)
Te Rapa cogeneration 44 MW
Poihipi geothermal 55 MW
Wairakei geothermal 157 MW and 15 MW binary plant
Site of decommissioned New Plymouth power station
Taranaki combined-cycle gas turbine 377 MW
Te Huka
geothermal 23 MW
Levin Call Centre
Lower Hutt/Petone Retail Services Centre
LPG Distribution
Wellington Contact Head Offi ce
Queenstown/Wanaka
LPG Sales and Distribution
Reticulated LPG networks
Christchurch
LPG Sales and Distribution
Reticulated LPG networks
Clyde Clutha River hydro 432 MW
Roxburgh Clutha River hydro 320 MW
Dunedin Call Centre
LPG Sales and Distribution
Existing power stations
Offi ces
Invercargill
LPG Sales and Distribution
Contact Energy Limited Annual Report 2010
25
Hau-auru m-a raki wind farm 507 MW (in development)
Te Mihi geothermal 220 MW (in development)
New Plymouth site (available for redevelopment)
Taranaki combined-cycle gas turbine 500 MW (consented)
Stratford peaker gas-fi red power station 200 MW (in construction)
Ahuroa gas storage facility (in construction)
Otahuhu C site combined-cycle gas turbine 400 MW
(consented)
Taheke 8C and Adjoining Blocks Inc. geothermal
joint venture (exploration)
Tauhara geothermal stage two 250 MW
(in development)
Waitahora wind farm 156 MW
(in development)
Hawea gates hydro 17 MW
(in development)
Upper/Lower Clutha River hydro 200–400 MW
(in development)
Strategic initiatives - projects in development
and other potential options
26
Contact Energy Limited Annual Report 2010
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. Contact is required to seek shareholder approval
to amend its Constitution at the 2010 Annual Meeting in order to refl ect changes to the NZSX Listing Rules.
Details about the proposed new Constitution are set out in the Notice of Annual Meeting and a copy, marked up
to show the changes, is available on the company’s website or on request.
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 Underlying Earnings after Tax.
Ethics
Contact’s Code of Conduct sets out the ethical and behavioural standards expected of the company’s directors,
offi cers, employees and contractors.
Contact has established internal procedures to monitor compliance with the Code of Conduct. Every six months,
a report is provided to the Board Audit Committee highlighting any matters raised by staff under the Code of Conduct.
In FY10 there were no issues to report in relation to the Code of Conduct.
A copy of the Code of Conduct 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 (KPI).
Contact’s HSE Policy is 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 the
fi nancial performance of the company, including approval of half year and annual fi nancial 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 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.
Contact Energy Limited Annual Report 2010
27
The Board has a statutory obligation to reserve to itself responsibility for certain matters, such as the payment
of distributions and the issue of shares. It also reserves responsibility for signifi cant matters, including those
described above, such as the approval of business plans and budgets and the incurring of signifi cant 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 fi nancial and other reports. In addition, the Board receives
regular briefi ngs 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 leadership team on the key strategic and operational business
issues facing Contact.
Compliance with NZX Best Practice Code and other guidelines
Contact complies 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
eff ectively. Contact considers that it complies with this principle for a number of reasons, including that:
•
•
•
•
the members of its Board hold substantial and diverse business, governance 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 satisfi ed 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.
28
Contact Energy Limited Annual Report 2010
Board composition
The composition of the Board changed during the fi nancial year. On 22 February 2010, Whaimutu Dewes was
appointed to the Contact Board and, eff ective from 30 June 2010, John Milne retired from the Contact Board.
Accordingly, from 30 June 2010, the Board comprises seven members as follows:
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
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 offi cer 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 fi nancial 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 confi rmed that, at the end of the fi nancial year, Phillip Pryke, Whaimutu Dewes and Sue Sheldon
each held (and still hold) no ‘Disqualifying Relationship’ in relation to Contact and are therefore each independent
directors. Until his retirement on 30 June 2010, John Milne held no ‘Disqualifying Relationship’ in relation to
Contact and was therefore an independent director.
Grant King, Bruce Beeren and Karen Moses are not considered to be independent directors by virtue of being
directors of and hence associated persons of, substantial security holder Origin Energy. David Baldwin is not
considered to be an independent director because although he is an executive of Contact, he is employed by
and hence is an associated person of substantial security holder, Origin Energy. Grant King, Bruce Beeren,
Karen Moses and David Baldwin were therefore not independent directors as at 30 June 2010.
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, Whaimutu Dewes and Sue Sheldon satisfy this requirement (as did John Milne
until his retirement on 30 June 2010).
Election and re-election of directors
The NZSX Listing Rules and Contact’s Constitution require that directors who have been appointed to fi ll casual
vacancies during a fi nancial year must stand for election at the next Annual Meeting. Accordingly, Whaimutu Dewes
will stand for election at the 2010 Annual Meeting.
Contact Energy Limited Annual Report 2010
29
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 fi ll casual vacancies) to retire at each Annual Meeting and,
if appropriate, stand for re-election. The directors required to resign are those who have been in offi ce longest
since their last election. Accordingly, Karen Moses and Phillip Pryke will retire and stand for re-election at the
2010 Annual Meeting.
Confl icts of interest
Where any Contact director has a confl ict of interest or is otherwise interested in any transaction, that director
is generally required to disclose his or her confl ict 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 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. In accordance with this practice:
•
•
in July 2009, Contact undertook a formal assessment of the Board and the Board committees, and
in July 2010 the Board reviewed the performance of Phillip Pryke, Karen Moses and Whaimutu Dewes,
being those directors required to retire and stand for re-election, or to stand for election, at the 2010
Annual Meeting.
Board committees
The Board has four standing committees – the Board Audit Committee (BAC), the Health, Safety and Environment
(HSE) 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 (until 30 June 2010), Sue Sheldon and Whaimutu Dewes
(from 22 February 2010) meets to evaluate and approve various related party transactions with Origin Energy.
In FY10, these included the Ahuroa gas storage project and workstreams related to Contact’s business systems
transformation project comprising an agreement for the provision and hosting by Origin of hardware and other
services to to allow Contact to benefi t from Origin’s experience, resources and common deliverables in this area.
A copy of the Charter for the Independent Directors Committee is available on the website.
Board Audit Committee
During the fi nancial year, the BAC comprised John Milne (Chair until 30 June 2010), Bruce Beeren, Sue Sheldon
and Whaimutu Dewes (from 24 June 2010). Following John Milne’s retirement from the Contact Board on 30 June
2010, Sue Sheldon was appointed as Chair. NZSX Listing Rule 3.6.2 requires that the BAC has at least one member
with an accounting or fi nancial background and has a majority of independent directors. Sue Sheldon is a Fellow
Chartered Accountant, Bruce Beeren is a fellow of CPA Australia and John Milne is a qualifi ed Chartered
Accountant. John Milne (until 30 June 2010), Sue Sheldon and Whaimutu Dewes are independent directors.
The BAC’s purpose is to assist the Board to discharge its responsibility to exercise due care, diligence and skill and
make recommendations to the Board in relation to external fi nancial reporting and related risks, audit, treasury,
related party transactions and tax. The BAC is responsible for setting the principles and standards with respect to
accounting policies and practice, internal controls, internal and external audit, treasury and fi nancing functions
and related party transactions. The BAC is also responsible for the integrity and compliance of fi nancial statement
preparation, monitoring risk with respect to external fi nancial reporting and monitoring the independence and
performance of the external and internal auditors. The BAC Charter is set out on the company’s website.
30
Contact Energy Limited Annual Report 2010
The Managing Director attends each 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 Offi cer without any other members of management
being present.
Health, Safety and Environment Committee
During the fi nancial year, the HSE Committee comprised Karen Moses (Chair), Phillip Pryke, John Milne
(until 30 June 2010) and Whaimutu Dewes (from 24 June 2010).
The HSE Committee meets at least three times per year, and its role is to assist the Board to fulfi l its
responsibilities in relation to HSE matters arising out of the activities of Contact and its related companies.
These matters relate to those activities that aff ect employees, contractors, communities and the environment
in which the company operates. The HSE Committee is responsible, among other matters, for periodically
reviewing the company’s HSE Policy, monitoring the company’s compliance with this Policy, 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 and the HSE Policy are set out on the company’s website.
Nominations Committee
During the fi nancial year, the Nominations Committee comprised Grant King (Chair), Phillip Pryke and Sue
Sheldon. The Nominations Committee’s primary purpose is to ensure that the Board comprises 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 appointments. The Nominations Committee Charter is set
out on the company’s website.
In FY10, 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, and considered Board composition and succession issues (including processes for the
appointment of Whaimutu Dewes as a Director). In July 2010, the Nominations Committee considered the
assessment of Phillip Pryke, Karen Moses and Whaimutu Dewes’ performance as directors ahead of their
standing for election/re-election at the October 2010 Annual Meeting.
Remuneration Committee
During the fi nancial year, the Remuneration Committee comprised Phillip Pryke (Chair), Grant King and Bruce
Beeren. The Remuneration Committee’s primary purpose is 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 four times during the fi nancial year and has met a further time since the end
of the fi nancial 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 executives and high potential
and critical 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.
Contact Energy Limited Annual Report 2010
31
Attendance at meetings
In FY10, the Board met 12 times. The table below sets out attendance at meetings for all Directors.
Director
Grant King
Phillip Pryke
David Baldwin*
Bruce Beeren
Whaimutu Dewes**
John Milne
Karen Moses
Sue Sheldon
Board attendance
(scheduled and
special purpose)
11
12
12
12
6
12
12
11
BAC
N/A
N/A
5
5
N/A
5
3****
5
HSE
N/A
3
3
N/A
1***
3
3
N/A
Committee attendance
Remuneration
Nominations
Independent
Directors
4
4
4
4
N/A
N/A
N/A
N/A
1
1
N/A
N/A
N/A
N/A
N/A
1
N/A
3
3
N/A
2
3
N/A
3
David Baldwin attended all committees as an observer.
Notes:
*
** Whaimutu Dewes was appointed to the Board on 22 February 2010.
*** Whaimutu Dewes attended one HSE Committee meeting as an observer.
**** Karen Moses attended the Board Audit Committee as an observer.
Distribution plans
Profi t Distribution Plan
Contact implemented a Profi t Distribution Plan (PDP) in February 2009. Under the PDP, instead of distributing
profi ts 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 a choice between
retaining bonus shares or receiving cash, or a combination of both.
More detail about the PDP, including a full description of its terms and conditions, is available on Contact’s website.
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 27 July 2010 (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 fi nancial year.
Financial reporting
Contact undertakes twice-yearly fi nancial reporting and also provides a suite of operational data on a monthly basis.
Contact’s Annual and Half Year Reports are available on Contact’s website. The annual fi nancial statements are
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 is 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.
32
Contact Energy Limited Annual Report 2010
The Managing Director and Chief Financial Offi cer have provided the Board with written confi rmation that
Contact’s fi nancial statements for FY10 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 fi nancial reporting standards, as appropriate for profi t-oriented entities.
Auditor independence
The BAC is responsible for considering and making recommendations to the Board regarding any issues relating to
the appointment or termination of the external and internal auditors.
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 confi rm annually that it has complied with all professional regulations
relating to auditor independence. Specifi cally, the external auditor is required to confi rm its commitment to strict
procedures to ensure that:
•
•
•
•
the external auditor, its partners and current audit team do not have any fi nancial interest in Contact;
the superannuation fund of the partners or staff of the external auditor does not hold any direct fi nancial
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 external audit partners and concurring partner must rotate after a maximum of fi ve 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 Offi cer 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.
Auditor fees
The amount payable by Contact and its subsidiaries to KPMG as audit fees in respect of FY10 was $612,000.
KPMG did not undertake any other services for Contact during the fi nancial year.
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 fi xed rate bonds issued by Contact in March 2009 were rated BBB
by Standard & Poor’s as at the date of this Annual Report.
Donations
In FY10 Contact made donations amounting to $75,456. No subsidiaries made any donations during FY10.
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 fi nancial year.
Contact Energy Limited Annual Report 2010
33
Risk management
Contact’s Risk Management System aligns with recognised best practice (International Standard ISO 31000:
Risk management — Principles and Guidelines).
The Board has an overarching Risk Management Policy governing the company’s approach to risk oversight and
management and internal control systems. The Board requires management to design and implement the risk
management and internal control systems to manage the company’s material business risks.
Contact’s Risk Management System is designed to identify, assess, address and monitor all key risks to achieving
business objectives, including strategic, operational, legal, reputational, commodity and fi nancial risks.
Management committees have been established to consider risks in detail. Management reports to the Board on
whether the systems of risk management and control operate eff ectively in all material respects. Regular reports
on the company’s risks are presented to the Board.
Internal audit
Contact has an independent in-house internal audit function that provides objective assurance of the eff ectiveness
of the internal control framework.
Internal audit assists Contact to accomplish its objectives by bringing a disciplined approach to evaluating and
improving the eff ectiveness of risk management, internal controls and governance processes. Internal audit adopts
a risk-based audit approach driven from the company’s Risk Management System.
Internal audit also assists external audit by reporting fi ndings from the internal audit programme so the external
auditors may independently assess the degree of reliance it is able to place on the control environment when
providing their opinion on the fi nancial statements.
On a day-to-day basis, internal audit reports to the Chief Risk Offi cer. Internal audit has the autonomy to report
signifi cant issues to the Managing Director and the BAC or, if considered necessary, the Chairman of the Board.
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.
Securities Trading Policy
Contact’s Securities Trading Policy applies to all directors, offi cers, 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 specifi ed employees must adhere to further additional obligations prior to any trade of
Contact securities.
34
Contact Energy Limited Annual Report 2010
Entries recorded in the interest register
The following interest register entries were recorded for the company and its subsidiaries in FY10:
(a) Security dealings of directors
Contact directors disclosed the following transactions in Contact securities in FY10. Note that all dealings are in
ordinary shares unless otherwise specifi ed.
Director
G King
P Pryke
D Baldwin
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of) Nature of relevant interest
17/08/09
05/10/09
24/02/10
07/04/10
22/09/09
30/03/10
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
17/08/09
05/10/09
24/02/10
07/04/10
17/08/09
17/08/09
05/10/09
05/10/09
24/02/10
24/02/10
07/04/10
07/04/10
22/09/09
30/03/10
22/09/09
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
7/12/09
$6.35
$5.85
$5.79
$6.44
$6.20
$6.10
$6.10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.35
$5.85
$5.79
$6.44
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.20
$6.10
$6.20
$6.10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.75
2,627
2,849
2,878
2,591
204
238
Restricted shares acquired by New Zealand Permanent
Trustees Limited (NZPT) on trust under the Contact GA King
Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by NZPT as Trustee of the Contact GA King
Director Remuneration Share Trust
4
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by Fabco Investments Pty Limited
(204)
204
(238)
238
Transfer of bonus issue shares acquired pursuant to the
Profi t Distribution Plan from NZPT as Trustee of the Contact
GA King Director Remuneration Share Trust to Fabco
Investments Pty Limited
1,970
2,137
2,158
1,944
(1,653)
1,653
(1,554)
1,554
(1,286)
1,286
(1,213)
1,213
1,282
870
Restricted shares acquired by NZPT on trust under the
Contact PJ Pryke Director Remuneration Share Trust
Transfer of unrestricted shares from NZPT as Trustee of
the Contact PJ Pryke Director Remuneration Share Trust
to Pryke Pty Limited as benefi ciary of the Contact PJ Pryke
Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the
Profi t Distribution Plan by NZPT as Trustee of the
Contact PJ Pryke Director Remuneration Share Trust
1,221
900
Acquisition of bonus issue shares pursuant to the
Profi t Distribution Plan by Pryke Pty Limited
(1,282)
1,282
(870)
870
Transfer of bonus issue shares acquired pursuant to
the Profi t Distribution Plan from NZPT as Trustee of the
Contact PJ Pryke Director Remuneration Share Trust to
Pryke Pty Limited
44,728 restricted
ordinary shares
Benefi cial interest in, and conditional entitlement to
become legal and benefi cial owner of, ordinary shares
held in trust by NZPT under Contact’s LTI Scheme
(Restricted Share Plan)
7/12/09
Provision of
services under
employment
253,609 options to
acquire ordinary shares
Options to acquire ordinary shares under Contact’s
LTI Scheme (Share Option Plan)
*
NIL (NCBO) means no change in benefi cial ownership.
Contact Energy Limited Annual Report 2010
35
Director
B Beeren
J Milne
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of) Nature of relevant interest
17/08/09
05/10/09
24/02/10
07/04/10
17/08/09
17/08/09
05/10/09
05/10/09
24/02/10
24/02/10
07/04/10
07/04/10
22/09/09
30/03/10
22/09/09
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
17/08/09
05/10/09
24/02/10
07/04/10
17/08/09
17/08/09
05/10/09
05/10/09
24/02/10
24/02/10
07/04/10
07/04/10
22/09/09
30/03/10
22/09/09
30/03/10
22/09/09
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
$6.35
$5.85
$5.79
$6.44
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.20
$6.10
$6.20
$6.10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.35
$5.85
$5.79
$6.44
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.20
$6.10
$6.20
$6.10
$6.20
$6.10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
Restricted shares acquired by NZPT on trust under the
Contact BG Beeren Director Remuneration Share Trust
Transfer of unrestricted shares by NZPT as Trustee of the
Contact BG Beeren Director Remuneration Share Trust to
BG Beeren
1,313
1,425
1,438
1,296
(1,103)
1,103
(1,036)
1,036
(859)
859
(808)
808
349
247
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by NZPT as Trustee of the Contact BG
Beeren Director Remuneration Share Trust
96
106
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by BG Beeren
Transfer of bonus issue shares acquired pursuant to the
Profi t Distribution Plan from NZPT as Trustee of the Contact
BG Beeren Director Remuneration Share Trust to BG Beeren
Restricted shares acquired by NZPT on trust under the
Contact JHG Milne Director Remuneration Share Trust
Transfer of unrestricted shares by NZPT as Trustee of the
Contact JHG Milne Director Remuneration Share Trust to
John Milne Trust and Maureen Milne Trust, as benefi ciaries
of the Contact JHG Milne Director Remuneration Share Trust
(349)
349
(247)
247
657 + 657
712 + 712
719 + 719
648 + 648
(551 +551)
551 +551
(518) + (518)
518 + 518
(429) + (429)
429 + 429
(404) + (404)
404 +404
402 + 402
273 + 273
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by NZPT as Trustee of the Contact JHG
Milne Remuneration Share Trust
1,104
771
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by John Milne Trust as benefi ciary
of the Contact JHG Milne Remuneration Share Trust
582
418
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by Maureen Milne Trust as benefi ciary
of the Contact JHG Milne Remuneration Share Trust
(402) + (402)
402 + 402
(273) + (273)
273 + 273
Transfer of bonus issue shares acquired pursuant to the
Profi t Distribution Plan from NZPT as Trustee for the
Contact JHG Milne Director Remuneration Share Trust to
John Milne Trust and Maureen Milne Trust, as benefi ciaries
of Contact JHG Milne Director Remuneration Share Trust
*
NIL (NCBO) means no change in benefi cial ownership.
36
Contact Energy Limited Annual Report 2010
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of) Nature of relevant interest
Director
K Moses
S Sheldon
17/08/09
05/10/09
24/02/10
07/04/10
22/09/09
30/03/10
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
17/08/09
05/10/09
24/02/10
07/04/10
22/09/09
30/03/10
30/03/10
30/03/10
22/09/09
22/09/09
30/03/10
30/03/10
$6.35
$5.85
$5.79
$6.44
$6.20
$6.10
$6.10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.35
$5.85
$5.79
$6.44
$6.20
$6.10
$6.10
$6.10
$6.20
$6.20
$6.10
$6.10
W Dewes
22/02/10
NIL (NCBO)
07/04/10
30/03/10
$6.44
$6.10
T Saunders**
17/08/09
$6.35
17/08/09
17/08/09
21/08/09
21/08/09
22/09/09
22/09/09
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$6.20
$6.20
NIL (NCBO) means no change in benefi cial ownership.
*
** Tim Saunders resigned as a director with eff ect from 30 June 2009.
1,314
1,424
1,439
1,295
102
119
Restricted shares acquired by NZPT on trust under the
Contact KA Moses Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by NZPT as Trustee of the Contact
KA Moses Director Remuneration Share Trust
2
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by KA Moses
(102)
102
(119)
119
1,313
1,424
1,438
1,296
37
76
11
102
Transfer of bonus issue shares acquired pursuant to the
Profi t Distribution Plan by NZPT as Trustee of the Contact
KA Moses Director Remuneration Share Trust to KA Moses
Restricted shares acquired by NZPT on trust under the
Contact SJ Sheldon Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by NZPT as Trustee of the Contact
SJ Sheldon Director Remuneration Share Trust
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by:
1SJ Sheldon, PJ Sheldon and MJ Walker, and
2Private Nominees Limited
(37)
37
(76)
76
Transfer of bonus issue shares acquired pursuant to the
Profi t Distribution Plan from Contact SJ Sheldon Director
Remuneration Share Trust to SJ Sheldon, PJ Sheldon and
MJ Walker
1,029
Initial disclosure of registered holder of ordinary shares
on appointment as director
524
Restricted shares acquired by NZPT on trust under the
Contact WK Dewes Director Remuneration Share Trust
19
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by WK Dewes
1,313
Restricted shares acquired by NZPT on trust under the
Contact TEC Saunders Director Remuneration Share Trust
(25,890)
25,890
(1,313)
1,313
Transfer of unrestricted shares by NZPT as Trustee of
the Contact TEC Saunders Director Remuneration Share
Trust to TEC Saunders Family Trust as benefi ciary of Contact
TEC Saunders Director Remuneration Share Trust following
cessation as a director
5853
194
Acquisition of bonus issue shares pursuant to the Profi t
Distribution Plan by:
3TEC Saunders, AD Saunders and LRH Bunt, and
4AD Saunders
Contact Energy Limited Annual Report 2010
37
(b) Directors’ interests in transactions
General disclosures
As at 30 June 2010, the following directors had made the following general disclosures in the interests register of
the company. Notices given or adjusted in FY10 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
Australian Petroleum Production and Exploration Association
P Pryke
ComTel Corporation Limited
Co-Investor Capital Partners Pty Limited
Frog Hollow Limited
GMT Bond Issuer Limited* (appointed November 2009)
Goodman (NZ) Limited
Goodman Property Aggregated Limited
New Zealand Deer Farms Limited* (Company ceased existence
28 September 2009)
Pauatahanui Projects Limited
Pryke Pty Limited
Tru-Test Corporation Limited
Tru-Test Pty Limited*
D Baldwin
Origin Energy Limited
Gas Industry Company Limited
B Beeren
Origin Energy Limited and Group companies
Coal & Allied Industries Limited
Equipsuper Pty Limited
ConnectEast Group
Managing Director/Shareholder/Employee
Councillor
Director/Chairman
Director/Shareholder
Director/Shareholder
Director
Director
Director
Director/Shareholder
Director/Shareholder
Director/Shareholder
Director
Director
Employee/Shareholder
Director
Director/Shareholder and former Employee/Executive Director
Director
Director
Director
W Dewes**
Ngati Porou Forests Group*
Ngati Porou Seafoods Group*
Crater Lake Park Limited (resigned as Director 12 April 2010)*
CNI Iwi Holdings Limited (resigned as Director 22 February 2010)*
Crater Lake Nominees Limited (resigned as Director 12 April 2010)*
Whainiho Developments Limited*
Advisory Board to Kalyx (appointed April 2010)*
J Milne***
The He Huarahi Tamariki Trust
Wellington City Council Audit and Risk Management Subcommittee
K Moses
Origin Energy Limited and Group companies (appointed to Origin Energy
Limited directorship March 2009)
Australian Energy Market Operator (Transitional) Limited (deregistered
in 2009)*
Australian Energy Market Operator Limited*
CSIRO, Energy and Transport Sector Advisory Council UNSW,
Australian School of Business Advisory Council
Energy and Water Ombudsman (Victoria) Limited
Department of Resources, Energy and Tourism’s Energy White Paper
High Level Consultative Committee*
Chairman
Chairman
Director
Director
Managing Director/Shareholder
Managing Director/Shareholder
Member
Chairman/Trustee
Independent Member
Director/Employee/Shareholder
Director
Director
Committee Member
Director
Committee Member
** Whaimutu Dewes was appointed as a Contact Energy Director on 22 February 2010.
***
John Milne retired from the Contact Energy Board on 30 June 2010.
38
Contact Energy Limited Annual Report 2010
S Sheldon CNZM
Christchurch International Airport Limited* (resigned as Deputy Chairman
and Director September 2009)
Paymark* (name changed from Electronic Transaction Services Limited in
September 2009)
FibreTech New Zealand Limited
Freightways Limited
National Provident Fund Board of Trustees* (term ended 30 September 2009)
Reserve Bank of New Zealand
Sue Sheldon Advisory Limited
Smiths City Group Limited and subsidiaries
Telecom Corporation of New Zealand Limited* (appointed Director June 2010)
Wool Industry Network Limited
Wool Grower Holdings Limited
Deputy Chairman
Director
Chairman
Director
Chairman
Director
Director
Director
Director
Chairman
Director
Specifi c disclosures
There were no specifi c 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 benefi ts
The Board passed resolutions and signed accompanying certifi cates to confi rm the distribution for FY10 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 39 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 potential liability or costs incurred in any proceeding, excluding actions for gross
negligence, criminal liability, breach of fi duciary 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 2010, Contact’s Board authorised the renewal of the Directors and Offi cers and Statutory Liability
Insurance covers for 12 months and certifi ed, in terms of section 162 of the Companies Act 1993, that this
cover is fair to the company.
Contact Energy Limited Annual Report 2010
39
Remuneration report
Directors’ remuneration
Directors’ fees
The current total directors’ fee pool is $1,500,000 per annum. A total of $993,285 was distributed in respect
of FY10 as follows:
•
Base director fees: $796,075, distributed as follows:
– Chairman (Grant King) – $200,000 per annum,
–
–
Deputy Chairman (Phillip Pryke) – $125,000 per annum, paid with eff ect from 1 January 2010
($150,000 per annum including committee fees for the six months to 31 December 2009),
other non-executive directors – $110,000 per annum each, paid with eff ect from 1 January 2010
($100,000 per annum for the six months to 31 December 2009). Whaimutu Dewes’ fees were paid
with eff ect from 22 February 2010,
– Managing Director (David Baldwin) – Nil,
Committee fees: $167,210 was distributed,
Special fees: $30,000, distributed to Whaimutu Dewes for work in relation to generation projects.
•
•
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
offi ce. Directors are not otherwise entitled to any payment in connection with their retirement or cessation of offi ce.
The Directors participating in the Directors’ Share Scheme during the fi nancial year were Grant King,
Phillip Pryke, Bruce Beeren, John Milne (until 30 June 2010), Karen Moses, Sue Sheldon, and Whaimutu Dewes
(from 22 February 2010). John Milne’s participation in the Directors’ Share Scheme ceased following the fi nal
share purchase on 26 August 2010, using his director fees from the quarter ended 30 June 2010.
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 specifi ed 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 offi ce. 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.
In FY10, Contact provided fi nancial assistance in connection with the ongoing operation of the Scheme. A
disclosure document relating to the fi nancial assistance to be provided in the next 12 months was sent to
shareholders in September 2010 and is available on the company’s website.
40
Contact Energy Limited Annual Report 2010
The table below details the restricted shares of each of Contact’s Directors that became unrestricted under the
Directors’ Share Scheme in FY10.
Name
Phillip Pryke
John Milne
Bruce Beeren
Date of acquisition
Date unrestricted
Number unrestricted
Original acquisition price
28 August 2006
10 October 2006
6 March 2007
5 April 2007
28 August 2006
10 October 2006
6 March 2007
5 April 2007
28 August 2006
10 October 2006
6 March 2007
5 April 2007
17 August 2009
5 October 2009
24 February 2010
7 April 2010
17 August 2009
5 October 2009
24 February 2010
7 April 2010
17 August 2009
5 October 2009
24 February 2010
7 April 2010
1,653
1,554
1,286
1,213
1,102
1,036
858
808
1,103
1,036
859
808
$6.84
$7.24
$8.78
$9.28
$6.84
$7.24
$8.78
$9.28
$6.84
$7.24
$8.78
$9.28
In addition, on 17 August 2009 and 21 August 2009, 25,890 and 1,313 shares respectively held in the Directors’
Share Scheme on behalf of Tim Saunders were transferred to Mr Saunders’ family trust following his retirement
from the Contact Board.
Remuneration details of directors
Details of the total remuneration and the value of other benefi ts received by each director of Contact from Contact
in their capacity as a Director in FY10 are as follows:
Director
Position
Board fees
Committee fees
Special fees
Total remuneration
G King
P Pryke
Chairman
Deputy Chairman
D Baldwin1
Managing Director
B Beeren
J Milne
K Moses
S Sheldon
W Dewes2
Total
Director
Director
Director
Director
Director
Cash
Restricted shares
$133,333
$91,667
–
$70,000
$70,000
$70,000
$70,000
$25,717
$66,667
$45,833
–
$35,000
$35,000
$35,000
$35,000
$12,858
Cash
–
$17,500
–
$37,000
$60,000
$20,000
$32,000
$710
$530,717
$265,3583
$167,210
Cash
–
–
–
–
–
–
–
$30,000
$30,000
$200,000
$155,000
–
$142,000
$165,000
$125,000
$137,000
$69,285
$993,285
1 As an executive, David Baldwin does not receive fees in his capacity as a director nor is he a participant in the Directors’ Share Scheme. See page 41 for details of
David Baldwin’s remuneration.
2 Whaimutu Dewes became a director on 22 February 2010.
3
Due to trading period restrictions under Contact’s Securities Trading Policy, purchases of restricted shares valued at $74,479 of this total amount occurred on
26 August 2010.
Contact Energy Limited Annual Report 2010
41
Managing Director remuneration
Employment arrangements
David Baldwin, Managing Director of Contact, has been seconded to the role by his employer, Origin Energy.
During the term of the secondment, remuneration paid by Contact to David Baldwin for the performance of his
role as Managing Director is processed by reimbursing Origin Energy for the cost of this remuneration, except for
restricted shares and options awarded to him under Contact’s LTI Scheme, which are provided directly by Contact.
David Baldwin does not receive any director fees.
Remuneration
Remuneration paid by Contact to the Managing Director refl ects the breadth and complexity of the role; references
market remuneration data benchmarks; is linked to achievement of performance goals; and aligns with the creation
of sustainable shareholder value in the long term. The remuneration package includes a fi xed remuneration
component comprising cash salary and other employment benefi ts, and at-risk/variable remuneration comprising
short term incentives (cash) and long term incentives (options and restricted shares).
Approximately two thirds of David Baldwin’s potential annual remuneration from Contact is at-risk/variable
remuneration and one third is paid as fi xed remuneration. The amount of short term incentive paid and the level
of long term incentive allocated to David Baldwin are dependent on the degree to which company fi nancial; health,
safety and environment; and other strategic goals are met, which is determined after the end of the relevant
fi nancial year and paid in the subsequent fi nancial year.
The following tables detail the nature and amount of the remuneration paid to David Baldwin in relation to his role
as Managing Director for FY10.
David Baldwin
Managing Director
Year ended 30 June 2010
Year ended 30 June 2009
Fixed cash remuneration
$
Variable cash remuneration1
$
Total cash remuneration paid
$
838,856
838,856
364,000
246,000
1,202,856
1,084,856
Cash remuneration paid
1 Short term incentive remuneration is determined following the end of each fi nancial year and is based on achievement of performance goals and criteria set by the Board
of Directors.
42
Contact Energy Limited Annual Report 2010
Equity rights issued (options and restricted shares)1
David Baldwin
Managing Director
Year ended 30 June 2010
Year ended 30 June 2009
Number of
options issued
during year2
253,609
220,652
Number of
restricted
shares issued
during year2
44,728
31,020
Value of equity
rights issued
and amortising
during year3
$
139,037
143,030
Value of equity
rights issued in
past years and
amortising
during year3
$
379,234
395,642
Total equity
rights vested
during year
$
–
–
1
Although options and restricted shares are granted in October each year under Contact’s LTI Scheme, they pertain to the at-risk component of the prior fi nancial year’s
remuneration.
2 Contact Energy Limited equity securities.
3 The allocation of long term incentives is determined at the end of each fi nancial year. Each allocation has a total performance period of fi ve years from the grant date
with exercise hurdles tested on the third, fourth and fi fth anniversary of the grant date. Whether any options and restricted shares vest and become exercisable or
transfer, respectively by or to David Baldwin, is subject to the achievement of specifi ed exercise hurdles as described on page 47. To comply with fi nancial reporting
requirements, the fair value of the options and restricted shares is calculated at the grant date using a combination of Monte-Carlo simulation and binomial option
pricing model, and subsequently amortised over a period of three years (the period from grant date to the fi rst test date). The value of long term incentive disclosed
above is the portion of the fair value of options and restricted shares allocated to the relevant reporting period. None of the options or restricted shares allocated to
David Baldwin vested in the 2009 or 2010 fi nancial years.
David Baldwin has participated in Contact’s LTI Scheme since its inception in 2006. 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 fi nancial assistance under the LTI Scheme. The full version of the waiver can be
found on the company’s website.
Movement during the reporting period in the number of options over ordinary shares and restricted shares held in
Contact is set out in the following tables.
Restricted Shares
Held at 1 July 2009
Granted as compensation
Vested during year
Held at 30 June 2010
David Baldwin
Managing Director
Options
David Baldwin
Managing Director
88,342
44,728
–
133,070
Held at
1 July 2009
Granted as
compensation
Exercised
Held at
30 June 2010
Vested
during year
Vested and
exercisable at
30 June 2010
525,547
253,609
–
779,156
–
–
Employee remuneration
There are two components to employee remuneration – fi xed remuneration and at-risk/variable remuneration.
The determination of fi xed remuneration is based on responsibilities, individual performance and experience, and
available market remuneration data. At-risk/variable remuneration comprises short term incentives and, for senior
executives, employees with high potential to advance to key leadership roles, and senior employees who hold
critical skills essential for Contact’s success, long term incentives.
Contact Energy Limited Annual Report 2010
43
Short term incentive scheme
Contact’s variable remuneration recognises and rewards high-performing individuals whose contributions support
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). In FY10, diff erent levels of incentives were determined refl ecting 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 diff erentiate and reward exceptional, outstanding and good performance.
The Board reserves the right to adjust STI awards if HSE targets are not met.
Legacy Long Term Incentive Scheme
Up until 30 June 2006, because a review of long term incentives 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, the LTI Scheme was introduced in FY07 and beyond. No performance hurdles relating to the Legacy
LTI Scheme were met during the fi nancial year, so there were no shares purchased under the scheme. As the fi nal
test date has now passed, the Legacy LTI Scheme has been disestablished.
Employee Long Term Incentive Scheme
Contact off ers a combination of share options and restricted shares under its current LTI Scheme to ensure
incentives align participating employees’ performance with shareholders’ interests, in both favourable and
unfavourable share market conditions.
Contact’s LTI Scheme for participating employees consists of a Share Option Plan and a Restricted Share Plan
(together, the ‘Plans’). Details of the Plans are set out below.
Long term incentives are awarded to reward and retain key talent, align participants’ interests with that of
Contact’s shareholders, and encourage and reward longer term decision making.
Under the Plans, for FY10, 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 and transfer to participants, to the extent that the relevant exercise
hurdles are satisfi ed. The exercise hurdles for the share options and restricted shares in relation to FY10 are set
out on page 47. The number of share options and restricted shares awarded is 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.
At the end of the year there were 61 participants in the LTI Scheme.
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 eff ective grant date. For share options granted in FY10, the market price was
the weighted average market price of Contact’s ordinary shares traded on the NZSX over the fi ve business days
prior to the eff ective grant date.
As noted above, the options are exercisable subject to exercise hurdles as determined by the Board. The exercise
hurdles for share options issued in FY10 are described on page 47. There is a vesting period of approximately
three years from the eff ective grant date before share options may be exercised. Following the end of that period,
the exercise hurdles are measured on three annual test dates. There is a two-year, two-month exercise period
following the fi rst test date during which share options may be exercised, again, to the extent that the exercise
hurdles are met.
44
Contact Energy Limited Annual Report 2010
The share options may also be exercised if, between the eff ective 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.
The share options will lapse:
•
•
•
•
if the exercise hurdles are not met by the fi nal 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, 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 eff ective 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 30 June 2010 are set out in the table below.
Number of
options issued
Eff ective
grant date
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
1,701,718
1 October 2009
Exercise
price per
option
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
$5.75
First exercise date
Number
lapsed
Final lapse date
Vested
Number
exercisable
1 October 2009
81,2451
30 November 2011
1 October 2009
18,3612
30 November 2011
No
No
Nil
Nil
1 October 2009
Nil3
30 November 2011
7,927
7,927
1 October 2010
176,2954
30 November 2012
1 October 2010
7,6985
30 November 2012
1 October 2011
210,8506
30 November 2013
1 October 2012
45,5157
30 November 2014
No
No
No
No
Nil
Nil
Nil
Nil
1 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).
2 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.
3 Of the 13,413 options granted with an eff ective date of 15 January 2007, 7,927 vested during the year and became exercisable, however no options were exercised.
All 13,413 options lapsed eff ective from 6 July 2010 due to the cessation of employment of the participant eff ective 30 June 2010.
4 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). A further 44,848 options lapsed on 6 July 2010 due to the cessation of employment of the participant eff ective 30 June 2010.
5 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.
6 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). A further 59,348 options lapsed on 6 July 2010 due to the cessation of
employment of the participant eff ective 30 June 2010.
7 Due to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Plan Rules on the following dates: 9 April 2010
(8,788 options) and 25 June 2010 (36,727 options). A further 80,413 options lapsed on 6 July 2010 due to the cessation of employment of the participant eff ective
30 June 2010.
Contact Energy Limited Annual Report 2010
45
Restricted Share Plan
Under the Restricted Share Plan, the Board issues restricted shares to the participants at the market price
determined at the eff ective grant date. Although the participant has benefi cial 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 FY10, 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 in the fi ve business days prior to the eff ective
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 2010 and are available on the company’s website.
If the exercise 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 eff ective 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 to which a participant becomes entitled, 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 fi nal 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 exercise hurdles are not met by the fi nal 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, are personal to the employee and therefore cannot be traded or
used for security.
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 eff ective 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 fi nal transfer date, but are
instead purchased by the trustee then reallocated to a participant). The full version of the waiver and approval can
be found on the company’s website.
46
Contact Energy Limited Annual Report 2010
The number of restricted shares issued and their status as at 30 June 2010 are set out in the table below.
Number of
restricted
shares
issued
Number
reallocated from
unallocated pool
(see following)
Eff ective
grant date
Allocation
price per
date
First test date
Final test date
Number
transferred to
unallocated pool
(see following)
Number
vesting
during the
year
70,890
3,581
2,5041
83,242
3,091
104,712
241,940
Nil
1 July 2006
Nil 20 November 2006
15 January 2007
Nil
1 October 2007
2,737
1 February 2008
1,156
1 October 2008
19,247
1 October 2009
58,200
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
$5.75
1 October 2009
1 October 2009
1 October 2009
1 October 2010
1 October 2010
1 October 2011
1 October 2012
1 October 2011
1 October 2011
1 October 2011
1 October 2012
1 October 2012
1 October 2013
1 October 2014
15,765
3,581
Nil
30,913
1,440
29,641
8,028
Nil
N/A
1,480
Nil
Nil
Nil
Nil
1 Of the 2,504 restricted shares granted with an eff ective date of 15 January 2007: 1,480 vested during the year and were released to a participant; the remaining 1,024
restricted shares were transferred to the unallocated pool on 6 July 2010 due to the resignation of the participant eff ective 30 June 2010.
Pursuant to the Restricted Share Plan Rules, where a participant ceases employment, benefi cial 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 30 June 2010, there were 8,028 restricted shares held by the trustee in the
unallocated pool. The following table sets out the movements of the unallocated pool to 30 June 2010.
Original issue date
21 June 2007
31 October 2007
25 February 2008
11 November 2008
7 December 2009
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
18,825
1,550
6,478
Date of transfer to
unallocated pool1
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
31 July 2009
9 April 2010
25 June 2010
Number of shares
reallocated to a
participant
Date of reallocation to
participant
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
18,825
Nil
Nil
31 October 2007
11 November 2008
11 November 2008
7 December 2009
7 December 2009
25 February 2008
11 November 2008
11 November 2008
11 November 2008
7 December 2009
7 December 2009
7 December 2009
7 December 2009
7 December 2009
7 December 2009
N/A
N/A
1 An additional 31,413 restricted shares were transferred to the unallocated pool on 6 July 2010 due to the cessation of employment of a participant eff ective
30 June 2010, bringing the total number of restricted shares in the unallocated pool to 39,441.
Contact Energy Limited Annual Report 2010
47
Exercise hurdles
Broadly, the number of unrestricted ordinary shares to which a participant is entitled under the Plans is determined
by achievement of a predetermined exercise hurdle or hurdles. For the restricted shares and share options issued in
FY10, the hurdle is a comparison of Contact’s total shareholder return (TSR) against the TSR of a reference group
comprising the NZX50 index in the relevant period, commencing on the eff ective grant date.
For the restricted shares and share options issued in FY10, participants’ vesting entitlements will be calculated on
three test dates, being 1 October 2012, 1 October 2013 and 1 October 2014.
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
eff ective 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 refl ect the assumed reinvestment of distributions (excluding
imputation credits) over the period from the eff ective 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 FY10, 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 grant date and remain listed at 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 ranked between the 50th percentile and the 75th percentile of those companies that are in
the NZX50 at the grant date and remain listed at 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 the grant date and remain listed at the relevant test date.
48
Contact Energy Limited Annual Report 2010
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 benefi ts (including redundancy
payments, and the fair value of any options and restricted shares
allocated to the relevant reporting period) during FY10 of at
least $100,000 in brackets of $10,000. As at 30 June 2010, no
Contact subsidiary had any employees.
The remuneration fi gures analysed include all monetary
payments actually paid during the course of FY10, including the
short term variable remuneration relating to FY09. The fi gures
do not include amounts paid post 30 June 2010 that related to
the period ended 30 June 2010.
The value of remuneration benefi ts analysed includes both
fi xed, short term and long term at risk/variable 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 2010.
The remuneration (and any other benefi ts) of the Managing
Director, David Baldwin, is disclosed in the Managing Director
remuneration section on page 41.
Remuneration bands
$100,001–$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
$290,001–$300,000
$300,001–$310,000
$310,001–$320,000
$320,001–$330,000
$330,001–$340,000
$340,001–$350,000
$350,001–$360,000
$370,001–$380,000
$430,001–$440,000
$470,001–$480,000
$490,001–$500,000
$570,001–$580,000
$600,001–$610,000
Total
Number of employees
Parent
60
45
41
33
19
21
14
6
3
9
8
7
4
2
1
5
1
1
0
2
2
2
1
1
1
1
1
1
1
1
2
1
297
Contact Energy Limited Annual Report 2010
49
Contact subsidiaries – directors and remuneration
Other than Paul Smith, who received the Australian dollar equivalent of $38,198 in FY10 in his capacity as a
consultant to Contact Australia Pty Limited and Contact Operations Australia Pty Limited, no director of any of
Contact’s subsidiaries received additional remuneration or benefi ts in respect of their directorships.
The table below lists the directors of Contact subsidiary companies as at 30 June 2010.
Contact subsidiary
Contact Aria Limited
Contact Australia Pty Limited
Contact Operations Australia Pty Limited
Contact Wind Limited1
Empower Limited2,3
Rockgas Limited4
Directors
David Baldwin
Elizabeth Kelly
David Baldwin
Elizabeth Kelly
Paul Smith
David Baldwin
Elizabeth Kelly
Paul Smith
David Baldwin
Graham Cockroft
Alistair Yates
David Baldwin
Ruth Bound
David Baldwin
Graham Cockroft
1 Mark Trigg was a director of Contact Wind Limited until 31 July 2009 when he was replaced by Graham Cockroft.
2
Jason Delamore was a director of Empower Limited until 15 June 2010, when he was replaced by Ruth Bound.
3 Stratford Power Limited was amalgamated into Empower Limited on 8 September 2009. The director of Stratford Power Limited before the amalgamation was Elizabeth Kelly.
4 Rockgas Holdings Limited was amalgamated with Rockgas Limited on 7 September 2009. The director of Rockgas Holdings Limited before the amalgamation was David Baldwin.
50
Contact Energy Limited Annual Report 2010
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 2 August 2010 (including holdings within
New Zealand Central Securities Depository Limited)
Origin Energy Pacifi c Holdings Limited
National Nominees New Zealand Limited
HSBC Nominees (New Zealand) Limited A/C State Street
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
HSBC Nominees (New Zealand) Limited
Tea Custodians Limited
NZGT Nominees Limited –AIF Equity Fund
AMP Investments Strategic Equity Growth Fund
FNZ Custodians Limited
Origin Energy Universal Holdings Limited
Custody and Investment Nominees Limited
Aestron Life Limited
Masfen Securities Limited
Guardian Trust Investment Nominees (RWT) Limited
Westpac NZ Shares 2002 Wholesale Trust –a/c
NZ Guardian Trust Investment Nominees Limited
Total top 20 holders (excluding Treasury Stock)
Total other shares
Total issued shares1
308,660,189
21,996,746
20,789,015
17,232,598
11,692,529
8,586,121
7,170,921
6,699,153
6,592,216
5,929,832
5,352,150
4,264,805
4,051,213
3,838,938
3,544,127
3,350,550
2,544,863
2,238,652
2,229,548
2,096,906
448,861,072
156,073,904
604,934,976
1 Calculations exclude 508,480 restricted ordinary shares issued pursuant to Contact’s LTI Scheme.
Distribution of Quoted Security Holders and security holdings as at 2 August 2010
Ordinary Shares
Size of holding
Number of holders
% of holders
Number of shares1
% of shares
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
1,055
517
11,456
35,769
19,401
8,280
2,894
1,384
64
54
6
31
80,911
1.30
0.64
14.16
44.21
23.98
10.23
3.58
1.71
0.08
0.06
0.01
0.04
29,637
74,251
4,295,391
27,456,897
23,193,359
24,842,761
18,775,578
23,415,526
4,127,135
9,961,146
4,172,772
464,590,523
0.01
0.01
0.71
4.54
3.83
4.11
3.10
3.87
0.68
1.65
0.69
76.8
100.00
604,934,976
100.00
1 Calculations are based on the number of ordinary shares quoted and listed on the NZSX as at 2 August 2010 and exclude 508,480 restricted ordinary shares issued
pursuant to Contact’s LTI Scheme.
Contact Energy Limited Annual Report 2010
51
Retail bonds
Size of holding
Number of holders
% of holders
Number of bonds
% of bonds
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
3,074
3,105
2,344
791
346
28
28
9,716
31.64
31.96
24.12
8.14
3.56
0.29
0.29
25,668,000
61,079,000
9,661,5000
69,437,000
81,154,000
23,999,000
192,048,000
4.67
11.10
17.57
12.62
14.76
4.36
34.92
100.00
550,000,000
100.00
Substantial security holders
As at 2 August 2010, the following persons had notifi ed the company in accordance with the Securities Markets
Act 1988 that they were currently substantial security holders in the company.
Substantial security holder
Nature of relevant interest
Number and class of listed voting securities
Origin Energy New Zealand Limited and its related bodies
corporate (including Origin Energy Limited and Origin
Energy Vic Holdings Limited)
Shareholder
313,334,898 ordinary shares
The total number of shares of Contact as at 2 August 2010 was 605,443,456, consisting of 604,934,976 listed
ordinary shares and 508,480 restricted ordinary shares issued pursuant to Contact’s LTI Scheme (the 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. Accordingly, the total number of listed voting
securities of Contact as at 2 August 2010 was 604,934,976.
52
Contact Energy Limited Annual Report 2010
Securities of the company in which each director has a relevant interest as at 30 June 2010
Director
G King
P Pryke
D Baldwin
B Beeren
W Dewes
J Milne
K Moses
S Sheldon
Number of
ordinary shares
Number of bonds
Number of restricted
ordinary shares
Number of options
16,172
101,764
Nil
21,151
1,572
99,076
8,085
6,135
Nil
Nil
Nil
Nil
Nil
150,000
Nil
10,000
N/A
N/A
133,070
N/A
N/A
N/A
N/A
N/A
N/A
N/A
779,156
N/A
N/A
N/A
N/A
N/A
Directors’ statement
This Annual Report is dated 6 September 2010 and is signed on behalf of the Board by
G King
Chairman
P Pryke
Deputy Chairman
Contact Energy Limited Annual Report 2010
53
Financial Statements
for the year ended 30 June 2010
Income Statement
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash Flows
Notes to the fi nancial 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
Statement of accounting policies
New Plymouth power station
Segment reporting
Revenue
Operating expenses
Other signifi cant items
Net interest expense
Income tax expense
Distributions and dividends
Earnings and net tangible assets per share
Share capital
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 fi nancial 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
54
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Income Statement for the year ended 30 June 2010
Revenue
Other income
Operating expenses
Earnings before net interest expense, income tax, depreciation,
amortisation, change in fair value of fi nancial instruments and other
signifi cant items (EBITDAF)
Depreciation and amortisation
Change in fair value of fi nancial instruments
Other signifi cant items
Equity accounted earnings of associates
Net interest expense
Profi t before income tax
Income tax expense
Profi t for the year
Basic and diluted earnings per share (cents)
Group
30 June 2010
$000
Group
30 June 2009*
$000
Parent
30 June 2010
$000
Parent
30 June 2009*
$000
2,143,017
21,391
(1,737,426)
2,200,081
19,984
(1,774,806)
1,848,978
45,401
(1,512,693)
1,846,234
35,280
(1,508,470)
426,982
445,259
381,686
373,044
(161,903)
4,531
(8,894)
3,272
(55,980)
208,008
(53,340)
(165,885)
(57,511)
(2,830)
3,624
(62,601)
160,056
(44,417)
(158,610)
4,531
39,180
–
(55,845)
210,942
(39,793)
(160,742)
(57,511)
(5,145)
–
(62,492)
87,154
(25,463)
154,668
115,639
171,149
61,691
25.94
19.98
28.70
10.66
Note
4
5
16, 17
24
6
21
7
8
10
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
Non-statutory measure: underlying earnings
Underlying earnings after tax is presented to allow stakeholders to make an assessment and comparison of underlying
earnings after adjusting for signifi cant one-off items and the non-cash change in fair value of fi nancial instruments.
Profi t for the year
Underlying adjustments
Change in fair value of fi nancial instruments
Other signifi cant items:
Impairment of Gasbridge assets
Retail transaction processing outsourcing costs
Removal of New Plymouth asbestos and related costs
Adjustments before income tax
Income tax expense
Impact of change in corporate income tax rate
Removal of tax depreciation on buildings
Adjustments after income tax
Underlying earnings after tax
Underlying earnings per share (cents)
Group
30 June 2010
$000
Group
30 June 2009*
$000
Note
154,668
115,639
24
(4,531)
57,511
6
6
6
8
8
–
3,330
5,564
4,363
(1,309)
(42,650)
34,765
2,830
–
–
60,341
(17,253)
–
–
(4,831)
43,088
149,837
158,727
10
25.13
27.42
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
The accompanying notes form an integral part of these fi nancial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2010
55
Statement of Comprehensive Income for the year ended 30 June 2010
Group
30 June 2010
$000
Group
30 June 2009*
$000
Parent
30 June 2010
$000
Parent
30 June 2009*
$000
Note
Profi t for the year
154,668
115,639
171,149
61,691
Other comprehensive income:
Change in foreign currency translation reserve
Change in cash fl ow hedge reserve
Total other comprehensive income before tax
Deferred tax relating to components of other comprehensive income
Re-measurement of deferred tax on change in corporate income tax rate
27
27
Other comprehensive income for the year after tax
(221)
8,298
8,077
(2,209)
555
6,423
(106)
52,091
51,985
(16,452)
–
35,533
–
8,206
8,206
(2,248)
555
6,513
Total comprehensive income for the year
161,091
151,172
177,662
–
51,889
51,889
(16,394)
–
35,495
97,186
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
The accompanying notes form an integral part of these fi nancial statements.
56
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Statement of Changes in Equity for the year ended 30 June 2010
Group*
Share
capital
$000
Note
Foreign
currency
translation
reserve
$000
Asset
revaluation
reserve
$000
Cash
fl ow
hedge
reserve
$000
Share-
based
payment
reserve
$000
Retained
earnings
$000
Total
shareholders’
equity
$000
Opening balance as at 1 July 2008
Impact of change in accounting policy
780,037
–
1
396
–
1,898,383
(1,898,383)
(74,279)
–
1,171
298,363
– 1,615,307
2,904,071
(283,076)
780,037
–
396
(86)
Restated opening balance as at 1 July 2008
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Dividends paid and distributions declared
11
12
9
Total transactions with owners recorded
directly in equity
Closing balance as at 30 June 2009
Opening balance as at 1 July 2009
Total comprehensive income for the year
Restricted shares and options lapsed during the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Restricted shares vested during the year
Distributions declared
Total transactions with owners recorded
directly in equity
48,576
–
–
48,576
828,613
828,613
–
–
11
12
11
9
120,374
–
10
–
120,384
–
–
–
–
310
310
(182)
–
–
–
–
–
–
Closing balance as at 30 June 2010
948,997
128
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(74,279)
35,619
1,171 1,913,670
115,639
–
2,620,995
151,172
–
–
–
–
–
581
–
–
–
(161,722)
48,576
581
(161,722)
581
(161,722)
(112,565)
(38,660)
1,752 1,867,587
2,659,602
(38,660)
6,605
–
1,752 1,867,587
154,668
36
–
(36)
2,659,602
161,091
–
–
–
–
–
–
–
1,148
(10)
–
–
–
–
(165,437)
120,374
1,148
–
(165,437)
1,138
(165,437)
(43,915)
(32,055)
2,854 1,856,854
2,776,778
Parent*
Opening balance as at 1 July 2008
Impact of change in accounting policy
Share
capital
$000
Note
780,037
–
1
Restated opening balance as at 1 July 2008
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Dividends paid and distributions declared
11
12
9
Total transactions with owners recorded
directly in equity
Closing balance as at 30 June 2009
Opening balance as at 1 July 2009
Total comprehensive income for the year
Restricted shares and options lapsed during the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Restricted shares vested during the year
Distributions declared
Total transactions with owners recorded
directly in equity
Closing balance as at 30 June 2010
780,037
–
48,576
–
–
48,576
828,613
828,613
–
–
11
12
11
9
120,374
–
10
–
120,384
948,997
Foreign
currency
translation
reserve
$000
Asset
revaluation
reserve
$000
Cash
fl ow
hedge
reserve
$000
Share-
based
payment
reserve
$000
Retained
earnings
$000
Total
shareholders’
equity
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,704,969
(1,704,969)
(74,103)
–
1,171
466,038
– 1,421,893
2,878,112
(283,076)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(74,103)
35,495
1,171 1,887,931
61,691
–
2,595,036
97,186
–
–
–
–
–
581
–
–
–
(161,722)
48,576
581
(161,722)
581
(161,722)
(112,565)
(38,608)
1,752 1,787,900
2,579,657
(38,608)
6,513
–
1,752 1,787,900
171,149
36
–
(36)
2,579,657
177,662
–
–
–
–
–
–
–
1,148
(10)
–
–
–
–
(165,437)
120,374
1,148
–
(165,437)
1,138
(165,437)
(43,915)
(32,095)
2,854 1,793,648
2,713,404
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
The accompanying notes form an integral part of these fi nancial statements.
Contact Energy Limited and Subsidiaries
Statement of Financial Position as at 30 June 2010
Contact Energy Limited Annual Report 2010
57
Group
30 June 2010
$000
Group
30 June 2009*
$000
Group
30 June 2008*
$000
Parent
30 June 2010
$000
Parent
30 June 2009*
$000
Parent
30 June 2008*
$000
Note
Shareholders' equity
2,776,778
2,659,602
2,620,995
2,713,404
2,579,657
2,595,036
Represented by:
Current assets
Cash and short-term deposits
Receivables and prepayments
Tax receivable
Inventories
Derivative fi nancial 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 fi nancial assets
Derivative fi nancial instruments
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Borrowings
Current portion of term borrowings
Derivative fi nancial instruments
Payables and accruals
Tax payable
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative fi nancial instruments
Provisions
Deferred tax
Other non–current liabilities
13
14
15
24
16
17
18
20
21
22
24
23
23
24
25
26
23
24
26
27
921
219,148
–
58,366
4,955
179,220
253,836
–
15,906
14,987
2,542
517,365
162
21,111
52,940
–
210,415
–
53,452
4,914
177,848
224,786
–
6,600
14,987
–
488,987
662
7,014
52,940
283,390
463,949
594,120
268,781
424,221
549,603
4,511,314
284,201
49,022
–
8,809
2,935
787
7,305
4,239,601
252,159
46,252
–
8,687
2,935
6,597
5,987
3,976,864
214,552
23,622
–
8,015
2,935
13,554
2,945
4,421,033
225,567
49,022
132,788
1,587
–
787
7,305
4,163,258
193,525
46,252
132,788
1,579
–
6,597
5,987
3,905,033
155,918
23,622
132,788
1,579
–
13,554
2,945
4,864,373
4,562,218
4,242,487
4,838,089
4,549,986
4,235,439
5,147,763
5,026,167
4,836,607
5,106,870
4,974,207
4,785,042
3,180
–
31,895
262,430
6,046
13,146
4,311
141,662
72,368
304,235
2,218
8,195
132,811
–
139,282
540,619
–
20,954
3,453
–
31,895
291,328
6,043
12,907
2,982
141,662
72,317
338,246
2,968
7,953
130,384
–
139,024
522,949
–
20,746
316,697
532,989
833,666
345,626
566,128
813,103
1,279,233
98,811
43,429
632,090
725
1,091,106
85,905
33,750
621,386
1,429
554,725
194,925
33,618
596,802
1,876
1,279,216
98,811
41,808
627,280
725
1,091,066
85,905
32,116
618,532
803
554,695
194,925
31,701
595,582
–
Total non-current liabilities
2,054,288
1,833,576
1,381,946
2,047,840
1,828,422
1,376,903
Total liabilities
Net assets
2,370,985
2,366,565
2,215,612
2,393,466
2,394,550
2,190,006
2,776,778
2,659,602
2,620,995
2,713,404
2,579,657
2,595,036
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
The Directors of Contact Energy Limited authorised these fi nancial statements for issue.
On behalf of the Board
Grant King
Chairman, 19 August 2010
Phillip Pryke
Deputy Chairman, 19 August 2010
The accompanying notes form an integral part of these fi nancial statements.
58
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Statement of Cash Flows for the year ended 30 June 2010
Cash fl ows from operating activities
Cash provided from:
Receipts from customers
Associate dividends received
Cash applied to:
Payments to suppliers and employees
Retail transaction processing outsourcing costs
Supplementary dividend paid to shareholders
Tax paid
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
Note
2,185,718
3,862
2,492,488
3,842
1,893,401
2,936
2,157,053
2,865
2,189,580
2,496,330
1,896,337
2,159,918
26
9
(1,779,301)
(427)
(1,293)
(40,200)
(2,035,904)
–
(10,776)
(25,000)
(1,504,921)
(427)
(1,293)
(40,200)
(1,712,259)
–
(10,776)
(25,000)
(1,821,221)
(2,071,680)
(1,546,841)
(1,748,035)
Net cash infl ow from operating activities
368,359
424,650
349,496
411,883
Cash fl ows from investing activities
Cash provided from:
Interest received
Loan from associate
Cash applied to:
Purchase of property, plant and equipment
Purchase of intangible assets
Removal of New Plymouth asbestos and related costs
Purchase of gas storage rights
Purchase of investment in Energyhedge
Purchase of cushion gas
Repayment of loan to associate
4,848
–
4,848
(411,279)
(29,557)
(2,922)
–
(8)
(1,490)
(1,886)
4,961
80
5,041
(385,715)
(25,750)
(17,280)
(120)
–
(41,151)
(1,317)
4,768
–
4,768
(394,029)
(29,557)
(2,922)
–
(8)
(1,490)
–
4,961
–
4,961
(372,982)
(25,750)
(17,280)
(120)
–
(41,151)
–
(447,142)
(471,333)
(428,006)
(457,283)
21
18
Net cash (outfl ow) to investing activities
(442,294)
(466,292)
(423,238)
(452,322)
Cash fl ows from fi nancing activities
Cash provided from:
Proceeds from borrowings
Proceeds from other short-term loans
Cash applied to:
Interest paid
Distributions and dividends paid to shareholders
Financing costs
Profi t distribution-related costs
Repayment of borrowings
Repayment of other short-term loans and fi nance lease liabilities
100,000
250,258
550,000
173,524
100,000
250,258
550,000
173,524
350,258
723,524
350,258
723,524
(103,324)
(44,904)
(923)
(311)
(160,228)
(145,296)
(79,019)
(112,582)
(11,151)
(432)
–
(301,943)
(103,109)
(44,904)
(923)
(311)
(160,228)
(145,263)
(78,909)
(112,582)
(11,151)
(432)
–
(301,938)
(454,986)
(505,127)
(454,738)
(505,012)
Net cash (outfl ow)/infl ow to/from fi nancing activities
(104,728)
218,397
(104,480)
218,512
Net (decrease)/increase in cash and cash equivalents
Add: cash and cash equivalents at the start of the year
(178,663)
177,545
176,755
790
(178,222)
175,889
178,073
(2,184)
Cash and cash equivalents at the end of the year
(1,118)
177,545
(2,333)
175,889
Cash and cash equivalents comprise:
Bank overdraft
Cash and short-term deposits
13, 23
13
(2,039)
921
(1,675)
179,220
(2,333)
–
(1,959)
177,848
13
(1,118)
177,545
(2,333)
175,889
The accompanying notes form an integral part of these fi nancial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2010
59
Statement of Cash Flows for the year ended 30 June 2010 (continued)
Reconciliation of profi t for the year
to cash fl ows from operating activities
Profi t for the year
Items classifi ed as investing/fi nancing
Net interest expense
Non-cash items
Write-off of receivables
Movement in provisions
Share-based payments
Impairment of Gasbridge assets
Depreciation and amortisation
Equity accounted (earnings) of associates net of dividends received
Change in fair value of fi nancial instruments
Increase in deferred tax
Write-off of subsidiary advance
Write-back of subsidiary advance
Other non-cash items
Movement in working capital
Decrease in receivables and prepayments
(Increase)/decrease in inventories
(Decrease)/increase in payables and accruals
Increase in tax payable
(Increase) in other non-current assets
Group
30 June 2010
$000
Group
30 June 2009*
$000
Parent
30 June 2010
$000
Parent
30 June 2009*
$000
Note
154,668
115,639
171,149
61,691
7
5
12
19
16, 17
21
24
8
6
6
55,980
55,980
15,046
8,023
1,596
–
161,903
(261)
(4,531)
9,050
–
–
(1,225)
62,601
62,601
9,100
2,596
868
2,830
165,885
(739)
57,511
6,815
–
–
(2,872)
55,845
55,845
11,988
8,114
1,596
–
158,610
–
(4,531)
7,055
26
(48,100)
–
62,492
62,492
7,486
2,110
868
–
160,742
–
57,511
6,556
5,145
–
(1,601)
189,601
241,994
134,758
238,817
19,936
(42,460)
(11,876)
3,828
(1,318)
(31,890)
251,998
5,205
(252,312)
2,567
(3,042)
4,416
2,587
(46,852)
30,252
3,075
(1,318)
(12,256)
249,625
414
(201,931)
3,817
(3,042)
48,883
Net cash infl ow from operating activities
368,359
424,650
349,496
411,883
* Comparative numbers have been restated due to a voluntary change in accounting policy. Refer to note 1.
The accompanying notes form an integral part of these fi nancial statements.
60
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
1 Statement of accounting policies
Reporting entity
Contact Energy Limited (the Parent) is a profi t-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 fi nancial statements of Contact Energy Limited (the
fi nancial statements) as at, and for the year ended, 30 June 2010 comprise the Parent and its subsidiaries, interests in associates
and jointly controlled entities (together referred to as Contact or the Group).
Contact is a diversifi ed and integrated energy group focusing on the generation and retailing of electricity. Other activities
include the sale of natural gas and liquefi ed petroleum gas (LPG) to retail and wholesale customers throughout New Zealand.
Basis of preparation
The functional and reporting currency used in the preparation of the fi nancial statements is New Zealand dollars, rounded to the
nearest thousand ($000).
The fi nancial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice
(NZ GAAP). They comply with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and
other applicable Financial Reporting Standards as appropriate for profi t-oriented entities. The fi nancial statements comply
with International Financial Reporting Standards (IFRS).
The fi nancial statements were approved by the Board of Directors (the Board) on 19 August 2010.
The measurement basis adopted in the preparation of these fi nancial statements is historical cost except for:
•
•
derivative fi nancial instruments which are stated at their fair value as identifi ed in the specifi c accounting policies below;
recognised assets and liabilities that are hedged in a fair value hedging relationship which are stated at fair value in respect
of the risk that is hedged as identifi ed in the specifi c accounting policies below; and
•
generation plant and equipment which are stated at deemed historical cost as identifi ed below.
Changes in accounting policies
The accounting policies set out below have been applied consistently to all years presented in these fi nancial statements.
Contact adopted a policy of revaluing its core generation plant and equipment from the commencement of the Group.
Contact has relied upon an independent valuation of such assets for determining a fair value. As there is a limited market
for trading comparable generation assets in New Zealand, the valuation has primarily relied upon a discounted cash fl ow
analysis of the estimated long-term cash fl ows from the generation plant and equipment. Given the long life (up to 100 years)
of such assets, the valuation is very sensitive to any variation in assumptions. Events like the global fi nancial crisis have
added increased uncertainty to the independent valuation assumptions. The range in the current independent valuation has
correspondingly increased compared with prior valuations, such that a single point fair value within the valuation range is
diffi cult to reliably determine.
In the alternative, the cost valuation basis is considered a reliable basis for measurement of generation plant and equipment.
Cost also provides relevant information about the long-term cash-generating performance of the core generation plant and
equipment, which is the primary objective for Contact in owning the plant and equipment. For example, core metrics such as
return on capital invested in plant and equipment can be calculated without adjustment to the return, or the investment, for the
impact of asset revaluations. Cost aligns with global industry practice for similar long life core operating assets. Cost also aligns
with the policy of Contact’s ultimate parent Origin Energy Limited (Origin).
Contact has elected to make a voluntary change in accounting policy in relation to the measurement basis for generation
plant and equipment and move to a cost basis as it is reliable and more relevant. The change in accounting policy has been
applied retrospectively to 1 October 2004, the date of Contact’s transition to NZ IFRS and the date of acquisition of 51.4 per
cent of the shares in Contact by Origin. Fair value at 1 October 2004 is considered deemed historical cost owing to the
impracticability of determining actual cost back to the original asset purchase date. As a result of the change, the revaluation
reserve at 1 October 2004 ($1,547.6 million) has been transferred to retained earnings. In addition, the revaluation in 2007
($401.1 million) and the consequential deferred tax ($120.3 million) have been reversed.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
61
The change in accounting policy has had the following impacts on the current and prior years presented in these
fi nancial statements:
Group
30 June 2010
$000
Group
30 June 2009
$000
Group
30 June 2008
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
Parent
30 June 2008
$000
Increase in depreciation and amortisation
Decrease in income tax expense*
3,285
(1,001)
3,931
(2,034)
4,772
(2,412)
3,285
(1,001)
3,931
(2,034)
4,772
(2,412)
Decrease in profi t for the year
Decrease in property, plant and equipment
Decrease in deferred tax
Decrease in asset revaluation reserve
Increase in retained earnings
2,284
(408,118)
(123,546)
(1,895,698)
1,611,126
1,897
(405,372)
(122,706)
(1,896,076)
1,613,410
2,360
(404,736)
(121,660)
(1,898,383)
1,615,307
2,284
(408,118)
(123,546)
(1,702,284)
1,417,712
1,897
(405,372)
(122,706)
(1,702,662)
1,419,996
2,360
(404,736)
(121,660)
(1,704,969)
1,421,893
Group
30 June 2010
Group
30 June 2009
Group
30 June 2008
Parent
30 June 2010
Parent
30 June 2009
Parent
30 June 2008
Decrease in basic and diluted earnings per share
(cents)
Decrease in underlying earnings per share
(cents)
Decrease in net tangible assets per share
(dollars)
(0.38)
(0.33)
(0.40)
(0.38)
(0.33)
(0.40)
(0.38)
(0.33)
(0.40)
(0.38)
(0.33)
(0.40)
(0.47)
(0.49)
(0.49)
(0.47)
(0.49)
(0.49)
*
The decrease in income tax expense is due to the tax benefi t from the higher depreciation expense, and the deferred tax
asset on restoration provisions previously recognised through the asset revaluation reserve now being recognised through
the Income Statement.
As a result of the change in accounting policy, the comparatives in the Income Statement, Statement of Changes in Equity and
Statement of Financial Position and the related notes have been restated.
There have been no other changes in accounting policy in the year.
Presentational changes
Certain presentational changes have been made to the comparative Income Statement, Statement of Changes in Equity,
Statement of Financial Position, Statement of Cash Flows and the related notes to ensure consistency with the current year
treatment. These changes, which have been applied retrospectively to 30 June 2009 and 30 June 2008, relate to the:
•
•
•
•
•
•
reclassifi cation of restricted share capital from ‘share capital’ to ‘share-based payment reserve’,
reclassifi cation of write-off of subsidiary advance from ‘other operating expenses’ to ‘other signifi cant items’,
presentation of ‘proceeds from other short-term loans’ and ‘repayment of other short-term loans and fi nance lease liabilities’,
which has been amended to disclose repayments and drawdowns separately,
reclassifi cation of certain recoveries from ‘retail electricity and gas revenue’ to ‘other operating expenses’,
reclassifi cation of certain rebates from ‘electricity purchases’ to ‘electricity transmission, distribution and levies’,
reclassifi cation of certain delivery costs from ‘other operating expenses’ to ‘LPG purchases’.
Adoption status of relevant new fi nancial reporting standards and interpretations
The following relevant new standards and amendments to standards are mandatory for the fi nancial year beginning 1 July 2009
and have been adopted by Contact in the preparation of these fi nancial statements:
•
NZ IAS 1 (Revised) Presentation of Financial Statements – the revised standard prohibits the presentation of items of income
and expenses (i.e. ‘non-owner changes in equity’) in the Statement of Changes in Equity, requiring ‘non-owner changes in
equity’ to be presented separately from owner changes in equity in a Statement of Comprehensive Income. As a result,
Contact presents all transactions with owners in the Statement of Changes in Equity, whereas all movements in reserves
are presented in a separate Statement of Comprehensive Income. The standard requires retrospective application and
consequently comparative information has been revised.
62
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
•
•
•
NZ IFRS 7 Financial Instruments – Disclosures (amendment) – the amendment requires enhanced disclosures about fair value
measurement and liquidity risk. In particular, the amendment requires additional disclosure of fair value measurement
methodologies according to a fair value measurement hierarchy. Refer to note 24.
NZ IFRS 8 Operating Segments – the standard requires operating segments to refl ect the internal management reports of
Contact, which are regularly reviewed by the chief operating decision-maker in order to allocate resources and to assess
performance. As a result of changing how internal fi nancial information is presented to the chief operating decision-maker,
Contact’s reportable segments have changed. Refer to note 3.
Improvements to NZ IFRS 2009 – these improvements have resulted in minor changes to disclosures but have had no material
eff ect on amounts reported.
Contact has elected not to early adopt the following standards, considered relevant to the fi nancial statements, which have been
issued but are not yet eff ective:
•
•
•
•
•
NZ IFRS 2 Amendment: Share-Based Payment: Group Cash-Settled Share-Based Payment Transactions – amendment approved
August 2009 and eff ective for annual reporting periods beginning on or after 1 January 2010.
NZ IFRS 9 Financial Instruments – approved November 2009 and eff ective for annual reporting periods beginning on or after
1 January 2013.
NZ IAS 24 Related Party Disclosures (revised 2009) – amendment approved November 2009 and eff ective for annual reporting
periods beginning on or after 1 January 2011.
NZ IAS 32 Amendment: Financial Instruments – Presentation – amendment approved October 2009 and eff ective for annual
reporting periods beginning on or after 1 February 2010.
NZ IAS 36 Amendment: Impairment of Assets – amendment approved May 2009 and eff ective for annual reporting periods
beginning on or after 1 January 2010.
Contact does not currently intend to early adopt any of these standards or amendments before their eff ective dates.
The Directors anticipate that the above standards and amendments will have no material impact on the fi nancial statements in
the period of initial application.
Accounting estimates and judgements
Contact’s signifi cant areas of estimation and critical judgements in these fi nancial statements are as follows:
Financial instruments
Note 24 contains information about the assumptions and the risk factors relating to fi nancial 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 fi nancial model for future electricity prices. Accounting judgements have been made in determining the hedge
designation for the diff erent types of derivative fi nancial instruments employed by Contact to hedge its risk exposures.
Intangible assets – gas storage rights
Contact 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 benefi ts are expected to be derived. 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 or a new permit granted. The useful life
is reviewed annually. Refer to note 17.
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 the end of the reporting period. 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 fl ows of the cash-generating units. The major inputs and assumptions that are used in the model that
require judgement include sales forecasts, cost to serve, customer numbers and customer churn, forecast gas costs, interest
rates, discount rates and a forecast of the future electricity price path. Refer to note 17.
Inventory gas
Inventory gas is held at the lower of cost and net realisable value. Contact has exercised judgement in determining the net
realisable value of fl exible gas contracts.
New Plymouth power station
In calculating the provision for the removal of asbestos and other related costs, estimates have been made as to the expected
expenditure based on the status of contractor negotiations at the end of the reporting period.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
63
Property, plant and equipment and fi nite life intangible assets
Contact has exercised judgement in determining whether expenditure is in relation to bringing an asset to the location and
condition necessary for its intended use and is therefore appropriate for capitalisation as part of the cost of the asset.
In assessing the recoverable amount of capital work in progress, Contact has exercised judgement in determining the likely future
use or development of the asset.
Contact has also exercised judgement in determining the useful lives of property, plant and equipment and fi nite life intangible
assets. Useful lives are reviewed annually and, where appropriate, adjusted at the end of each reporting period.
Provision – restoration and environmental rehabilitation
Liabilities are estimated for the abandonment and site restoration of areas from which natural resources are extracted and for the
removal of asbestos at generation properties. Such estimates are valued at the net present value of the expenditure expected to
settle the obligation. Key assumptions have been made as to the expected amount and timing of expenditure to remediate based
on the expected lives of the assets employed on the sites. Refer to note 26.
Retail revenue
Contact has exercised judgement in determining estimated retail sales for unread gas and electricity meters at the end of the
reporting period. Specifi cally, this involves an estimate of consumption for each unread meter based on the customer’s past
consumption history.
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. Identifi able 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 identifi able 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 diff erence is recognised directly in the Income Statement. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group.
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 values of the acquired entities. Any diff erence 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 signifi cant infl uence, but not control, over the operating and/or fi nancial policies.
Associates are refl ected in the fi nancial statements by applying the equity accounting method. The equity accounting method
recognises Contact’s share of the current year retained surpluses or defi cits in the Group Income Statement and its share of post
acquisition increases or decreases in net assets in the Group Statement of Financial Position.
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 assets or entities and is consequently entitled to a share of the future economic benefi ts through its share of
the jointly controlled assets or entities. Contact’s share of the assets, liabilities, outputs (revenues) and expenses of jointly
controlled assets or entities is incorporated into the fi nancial statements on a proportionate line-by-line basis.
Transactions and balances eliminated on consolidation
The eff ects of intra-group transactions and balances are eliminated in preparing the Group fi nancial 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 fi nancial instruments and hedging.
Discounts, premiums, prepaid interest and fi nancing 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 diff erence between the cost and redemption
value is recognised in the Income Statement over the period of the borrowing on an eff ective interest basis.
64
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
All borrowing costs are recognised in the Income Statement using the eff ective 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.
Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position.
Derivative fi nancial instruments and hedging
Derivative fi nancial 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 fi nancial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged.
Contact designates certain derivative fi nancial instruments as either:
•
•
hedges of the fair value of recognised assets or liabilities or a fi rm commitment (fair value hedge), or
hedges of highly probable forecast transactions (cash fl ow hedge).
Fair value hedge
Changes in the fair value of derivative fi nancial 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 fl ow hedge
The eff ective portion of changes in the fair value of derivative fi nancial instruments that are designated and qualify as cash
fl ow hedges are recognised in the Statement of Comprehensive Income. The gain or loss relating to the ineff ective portion is
recognised immediately in the Income Statement.
Amounts accumulated in other comprehensive income are recycled to the Income Statement in the year when the hedged item
will aff ect the Income Statement. However, when the forecast transaction that is hedged results in the recognition of a non-
fi nancial asset (for example, inventory) or a liability, the gains and losses previously deferred in other comprehensive income
are transferred from other comprehensive income 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 fi nancial instrument no longer qualifi es for hedge accounting, but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that point remains in other comprehensive income 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 other comprehensive income is recognised immediately in
the Income Statement.
Derivative fi nancial instruments that do not qualify for hedge accounting
Certain derivative fi nancial instruments do not qualify for hedge accounting. Changes in the fair value of any derivative fi nancial
instruments that do not qualify for hedge accounting are recognised immediately in the Income Statement.
Employee benefi ts
Annual, long service and retirement leave benefi ts estimated to be payable to employees are accounted for on the basis of
statutory and contractual requirements.
Long-term service benefi ts
Contact's net obligation in respect of long-term service benefi ts, other than pension plans, is the amount of future benefi ts
that employees have earned in return for their service in the current and prior years. The obligation is calculated using an
actuarial technique.
Share-based payments
Share-based payments are provided to participating employees 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.
The fair value is measured at grant date by reference to the fair values 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 the end of each reporting period, Contact revises the amount to be recognised as an expense to refl ect the number of options
and restricted shares that are expected to become exercisable or vest.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
65
Exploration and evaluation expenditure
Exploration and evaluation expenditure in relation to geothermal sites 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
eff orts approach.
All exploration and evaluation costs, including directly attributable overheads, general permit activity, geological and
geophysical costs are expensed as incurred except the costs of drilling exploration wells and the costs 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 the 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 end of each reporting period, reached a stage
that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and
signifi cant operations in, or in relation to, the area of interest are continuing.
Capitalised costs are reviewed at the end of each reporting period 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 eff orts
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 eff ect at the dates of the transactions. Monetary assets and
monetary liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the end of each reporting
period. Non-monetary assets and non-monetary liabilities denominated in foreign currencies 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 accounted for as cash fl ow hedges are translated at the hedged rate, with the underlying hedge
contract being separately recorded in the Statement of Financial Position at fair value.
Group entities
The results and fi nancial positions of all Group entities (none of which have a currency of a hyperinfl ationary economy) that have
functional currencies diff erent 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 end of each reporting period,
all resulting exchange diff erences are recognised in other comprehensive income.
On consolidation, exchange diff erences arising from the translation of the net investment in foreign entities are taken to the
foreign currency translation reserve account in other comprehensive income. When a foreign operation is sold, such exchange
diff erences are recognised in the Income Statement as part of the gain or loss on sale.
Gas entitlements
Where Contact has take-or-pay gas purchase contracts, such pay obligations are expensed to the Income Statement in the month
the payment obligations crystallise, or as Contact uplifts the gas, depending on the contracted terms.
Gas storage – cushion gas
Cushion gas is necessary to develop and maintain the 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 the end of each reporting period 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. Refer to the inventories accounting policy.
Generation and other research and development expenditure
Expenditure on research activities undertaken with the prospect of gaining new scientifi c 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 benefi ts are probable and Contact intends to, and has suffi cient 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
66
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
directly attributable overheads and capitalised interest. Revenue earned in the period until the asset is operating in the manner
intended by management is deducted from the cost of the asset.
Capitalised work in progress is reviewed at the end of each reporting period to determine whether further work is planned to
support the continued carrying value of the capitalised costs.
Assets are transferred from capital work in progress when they are operating in the manner intended by management and
depreciated over the period of their expected economic benefi t.
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 Statement of Financial Position are stated exclusive 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 the end of each
reporting period to determine whether there is any indication of impairment. If any such indication exists, the asset’s
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.
The recoverable amount of receivables is calculated as the present value of expected future cash fl ows.
For retail receivables that are not signifi cant on an individual basis, collective impairment is assessed on a portfolio basis, based
on historical 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 fl ows are discounted to their net present value using a discount rate that refl ects current market
assessments of the time value of money and the risks specifi c to the asset. For an asset that does not generate largely
independent cash fl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of Contact's share of the net identifi able 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 the investment 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 that generate revenue independent of each other.
Other intangible assets
Other intangible assets with fi nite 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 operating as
management intended.
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 intangible asset 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 specifi cally 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 specifi c borrowings) that were outstanding
during the period. Costs cease to be capitalised as soon as the intangible asset is operating in the manner intended by
management or production is temporarily suspended, and do not include any ineffi ciency costs.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
67
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in
the ordinary course of business, less applicable variable selling expenses. The cost of materials, consumable supplies and
maintenance spares is determined on a weighted average basis.
Gas reserves in excess of the levels required for cushion gas are treated as inventory. The cost of inventory gas is determined
on a weighted average basis.
Inventory is classifi ed as a current asset as it is expected to be realised in Contact’s normal operating cycle which could extend
beyond one year.
Investments – fi nancial instruments
Contact classifi es its investments in the following categories:
•
•
•
fi nancial assets at fair value through profi t or loss,
held-to-maturity fi nancial assets, or
available-for-sale fi nancial assets.
The classifi cation depends on the purpose for which the investments were acquired. Management determines the classifi cation
of its investments at initial recognition and re-evaluates this designation at the end of each reporting period.
Purchases and sales of fi nancial assets are recognised on the trade date.
When fi nancial assets are initially recognised, they are measured at fair value plus, in the case of fi nancial assets not at fair value
through profi t or loss, directly attributable transaction costs.
Financial assets at fair value through profi t or loss
A fi nancial asset is classifi ed as a fi nancial asset at fair value through profi t or loss 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 profi t or loss
unless they are designated as hedges. Assets in this category are classifi ed as current where the cash fl ows associated with the
assets are expected to be realised within 12 months of the end of the reporting period.
Subsequent to initial recognition, fi nancial assets at fair value through profi t or loss are measured at fair value, with changes in
fair value recognised immediately in the Income Statement.
Held-to-maturity fi nancial assets
Held-to-maturity fi nancial assets are stated at amortised cost less impairment losses.
Available-for-sale fi nancial assets
Investments in unlisted shares are classifi ed as being available-for-sale and are stated at fair value, with any resultant gain
or loss being recognised directly in other comprehensive income, 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 other comprehensive income is recognised in the Income Statement.
Operating leases
Contact leases and is a lessor of certain plant, equipment, land and buildings. Leases in which a signifi cant portion of the risks
and rewards of ownership are retained by the lessor are classifi ed as operating leases.
Operating lease receipts and payments are representative of the pattern of benefi ts derived from the leased assets and,
accordingly, are recognised in the Income Statement on a straight-line basis.
Other income
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 eff ective interest rate method.
Payables
Payables are stated at cost.
68
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Property, plant and equipment
Contact’s generation plant and equipment purchased prior to 1 October 2004 is stated at deemed historical cost less
accumulated depreciation and accumulated impairment losses. All other property, plant and equipment is 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 use.
The cost of assets constructed by Contact, including capital work in progress, includes the cost of all materials used in
construction, direct labour costs specifi cally associated with construction, resource management consent costs and an
appropriate proportion of directly attributable variable and fi xed overheads. It also includes a reduction in respect of any
revenue earned by the asset in the period until it is operating in the manner intended by management. 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 specifi cally 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 specifi c borrowings) that were outstanding during the period. Costs cease
to be capitalised when the asset is operating as intended by management or the development is suspended, and do not
include any ineffi ciency costs.
Where an item of property, plant and equipment comprises major components having diff erent useful lives, the components
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 benefi ts embodied in the item of property, plant
and equipment will fl ow to the entity and can be reliably measured. All other expenditure is recognised in the Income
Statement as an expense as incurred.
Leased assets
Leases in which Contact assumes substantially all the risks and rewards of ownership are classifi ed as fi nance leases. Any
asset acquired by way of a fi nance lease is stated at an amount equal to the lower of its fair value or the net present value of
the future minimum lease payments at the inception of the lease.
Depreciation
With the exception of regular major inspections, depreciation is charged to the Income Statement on a straight-line basis so
as to allocate the cost of the assets, less any estimated residual value, over their expected remaining useful lives. Regular
major inspections are depreciated on an equivalent hours of use basis. 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
Regular major inspections*
*
Included in generation plant and equipment
Depreciation rate
Not depreciated
1–33%
1–18%
1–33%
Over 25,000 equivalent hours of use
Asset residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Receivables
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the eff ective interest
method, less any 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
diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the
eff ective interest rate. The amount of the impairment loss is recognised in the Income Statement.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
69
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 expenditure expected to be required to settle the obligation. The cost primarily
represents geothermal fi eld restorations.
Estimations are also made for the expected cost of environmental rehabilitation of commercial sites. The liability is immediately
recognised when exposure is identifi ed and rehabilitation costs can be reasonably estimated.
Revenue
Revenue comprises the amounts received and receivable at the end of the reporting period 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 signifi cant risks
and rewards of ownership of the goods have passed from Contact to the customer or when services have been rendered to the
customer and collection is reasonably assured.
Share capital
Ordinary shares are classifi ed 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 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, is included
in equity.
Statement of Cash Flows
The following are the defi nitions used in the Statement of Cash Flows:
•
•
•
operating activities include all transactions and other events that are not investing or fi nancing activities,
investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment,
intangible assets and investments,
fi nancing activities are those activities that result in changes in the size and composition of the capital structure of Contact.
They include both equity and debt not falling within the defi nition of cash. Dividends and interest paid in relation to the
capital structure are included in fi nancing activities.
Cash fl ows arising from the following operating, investing or fi nancing activities may be reported on a net basis:
•
cash receipts and payments on behalf of customers where the cash fl ows refl ect the activities of the customers rather than
those of Contact, or
•
cash receipts and payments for fi nancing activities where the maturities are short.
Tax
Income tax on the profi t 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 other comprehensive income, in which case
the income tax is recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted
at the end of the reporting period, together with any adjustment to tax payable in respect of previous years.
Deferred tax is calculated using the balance sheet liability method, providing for temporary diff erences between the carrying
amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. The following
temporary diff erences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities
that aff ect neither accounting nor taxable profi t, and diff erences 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 amounts of assets and liabilities, using tax rates enacted or substantially enacted at the
end of the reporting period.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profi ts 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 benefi ts
will be realised.
70
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
2 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 had not been previously recorded on the station’s asbestos register. In May
2008, Contact announced the temporary recommissioning of one 100-megawatt (MW) gas-fi red generator unit in response to
tight electricity supply conditions over the winter period. In January 2009, this unit was decommissioned.
The fi nancial 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. Additional asbestos was identifi ed in the 2010 fi nancial year and the remaining provision was increased by $5.6 million to
cover the cost of removing the asbestos. 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 was transferred from generation plant and equipment to other land and buildings at
30 June 2009. Refer to note 16.
3 Segment reporting
Identifi cation of reportable segments
Contact has identifi ed its operating segments based on the internal reports that are reviewed and used by the Managing Director
in assessing performance and in determining the allocation of resources. The Managing Director is Contact’s ‘chief operating
decision-maker’ within the meaning of NZ IFRS 8.
Contact has identifi ed two operating segments: Electricity and Other.
Products and services from which reportable segments derive their revenues
Electricity
The ‘Electricity’ business is a generator and retailer of electricity throughout New Zealand. Electricity is generated by means of
hydro, geothermal and thermal sources/power stations. Electricity generated is required to be sold to the national grid and then
purchased from the relevant node to be retailed to commercial and residential customers.
Other
The ‘Other’ business is a combination of other services off ered by Contact. These include the sale of gas to retail and wholesale
customers and the sale of LPG to commercial and residential customers in New Zealand. Individual services within the ‘Other’
segment do not exceed 10 per cent of revenue, profi t or total assets and are therefore not separately disclosed.
Accounting policies and inter-segment transactions
The accounting policies used by Contact in reporting segments internally are the same as those contained in note 1 to the
fi nancial statements except as detailed below:
Inter-segment revenue
The inter-segment revenue is a charge for electricity meters between the ‘Electricity’ and ‘Other’ segments. The inter-segment
charge aims to have the ‘Electricity’ segment break even on retail customer meter activity.
The following items and associated assets are not allocated to operating segments as they are not reported to the chief operating
decision-maker at a segment level:
•
•
•
•
•
change in fair value of fi nancial instruments,
other signifi cant items,
equity accounted earnings of associates,
net interest expense,
income tax expense.
Geographical segment information
Contact operates predominantly in one geographical location being New Zealand. Contact’s operations in Australia are
immaterial. Therefore, disclosure of geographical revenue and assets has not been made.
Major customers
Contact has a large number of customers, but no single external customer accounts for more than 10 per cent of revenue.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Segment note
Group
2010
Total segment revenue and other income
Total segment direct costs
Segment operating margin
Segment other operating expenses
Segment EBITDAF*
Depreciation and amortisation
Segment result
Change in fair value of fi nancial instruments
Other signifi cant items
Equity accounted earnings of associates
Net interest expense
Income tax expense
Profi t for the year
Group
2009
Total segment revenue and other income
Total segment direct costs
Segment operating margin
Segment other operating expenses
Segment EBITDAF*
Depreciation and amortisation
Segment result
Change in fair value of fi nancial instruments
Other signifi cant items
Equity accounted earnings of associates
Net interest expense
Income tax expense
Profi t for the year
Contact Energy Limited Annual Report 2010
71
Electricity
$000
Other
$000
Inter-segment
$000
Total
$000
1,859,223
(1,284,531)
334,167
(253,540)
(28,982)
28,982
2,164,408
(1,509,089)
574,692
(187,347)
387,345
(153,274)
80,627
(40,990)
39,637
(8,629)
234,071
31,008
–
–
–
–
–
655,319
(228,337)
426,982
(161,903)
265,079
4,531
(8,894)
3,272
(55,980)
(53,340)
154,668
Electricity
$000
Other
$000
Inter-segment
$000
Total
$000
1,891,723
(1,304,086)
357,389
(284,884)
(29,047)
29,047
2,220,065
(1,559,923)
587,637
(174,658)
412,979
(153,760)
72,505
(40,225)
32,280
(12,125)
259,219
20,155
–
–
–
–
–
660,142
(214,883)
445,259
(165,885)
279,374
(57,511)
(2,830)
3,624
(62,601)
(44,417)
115,639
*
In addition to the above information, the chief operating decision-maker also considers the following components of
EBITDAF within the ‘Electricity’ segment:
Group
Hedged generation
Exposed generation
Retail electricity
Electricity segment EBITDAF
30 June 2010
$000
30 June 2009
$000
318,067
39,967
29,311
321,221
32,296
59,462
387,345
412,979
72
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
4 Revenue
Wholesale electricity revenue
Retail electricity revenue
Gas revenue
LPG revenue
Steam revenue
Total revenue
5 Operating expenses
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
539,359
1,301,924
153,490
130,304
17,940
594,267
1,284,529
154,579
153,779
12,927
539,359
1,138,189
153,490
–
17,940
594,267
1,084,461
154,579
–
12,927
2,143,017
2,200,081
1,848,978
1,846,234
Electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
LPG purchases
Meter costs
Labour costs
Other operating expenses
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
480,790
511,413
396,719
99,175
20,992
83,490
144,847
528,864
494,492
399,533
116,823
20,211
80,396
134,487
429,741
451,405
397,944
–
16,922
80,532
136,149
477,501
412,519
400,804
–
16,140
73,499
128,007
Total operating expenses
1,737,426
1,774,806
1,512,693
1,508,470
Other operating expenses include:
Auditors’ remuneration
– Audit services: KPMG*
– Other assurance services: KPMG*
Total auditors’ remuneration
Donations
Write-off of receivables
(Decrease)/increase in provision for impairment of receivables
Rental expense on operating leases
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
612
–
612
75
15,046
(891)
6,583
691
35
726
94
9,100
2,431
5,969
612
–
612
75
11,988
(800)
5,005
691
35
726
94
7,486
1,945
4,358
*
In addition, in the year ended 30 June 2009 KPMG charged $186,000 for 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.
Labour costs include:
Contributions to KiwiSaver
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
1,624
1,475
1,568
1,405
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
6 Other signifi cant items
Contact Energy Limited Annual Report 2010
73
Impairment of Gasbridge assets
Retail transaction processing outsourcing costs
Removal of New Plymouth asbestos and related costs
Write-back of subsidiary advance*
Write-off of subsidiary advance
Total other signifi cant items
Note
19
26
2, 26
19
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
–
3,330
5,564
–
–
8,894
2,830
–
–
–
–
2,830
–
3,330
5,564
(48,100)
26
(39,180)
–
–
–
–
5,145
5,145
*
As a result of the amalgamation of Stratford Power Limited into Empower Limited (refer to note 20), $48.1 million relating
to a subsidiary advance has been written-back. The reversal of this amount is included within ‘other signifi cant items’ in the
Income Statement.
7 Net interest expense
Interest expense
Interest expense capitalised
Interest income
Net interest expense
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
108,566
(48,208)
(4,378)
89,860
(21,473)
(5,786)
108,352
(48,208)
(4,299)
89,685
(21,473)
(5,720)
55,980
62,601
55,845
62,492
The weighted average capitalisation rate on funds borrowed is 7.4 per cent per annum (2009: 7.1 per cent).
74
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
8 Income tax expense
Profi t before income tax
Tax thereon at 30%
Plus/(less) tax eff ect of adjustments:
Change in corporate income tax rate*
Removal of tax depreciation on buildings*
Temporary diff erences no longer expected to reverse
Other diff erences
Research and development tax credit 2009
Income tax over provided in prior year
Non-assessable write-back of subsidiary advance
Income tax expense
Comprising:
Current tax
Deferred tax
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
208,008
160,056
210,942
62,402
48,017
63,283
(42,650)
34,765
7
151
(669)
(666)
–
–
–
21
(399)
–
(3,222)
–
(42,335)
34,412
–
(297)
(669)
(171)
(14,430)
87,154
26,146
–
–
–
201
–
(884)
–
53,340
44,417
39,793
25,463
44,290
9,050
37,602
6,815
32,738
7,055
18,907
6,556
53,340
44,417
39,793
25,463
* The 2010 Budget contained two provisions which have had a material eff ect on the Group and Parent’s 2010 tax expense:
• A decrease in the corporate income tax rate from 30 per cent to 28 per cent, eff ective from Contact’s income tax year
ending 30 June 2012. As a result of this change, deferred tax which is not expected to crystallise in the next 12 months
has been restated to 28 per cent, as deferred tax is required to be recorded at the tax rate that will apply when the future
tax liability/asset is expected to crystallise.
• The removal of tax depreciation on buildings with estimated useful lives of 50 years or more. Contact will no longer
be able to claim tax depreciation on buildings from its income tax year ending 30 June 2012. This has resulted in an
increased deferred tax liability in respect of buildings completed before May 2010.
Imputation credits
Group
Opening balance
Imputation credits attached to dividends paid
Imputation credits attached to dividends received
New Zealand income tax paid
Closing balance
30 June 2010
$000
30 June 2009
$000
186,219
(20,823)
694
39,166
206,535
(44,675)
1,172
23,187
205,256
186,219
The imputation credits are available to shareholders of the Parent through the consolidated imputation group.
The imputation credit account balance includes tax paid at both 30 per cent ($62.4 million) and 33 per cent ($142.9 million).
Under current legislation, imputation credits can only be attached to future dividends at a ratio of 30/70.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
9 Distributions and dividends
Contact Energy Limited Annual Report 2010
75
Group and Parent
Distribution/dividend payment date
Cents per share
30 June 2010
$000
30 June 2009
$000
Dividends
2008 year fi nal dividend
Supplementary dividend
Foreign investor tax credit
Distributions
2009 year interim distribution
2009 year fi nal distribution
2010 year interim distribution
Supplementary dividend
Foreign investor tax credit
Total distributions and dividends
23 September 2008
31 March 2009
22 September 2009
30 March 2010
17.0
11.0
17.0
11.0
–
–
–
–
99,503
65,934
1,293
(1,293)
98,028
10,197
(10,197)
63,694
–
–
579
(579)
165,437
161,722
The distributions on 31 March 2009, 22 September 2009 and 30 March 2010 were made pursuant to the Parent’s Profi t
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 an equivalent cost under the off -market buy-back facility are treated as having received a fully imputed cash dividend.
On 19 August 2010, the Board declared a distribution in the form of a non-taxable bonus issue under the PDP equivalent to
14.0 cents per share, for shares on issue at 3 September 2010, the record date, with bonus shares allocated and/or cash
distributed, if elected, on 27 September 2010. Refer to note 34.
10 Earnings and net tangible assets per share
Group
Underlying earnings per share (cents)*
Basic and diluted earnings per share (cents)
Weighted average number of shares on issue over the year
Net tangible assets per share (dollars)
Number of shares on issue at the end of the year
* Non-statutory measure.
30 June 2010
30 June 2009
25.13
25.94
596,288,553
27.42
19.98
578,821,979
4.12
604,934,976
4.11
585,314,624
The calculation of underlying earnings per share is based on underlying earnings after tax after adjusting for signifi cant one-off
items and the non-cash change in fair value of fi nancial instruments attributable to holders of unrestricted ordinary shares. It is
calculated using the weighted average number of shares on issue over the year.
The weighted average number of shares on issue over the year is refl ective of the issue and repurchase of ordinary share capital
(excluding treasury stock) pursuant to the Parent’s PDP.
For the purpose of calculating the weighted average number of shares on issue, the restricted shares issued under Contact’s
Employee Long-Term Incentive Scheme are excluded until shares become unrestricted.
The dilutive eff ect of share options and restricted shares has not been taken into account in the calculation of diluted earnings
per share at 30 June 2010 and 30 June 2009, as the relevant performance hurdles have not yet been met.
The calculation of basic and diluted earnings per share is based on profi t after tax.
The calculation of net tangible assets per share at 30 June 2010 and 30 June 2009 is based on the total net assets less intangible
assets, divided by the number of shares on issue at the end of each year.
76
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
11 Share capital
Group and Parent
Opening balance as at 1 July 2008
Share capital issued
Share capital repurchased and held as treasury stock*
Transaction costs
Closing balance as at 30 June 2009
Opening balance as at 1 July 2009
Share capital issued
Share capital repurchased and cancelled during the year
Restricted shares vested during the year
Transaction costs
Closing balance as at 30 June 2010
* Treasury stock cancelled on 23 November 2009.
Ordinary shares – unrestricted
Number
$000
576,633,982
11,251,746
(2,571,104)
–
780,037
63,694
(14,555)
(563)
585,314,624
828,613
585,314,624
26,907,379
(7,288,507)
1,480
–
828,613
165,437
(44,904)
10
(159)
604,934,976
948,997
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.
The Parent issued 16,091,878 and 10,815,501 ordinary shares pursuant to the Parent’s PDP on 22 September 2009 and
30 March 2010 respectively. 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 4,554,184 shares
on 22 September 2009 and 2,734,323 shares on 30 March 2010. These shares were immediately cancelled upon buy-back.
Contact issues restricted ordinary shares (restricted shares) pursuant to the Employee Long-Term Incentive Scheme. The
restricted shares are held in trust, and are recognised as part of the share-based payment reserve until performance hurdles
are met. The restricted shares then become unrestricted and are transferred to ordinary share capital.
While restricted shares confer the same rights on the holder as unrestricted ordinary 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 12.
12 Share-based payments
Contact has an Employee Long-Term Incentive Scheme for participating employees 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 met. 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 eff ective grant date.
The share options and restricted 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 2010 was $1.6 million
(2009: $0.9 million).
Share Option Plan
Under the Share Option Plan, the Board issues share options to participating employees to acquire ordinary shares in the Parent
at the market price determined at the eff ective grant date. For share options granted in the year ended 30 June 2010, the market
price was the weighted average market price of the Parent’s ordinary shares traded on the NZSX over the fi ve business days prior
to the eff ective grant date (30 June 2009: 20 business days).
The share options do not entitle the participating employees to receive dividends or distributions from, nor vote in respect of, the
shares subject to the options.
There is a vesting period of approximately three years from the eff ective 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 fi rst test date during which share options may be exercised, again, to the extent
that the performance hurdles are met.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
77
The share options may also be exercised if, between the eff ective 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.
The number of options granted and lapsed during the reporting period and on issue at the end of the reporting period are
summarised below:
Group and Parent
2010
Eff ective
grant date
1 Jul 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
First
exercise date
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
1 Oct 2012
Exercise
price per
option
$7.35
$8.28
$9.15
$7.63
$8.60
$5.75
Balance
at 1 July
2009
316,898
13,413
364,486
15,008
804,833
–
Expiry date
30 Nov 2011
30 Nov 2011
30 Nov 2012
30 Nov 2012
30 Nov 2013
30 Nov 2014
Granted
Lapsed
Balance at
30 June
2010
Exercisable
at 30 June
2010
–
–
–
–
–
1,701,718
(32,821)
–
(50,455)
–
(133,914)
(45,515)
284,077
13,413
314,031
15,008
670,919
1,656,203
1,514,638
1,701,718
(262,705)
2,953,651
Group and Parent
2009
Eff ective
grant date
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
First
exercise date
1 Oct 2009
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
Exercise
price per
option
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
Balance
at 1 July
2008
330,706
18,361
13,413
445,599
22,706
–
Expiry date
30 Nov 2011
30 Nov 2011
30 Nov 2011
30 Nov 2012
30 Nov 2012
30 Nov 2013
Granted
Lapsed
Balance at
30 June
2009
Exercisable
at 30 June
2009
–
–
–
–
–
881,769
(13,808)
(18,361)
–
(81,113)
(7,698)
(76,936)
316,898
–
13,413
364,486
15,008
804,833
830,785
881,769
(197,916)
1,514,638
A further 198,022 share options, including the 7,927 exercisable at 30 June 2010, lapsed on 6 July 2010.
Restricted Share Plan
Under the Restricted Share Plan the Board issues restricted shares to the participants at the market price determined at the
eff ective grant date. Although the participant has benefi cial title to the restricted shares, under the terms of the Restricted
Share Plan:
•
•
the restricted shares are issued to an independent 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 to the restricted shares 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.
–
7,927
–
–
–
–
7,927
–
–
–
–
–
–
–
78
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
For ordinary shares issued in the year ended 30 June 2010, 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 fi ve business days prior to the
eff ective grant date (30 June 2009: 20 business days). 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 eff ective 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 successor).
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.
The number of restricted shares granted, lapsed and vested during the reporting period and the unvested number of restricted
shares at the end of the reporting period are summarised below:
Group and Parent
2010
Eff ective
grant date
Unallocated pool
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
Group and Parent
2009
Eff ective
grant date
Unallocated pool
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
First test
date
Final test
date
Shares
issued
Allocation
price per
share
Unvested
balance at
1 July 2009
Granted
Returned to
unallocated
pool
1 Oct 2009
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
1 Oct 2012
1 Oct 2011
1 Oct 2011
1 Oct 2011
1 Oct 2012
1 Oct 2012
1 Oct 2013
1 Oct 2014
70,890
3,581
2,504
83,242
3,091
104,712
241,940
509,960
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
$5.75
24,159
61,494
–
2,504
63,913
2,807
113,143
(58,200)
–
–
–
–
–
–
– 300,140
42,069
(6,369)
–
–
(8,847)
–
(18,825)
(8,028)
Unvested
balance at
30 June 2010
8,028
55,125
–
1,024
55,066
2,807
94,318
292,112
Vested
–
–
–
(1,480)
–
–
–
–
268,020 241,940
–
(1,480)
508,480
First test
date
Final test
date
Shares
issued
Allocation
price per
share
Unvested
balance at
1 July 2008
Granted
Returned to
unallocated
pool
Vested
Unvested
balance at
30 June 2009
1 Oct 2009
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
1 Oct 2011
1 Oct 2011
1 Oct 2011
1 Oct 2012
1 Oct 2012
1 Oct 2013
70,890
3,581
2,504
83,242
3,091
104,712
268,020
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
10,667
64,173
3,581
2,504
78,136
4,247
(19,247)
–
–
–
–
–
– 123,959
32,739
(2,679)
(3,581)
–
(14,223)
(1,440)
(10,816)
163,308 104,712
–
–
–
–
–
–
–
–
–
24,159
61,494
–
2,504
63,913
2,807
113,143
268,020
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
79
Pursuant to the Restricted Share Plan’s rules, where the rights to the restricted shares lapse, benefi cial 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 2010, 8,028 (2009: 24,159) restricted shares were held by the trustee in the unallocated pool. A further
31,413 restricted shares were transferred to the unallocated pool on 6 July 2010.
On 7 December 2009, 1,480 restricted shares issued pursuant to Contact’s Employee Long-Term Incentive Scheme became
unrestricted ordinary shares as the relevant performance hurdles were met. As such, legal title to these shares transferred to
the participant. Refer to note 11.
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 2010 was based on the following weighted average assumptions:
Group and Parent
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 2010
30 June 2009
5.0%
5.0%
5.1
26.0%
3.7
5.6%
3.9%
5.1
21.0%
3.7
Restricted shares are valued based on the market price at the eff ective grant date, adjusted for dividends and distributions that
are not received until the restricted shares vest. Volatility is based on historical 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.
13 Cash and cash equivalents
Unrestricted cash
Cash and short-term deposits
Bank overdrafts (refer to note 23)
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
921
179,220
–
177,848
921
(2,039)
179,220
(1,675)
–
(2,333)
177,848
(1,959)
Cash and cash equivalents in the Statement of Cash Flows
(1,118)
177,545
(2,333)
175,889
80
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
14 Receivables and prepayments
Retail electricity, other receivables and accruals
Less: provision for impairment
Wholesale electricity receivables
Net receivables
Prepayments
Interest receivable
Advances to subsidiaries
Advance to associates
Other receivables
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
176,308
(6,301)
47,049
217,056
1,796
1
–
295
–
170,184
(7,192)
70,080
233,072
1,340
637
–
–
18,787
141,391
(4,521)
47,049
183,919
1,796
1
24,699
–
–
128,031
(5,321)
70,080
192,790
1,333
637
11,239
–
18,787
Total receivables and prepayments
219,148
253,836
210,415
224,786
Receivables past due but not impaired
Included in retail electricity, other receivables and accruals are receivables that are past due but not impaired. These relate to
customers who pay outside normal commercial terms and for whom there is no recent history of default.
0–30 days past due
30–90 days past due
Over 90 days past due
Total receivables past due but not impaired
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
20,224
7,262
3,877
31,363
20,734
5,997
5,196
31,927
18,349
5,656
3,701
27,706
18,624
5,929
4,979
29,532
Included in other operating expenses are receivables written-off during the year totalling $15.0 million (Group) and
$12.0 million (Parent) (2009: $9.1 million (Group) and $7.5 million (Parent)). Refer to note 5.
Provision for impairment
Provision for impairment at the start of the year
Decrease/(increase) in provision for the year
Provision for impairment at the end of the year
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
(7,192)
891
(6,301)
(4,761)
(2,431)
(7,192)
(5,321)
800
(4,521)
(3,376)
(1,945)
(5,321)
15 Inventories
LPG
Consumables and spare parts
Inventory gas
Total inventories
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
4,677
6,774
46,915
9,004
6,902
–
58,366
15,906
–
6,537
46,915
53,452
–
6,600
–
6,600
Inventory gas relates to the gas reserves in the Ahuroa reservoir in excess of the reserves required for cushion gas. Refer to note 18.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
16 Property, plant and equipment
Contact Energy Limited Annual Report 2010
81
Group
Cost
Generation
plant and
equipment
(including land
and buildings)
at deemed cost
$000
Other
land and
buildings
at cost
$000
Other
plant and
equipment
at cost
$000
Generation
capital work
in progress
at cost
$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
Additions
Transfers from capital work in progress
Disposals
3,938,799
73,664
77,731
–
25,209
13,139
888
(2,992)
272,009
10,718
14,914
–
94,286
50,055
(64,889)
–
32,795
60,761
(11,165)
(3,038)
21,874 4,384,972
231,680
23,343
–
(17,479)
(6,030)
–
Balance as at 30 June 2008
4,090,194
36,244
297,641
79,452
79,353
27,738 4,610,622
Balance as at 1 July 2008
Transfer to intangible assets
Reclassifi cation of New Plymouth
land and buildings
Additions
Transfers from capital work in progress
Disposals
4,090,194
–
36,244
–
297,641
(6,467)
79,452
–
79,353
–
27,738 4,610,622
(11,599)
(5,132)
(19,889)
104,171
64,538
(1,970)
19,889
6,517
117
(874)
–
9,709
15,608
(52,731)
–
55,307
(62,627)
–
–
243,871
(1,723)
–
–
16,723
(15,913)
–
–
436,298
–
(55,575)
Balance as at 30 June 2009
4,237,044
61,893
263,760
72,132
321,501
23,416 4,979,746
Balance as at 1 July 2009
Additions
Transfers from capital work in progress
Disposals
4,237,044
75,282
104,120
(10)
61,893
1,021
117
–
263,760
4,081
13,898
(2,058)
72,132
102,946
(40,572)
–
321,501
232,685
(63,548)
–
23,416 4,979,746
427,370
11,355
–
(14,015)
(2,068)
–
Balance as at 30 June 2010
4,416,436
63,031
279,681
134,506
490,638
20,756 5,405,048
Depreciation and impairment losses
Balance as at 1 July 2007
Depreciation charge
(314,908)
(127,220)
(2,624)
(446)
(168,156)
(20,404)
Balance as at 30 June 2008
(442,128)
(3,070)
(188,560)
Balance as at 1 July 2008
Transfer to intangible assets
Reclassifi cation of New Plymouth
land and buildings
Depreciation charge
Disposals
Impairment losses recognised
in Income Statement*
(442,128)
–
(3,070)
–
(188,560)
6,085
8,051
(142,647)
1,970
(8,051)
(1,086)
874
–
(21,043)
52,290
–
–
–
Balance as at 30 June 2009
(574,754)
(11,333)
(151,228)
Balance as at 1 July 2009
Depreciation charge
Disposals
(574,754)
(139,897)
10
(11,333)
(2,636)
–
(151,228)
(12,877)
1,811
Balance as at 30 June 2010
(714,641)
(13,969)
(162,294)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,830)
(2,830)
(2,830)
–
–
(2,830)
(123)
123
(485,811)
(147,947)
–
–
–
–
–
–
–
–
–
–
–
–
(633,758)
(633,758)
6,085
–
(164,776)
55,134
(2,830)
(740,145)
(740,145)
(155,410)
1,821
(893,734)
Carrying value
As at 30 June 2008
As at 30 June 2009
As at 30 June 2010
* Refer to note 19.
3,648,066
33,174
109,081
79,452
79,353
27,738 3,976,864
3,662,290
50,560
112,532
72,132
318,671
23,416 4,239,601
3,701,795
49,062
117,387
134,506
487,808
20,756 4,511,314
82
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Parent
Cost
Generation
plant and
equipment
(including land
and buildings)
at deemed cost
$000
Other
land and
buildings
at cost
$000
Other
plant and
equipment
at cost
$000
Generation
capital work
in progress
at cost
$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
Additions
Transfers from capital work in progress
Disposals
3,938,799
73,664
77,731
–
22,538
13,139
–
(2,992)
163,750
10,712
9,522
–
94,286
50,055
(64,889)
–
30,665
54,411
(11,165)
(3,038)
13,075 4,263,113
214,671
12,690
(11,199)
–
(6,030)
–
Balance as at 30 June 2008
4,090,194
32,685
183,984
79,452
70,873
14,566 4,471,754
Balance as at 1 July 2008
Transfer to intangible assets
Reclassifi cation of New Plymouth
land and buildings
Additions
Transfers from capital work in progress
Disposals
4,090,194
–
32,685
–
183,984
(6,467)
79,452
–
70,873
–
14,566 4,471,754
(11,599)
(5,132)
(19,889)
104,171
64,538
(1,970)
19,889
5,954
–
(874)
–
2,803
7,966
(52,159)
–
55,307
(62,627)
–
–
238,414
(1,723)
–
–
16,723
(8,154)
–
–
423,372
–
(55,003)
Balance as at 30 June 2009
4,237,044
57,654
136,127
72,132
307,564
18,003 4,828,524
Balance as at 1 July 2009
Additions
Transfers from capital work in progress
Disposals
4,237,044
75,282
104,120
(10)
57,654
865
–
–
136,127
5,293
6,256
(316)
72,132
102,946
(40,572)
–
307,564
220,742
(63,548)
–
18,003 4,828,524
409,892
–
(326)
4,764
(6,256)
–
Balance as at 30 June 2010
4,416,436
58,519
147,360
134,506
464,758
16,511 5,238,090
Depreciation and impairment losses
Balance as at 1 July 2007
Depreciation charge
(314,908)
(127,220)
(2,094)
(327)
(106,664)
(15,508)
Balance as at 30 June 2008
(442,128)
(2,421)
(122,172)
Balance as at 1 July 2008
Transfer to intangible assets
Reclassifi cation of New Plymouth
land and buildings
Depreciation charge
Disposals
(442,128)
–
(2,421)
–
(122,172)
6,085
8,051
(142,647)
1,970
(8,051)
(945)
874
–
(16,041)
52,159
Balance as at 30 June 2009
(574,754)
(10,543)
(79,969)
Balance as at 1 July 2009
Depreciation charge
Disposals
(574,754)
(139,897)
10
(10,543)
(2,550)
–
(79,969)
(9,670)
316
Balance as at 30 June 2010
(714,641)
(13,093)
(89,323)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(423,666)
(143,055)
(566,721)
(566,721)
6,085
–
(159,633)
55,003
(665,266)
(665,266)
(152,117)
326
(817,057)
Carrying value
As at 30 June 2008
As at 30 June 2009
As at 30 June 2010
3,648,066
30,264
61,812
79,452
70,873
14,566 3,905,033
3,662,290
47,111
56,158
72,132
307,564
18,003 4,163,258
3,701,795
45,426
58,037
134,506
464,758
16,511 4,421,033
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 confi rmed and the land is to be returned, compensation will be paid to Contact under the provisions of
the Public Works Act 1981.
Generation plant and equipment and capital work in progress
Deloitte, as an independent valuer, valued the generation plant and equipment and generation capital work in progress as at
30 June 2010.
The carrying amount of generation plant and equipment and generation capital work in progress, had they been recognised at
fair value, would be in the range of $3.9 billion to $5.0 billion.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
17 Intangible assets
Group
Cost
Balance as at 1 July 2008
Transfer from property, plant and equipment
Additions
Disposals
Balance as at 30 June 2009
Balance as at 1 July 2009
Additions
Disposals
Balance as at 30 June 2010
Amortisation and impairment losses
Balance as at 1 July 2008
Transfer from property, plant and equipment
Amortisation charge
Disposals
Balance as at 30 June 2009
Balance as at 1 July 2009
Amortisation charge
Disposals
Balance as at 30 June 2010
Carrying value
As at 30 June 2009
As at 30 June 2010
Contact Energy Limited Annual Report 2010
83
Goodwill
$000
Patents
$000
Gas storage
rights
$000
Computer
software
$000
Total
$000
181,941
–
–
–
181,941
181,941
–
–
181,941
–
–
–
–
–
–
–
–
–
1,222
–
–
–
1,222
1,222
–
–
1,222
(1,222)
–
–
–
(1,222)
(1,222)
–
–
(1,222)
28,563
–
2,305
–
10,134
11,599
30,897
(733)
221,860
11,599
33,202
(733)
30,868
51,897
265,928
30,868
2,485
–
51,897
36,050
(135)
265,928
38,535
(135)
33,353
87,812
304,328
–
–
–
–
–
–
–
–
–
(6,086)
(6,085)
(1,109)
733
(7,308)
(6,085)
(1,109)
733
(12,547)
(13,769)
(12,547)
(6,493)
135
(13,769)
(6,493)
135
(18,905)
(20,127)
181,941
181,941
–
–
30,868
33,353
39,350
252,159
68,907
284,201
84
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Parent
Cost
Balance as at 1 July 2008
Transfer from property, plant and equipment
Additions
Disposals
Balance as at 30 June 2009
Balance as at 1 July 2009
Additions
Disposals
Balance as at 30 June 2010
Amortisation and impairment losses
Balance as at 1 July 2008
Transfer from property, plant and equipment
Amortisation charge
Disposals
Balance as at 30 June 2009
Balance as at 1 July 2009
Amortisation charge
Disposals
Balance as at 30 June 2010
Carrying value
As at 30 June 2009
As at 30 June 2010
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
–
2,305
–
10,134
11,599
30,897
(733)
162,004
11,599
33,202
(733)
30,868
51,897
206,072
30,868
2,485
–
51,897
36,050
(135)
206,072
38,535
(135)
33,353
87,812
244,472
–
–
–
–
–
–
–
–
–
(6,086)
(6,085)
(1,109)
733
(6,086)
(6,085)
(1,109)
733
(12,547)
(12,547)
(12,547)
(6,493)
135
(12,547)
(6,493)
135
(18,905)
(18,905)
30,868
33,353
39,350
193,525
68,907
225,567
Goodwill
For the purpose of impairment testing, all goodwill is allocated to the retail electricity (Group: $143.0 million; Parent:
$87.6 million), retail gas (Group and Parent: $35.7 million) and LPG (Group: $3.2 million; Parent: nil) cash-generating units.
The impairment test for each unit is based on a value in use discounted cash fl ow valuation. Cash fl ow projections are based on a
10-year fi nancial forecast for the underlying business and are extrapolated using an average annual growth rate of approximately
1.0–3.0 per cent. 10-year fi nancial forecasts are considered appropriate because of the long-term nature of the business. The
cash fl ow projections are discounted using post-tax discount rates of 8.0–10.0 per cent.
Key assumptions in the value in use calculations for the cash-generating units are:
Assumption
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
In June 2008, Contact acquired the exclusive right to use the Ahuroa reservoir in order to develop an underground gas
storage facility.
The acquisition was completed in conjunction with Contact’s ultimate parent company, Origin, which acquired certain
New Zealand oil and gas assets from Swift Energy New Zealand Limited. These assets included a petroleum mining
licence (PML 38139, the PML) to an area that includes the Ahuroa reservoir.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
85
Contact’s benefi cial right in the PML shall continue until such time as the term of the PML expires or until a new permit
is granted.
Additions to gas storage rights since acquisition relate to capitalised interest on the original acquisition of the rights.
Impairment
No impairment exists for any intangible asset at 30 June 2010 (2009: nil).
18 Gas storage – cushion gas
As part of the acquisition of the gas storage rights (refer to note 17), Contact also secured benefi cial 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 since acquisition, are referred to as cushion gas and represent the investment
necessary to enable the fi eld to be used for the storage of future ‘operational’ gas.
Cushion gas is recognised at cost, which includes capitalised interest, and is presented in the Statement of Financial Position as
a separate non-current, non-depreciable asset, referred to as gas storage – cushion gas.
Gas injected in excess of cushion gas requirements is treated as inventory. Refer to note 15.
19 Investment in jointly controlled entity
Name of entity
Gasbridge Joint Venture
Interest held by Group
30 June 2010
30 June 2009
Principal activity
50%
50% Liquefi ed natural gas 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, income and results of the joint venture. These are
included in the Statement of Financial Position and the Income Statement.
Group
Assets
Current assets
Total assets
Liabilities
Current liabilities
Total liabilities
Net assets/(liabilities)
Income
Expenses
Loss after income tax
Proportionate interest in joint venture's commitments
30 June 2010
$000
30 June 2009
$000
7
7
2
2
5
3
(10)
(7)
–
42
42
59
59
(17)
4
(344)
(340)
–
During the year ended 30 June 2009 Contact and Genesis Power Limited decided to put on hold the development of the
land-based liquefi ed natural gas (LNG) terminal. As a result of this decision, Contact wrote-off its share of the assets of the
Gasbridge Joint Venture relating to the previously planned onshore LNG storage and land-based regasifi cation facility. An
impairment loss of $2.8 million was taken to the Income Statement relating to this write-off for the year ended 30 June 2009.
86
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
As a result of this decision, the Parent wrote-off an amount of $5.1 million receivable from its subsidiary Contact Aria Limited in
relation to its investment in the Gasbridge Joint Venture for the year ended 30 June 2009.
There are no contingent liabilities relating to Contact’s interest in the joint venture and no contingent liabilities in the joint
venture itself (2009: nil).
20 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 2010
30 June 2009
Principal activity
100%
N/a
100%
100%
N/a
100%
100%
100%
100% Electricity retailer and gas wholesaler
100% Gas wholesaler
100% Investment holding company
100% Wind generation development
100% Holding and management company
100% LPG retailer
100% Investment holding company
100% Manages Australian interests relating to operation
and maintenance of Oakey Power Holdings Pty Limited
* Eff ective 7 September 2009 Stratford Power Limited was amalgamated into Empower Limited.
** Eff ective 7 September 2009 Rockgas Holdings Limited was amalgamated into Rockgas Limited.
All subsidiaries have a 30 June balance date.
21 Investment in associates
Interest held by Group
Name of entity
30 June 2010
30 June 2009
Principal activity
Oakey Power Holdings Pty Limited
Rockgas Timaru Limited
Energyhedge Limited
25%
50%
20%
25% Electricity generation
50% LPG distribution
Futures trading
N/a
Country of
incorporation
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Australia
Australia
Country of
incorporation
Australia
New Zealand
New Zealand
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
8,687
8
3,272
(147)
(3,011)
8,809
8,015
–
3,624
(67)
(2,885)
8,687
1,579
8
–
–
–
1,587
1,579
–
–
–
–
1,579
Carrying value of associates
Carrying value at the start of the year
Purchase of investment in Energyhedge
Share of recognised revenue and expenses
Movements taken to foreign currency translation reserve
Dividends received
Carrying value at the end of the year
Rockgas Timaru Limited has a balance date of 31 March.
Contact acquired shares in Energyhedge Limited on 1 August 2009.
Contact Energy Limited Annual Report 2010
87
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Group
Aggregate summary fi nancial information of associates, not adjusted for the percentage held by Contact
Total assets
Total liabilities
Total revenues
Profi t for the year
30 June 2010
$000
30 June 2009
$000
146,487
111,803
43,791
13,334
161,644
127,416
42,138
13,244
22 Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are fi nancial assets that do not fall into any other fi nancial instrument category. Contact does
not currently intend to sell these assets.
At cost*
Unlisted shares in Liquigas Limited
Total available-for-sale fi nancial assets
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$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.
88
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
23 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 24.
Carrying value of borrowings
Current borrowings
Bank overdraft
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
6.9% February 2013
5.3% March 2014
5.3% March 2015
5.6% March 2018
7.1% April 2018
Fixed rate senior notes
Retail fi xed rate bonds May 2014
Wholesale fi xed rate bonds April 2017
Total non-current portion of term borrowings
Committed credit facilities
Finance lease liabilities
Borrowing
currency
denomination
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
NZD
AUD
NZD
USD
USD
USD
USD
USD
USD
NZD
NZD
NZD
NZD
2,039
–
1,141
3,180
1,675
1,580
1,056
4,311
2,333
–
1,120
3,453
1,959
–
1,023
2,982
–
–
141,662
141,662
–
–
141,662
141,662
121,094
136,282
163,223
64,913
44,573
530,085
541,809
99,795
130,593
140,867
166,886
65,411
45,595
549,352
540,219
–
121,094
136,282
163,223
64,913
44,573
530,085
541,809
99,795
130,593
140,867
166,886
65,411
45,595
549,352
540,219
–
1,171,689
106,200
1,344
1,089,571
–
1,535
1,171,689
106,200
1,327
1,089,571
–
1,495
Total non-current borrowings
1,279,233
1,091,106
1,279,216
1,091,066
Foreign currency denominated term borrowings are hedged by cross currency interest rate swaps and are measured at fair value
less deferred fi nancing costs in the Statement of Financial Position. All other borrowings are held at amortised cost less deferred
fi nancing costs. The reconciliation of the New Zealand dollar equivalent of contracted term borrowings to the Statement of
Financial Position carrying value is detailed below:
Group and Parent
2010
New Zealand dollar equivalent of notional borrowings
Deferred fi nancing costs
Net fair value adjustment
Fixed rate
senior notes
$000
Retail fi xed
rate bonds
$000
587,299
(1,275)
(55,939)
550,000
(8,191)
–
Wholesale
fi xed rate
bonds
$000
100,000
(205)
–
Total term
borrowings
$000
1,237,299
(9,671)
(55,939)
Carrying value of term borrowings
530,085
541,809
99,795
1,171,689
Current
Non-current
–
530,085
–
541,809
–
99,795
–
1,171,689
530,085
541,809
99,795
1,171,689
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Group and Parent
2009
New Zealand dollar equivalent of notional borrowings
Deferred fi nancing costs
Net fair value adjustment
Carrying value of term borrowings
Current
Non-current
Contact Energy Limited Annual Report 2010
89
Fixed rate
senior notes
$000
Retail fi xed
rate bonds
$000
Wholesale
fi xed rate
bonds
$000
747,527
(1,678)
(54,835)
550,000
(9,781)
–
691,014
540,219
141,662
549,352
–
540,219
691,014
540,219
–
–
–
–
–
–
–
Total term
borrowings
$000
1,297,527
(11,459)
(54,835)
1,231,233
141,662
1,089,571
1,231,233
Wholesale fi xed rate bonds
On 13 April 2010, Contact issued $100.0 million of fi xed rate bonds at a coupon rate of 7.86 per cent. Financing costs directly
attributable to the bond issue were $0.2 million.
Interest is payable bi-annually in arrears until the bonds mature on 13 April 2017, at which point Contact will pay the
bondholders the face value of the fi xed rate bonds.
Contact accounts for these bonds at amortised cost using the eff ective interest rate.
Retail fi xed rate bonds
On 31 March 2009, Contact issued $550.0 million of fi xed rate bonds at a coupon rate of 8.0 per cent. Financing costs directly
attributable to the bond issue were $10.1 million.
Interest is payable quarterly in arrears until the bonds mature on 15 May 2014, at which point Contact will pay the bondholders
the face value of the fi xed rate bonds.
Contact accounts for these bonds at amortised cost using the eff ective interest rate.
Security
Except for fi nance 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 covenant requirements were met at 30 June 2010 and at 30 June 2009.
Credit facilities
Contact had total committed credit facilities at 30 June 2010 of $520.0 million, of which $106.2 million was drawn (2009:
$685.0 million, nil drawn). As at 30 June 2010, $75.0 million of the facilities mature in May 2011, $150.0 million mature
in December 2012 and $295.0 million mature in March 2013.
These committed credit facilities also supported a $250.0 million commercial paper programme. This programme was unutilised
at 30 June 2010 (30 June 2009: unutilised).
Finance lease liabilities
Future minimum lease payments are as follows:
Not later than one year
Later than one year and not later than fi ve years
Minimum lease payments
Future fi nance charges on fi nance leases
Present value of fi nance lease liabilities
The fi nance leases relate to computer equipment.
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
1,191
1,655
2,846
(361)
2,485
1,205
1,758
2,963
(372)
2,591
1,166
1,637
2,803
(356)
2,447
1,173
1,717
2,890
(372)
2,518
90
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
The present value of fi nance lease liabilities are as follows:
Not later than one year
Later than one year and not later than fi ve years
Present value of fi nance lease liabilities
24 Financial instruments
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
1,141
1,344
2,485
1,056
1,535
2,591
1,120
1,327
2,447
1,023
1,495
2,518
Financial risk management objectives
In the normal course of business, Contact is exposed to a variety of fi nancial 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 fi nancial markets and seeks to minimise potential adverse eff ects on Contact’s fi nancial performance. Contact
uses derivative fi nancial instruments to hedge these risk exposures.
Fair value of derivative fi nancial instruments
The fair value of the signifi cant types of derivative fi nancial instruments outstanding is 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 fi nancial instruments
Current
Non-current
Parent
Cross currency interest rate swaps
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Electricity price hedges
Total derivative fi nancial instruments
Current
Non-current
Fair value
assets
30 June 2010
$000
Fair value
liabilities
30 June 2010
$000
Fair value
assets
30 June 2009
$000
Fair value
liabilities
30 June 2009
$000
724
–
–
91
4,927
(56,555)
(32,405)
(3,325)
(1,511)
(36,910)
4,103
1,809
117
3,713
11,842
(58,922)
(38,544)
(2,454)
(5,940)
(52,413)
5,742
(130,706)
21,584
(158,273)
4,955
787
(31,895)
(98,811)
14,987
6,597
(72,368)
(85,905)
5,742
(130,706)
21,584
(158,273)
Fair value
assets
30 June 2010
$000
Fair value
liabilities
30 June 2010
$000
Fair value
assets
30 June 2009
$000
Fair value
liabilities
30 June 2009
$000
724
–
–
50
4,927
(56,555)
(32,405)
(3,325)
(1,511)
(36,910)
4,103
1,809
117
3,713
11,842
(58,922)
(38,544)
(2,454)
(5,889)
(52,413)
5,701
(130,706)
21,584
(158,222)
4,914
787
(31,895)
(98,811)
14,987
6,597
(72,317)
(85,905)
5,701
(130,706)
21,584
(158,222)
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
91
Change in fair value of fi nancial instruments
The change in fair value of fi nancial instruments recognised in the Income Statement and cash fl ow hedge reserve is
summarised below:
Group
Favourable/(unfavourable)
Cross currency interest rate swaps
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 change in fair value of fi nancial instruments
taken to other comprehensive income
Hedge
accounting
designation
Fair value hedge
No hedge
Cash fl ow hedge
Cash fl ow hedge
No hedge
Cash fl ow hedge
No hedge
Income
Statement
30 June 2010
$000
Cash fl ow
hedge reserve
30 June 2010
$000
Income
Statement
30 June 2009
$000
Cash fl ow
hedge reserve
30 June 2009
$000
(1,012)
1,104
92
3,683
3,135
–
–
(3,097)
718
–
–
–
647
(4,123)
807
–
10,967
–
136,436
(136,444)
(8)
(51,096)
2,444
–
56
1,814
(10,721)
–
–
–
904
1,810
(6,058)
–
55,435
–
–
(1,693)
–
(16,472)
Total change in fair value of fi nancial instruments
4,531
6,605
(57,511)
35,619
Parent
Favourable/(unfavourable)
Cross currency interest rate swaps
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 change in fair value of fi nancial instruments
taken to other comprehensive income
Hedge
accounting
designation
Fair value hedge
No hedge
Cash fl ow hedge
Cash fl ow hedge
No hedge
Cash fl ow hedge
No hedge
Income
Statement
30 June 2010
$000
Cash fl ow
hedge reserve
30 June 2010
$000
Income
Statement
30 June 2009
$000
Cash fl ow
hedge reserve
30 June 2009
$000
(1,012)
1,104
92
3,683
3,135
–
–
(3,097)
718
–
–
–
647
(4,123)
715
–
10,967
–
136,436
(136,444)
(8)
(51,096)
2,444
–
56
1,814
(10,721)
–
–
–
904
1,810
(6,260)
–
55,435
–
–
(1,693)
–
(16,394)
Total change in fair value of fi nancial instruments
4,531
6,513
(57,511)
35,495
92
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Movement in cash fl ow hedge reserve
Balance as at 1 July 2008
Eff ective portion of cash fl ow hedges recognised in the cash fl ow hedge reserve
Amount transferred from the cash fl ow hedge reserve to revenue
Amount transferred from the cash fl ow hedge reserve to operating expenses
Amount transferred from the cash fl ow hedge reserve to change in fair value of fi nancial instruments
Amount transferred from the cash fl ow hedge reserve to property, plant and equipment
Amount transferred from the cash fl ow hedge reserve to deferred tax
Balance as at 30 June 2009
Balance as at 1 July 2009
Eff ective portion of cash fl ow hedges recognised in the cash fl ow hedge reserve
Amount transferred from the cash fl ow hedge reserve to revenue
Amount transferred from the cash fl ow hedge reserve to operating expenses
Amount transferred from the cash fl ow hedge reserve to change in fair value of fi nancial instruments
Amount transferred from the cash fl ow hedge reserve to property, plant and equipment
Amount transferred from the cash fl ow hedge reserve to deferred tax
Balance as at 30 June 2010
Group
$000
(74,279)
46,003
(10,853)
(717)
904
(2,961)
3,243
Parent
$000
(74,103)
46,045
(10,853)
(975)
904
(2,961)
3,335
(38,660)
(38,608)
(38,660)
1,680
2,213
505
647
1,863
(303)
(38,608)
1,538
2,213
555
647
1,863
(303)
(32,055)
(32,095)
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
fi nancial 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 specifi c areas, such as foreign currency risk, price risk, credit risk, interest rate
risk, use of derivative fi nancial instruments and non-derivative fi nancial 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, Japanese yen 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 the 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 (fi xed to fl oating), 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.
Forward foreign exchange contracts
The aggregate notional principal amount of the outstanding forward foreign exchange contracts at 30 June 2010 was
$44.4 million (2009: $120.3 million). As at 30 June 2010, all forward foreign exchange contracts were designated in
a cash fl ow hedge relationship.
The hedged anticipated transactions denominated in foreign currency are expected to occur at various dates between
one and nine months (2009: between one month and one year and three months) from the end of the reporting period.
Gains and losses recognised in the cash fl ow hedge reserve in other comprehensive income on forward foreign
exchange contracts as at 30 June 2010 will be released at dates when the cash fl ow 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 2010, no hedges were de-designated, and all underlying forecast transactions
remain highly probable to occur as originally forecast.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
93
Sensitivity analysis
At 30 June 2010, 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 profi t for the year would not have been materially diff erent; and
•
the cash fl ow hedge reserve component of other comprehensive income would have been $2.7 million higher/lower
(2009: $8.7 million higher/lower), arising from unrealised foreign exchange gains/losses on the revaluation of
forward foreign exchange contracts in a cash fl ow hedge relationship.
(ii) Price risk
Contact is exposed to commodity price risk, primarily from wholesale electricity prices. To manage its commodity price
risk in respect of electricity, Contact utilises electricity price hedges including options, where Contact buys and sells
forward electricity hedges at a fi xed price.
Electricity price hedges
The aggregate notional volume of the outstanding fi xed volume electricity price hedges at 30 June 2010 was
1,028 gigawatt hours (GWh) (2009: 1,522 GWh). The aggregate notional volume of the outstanding variable volume
electricity price hedges at 30 June 2010 was 5,093 GWh (2009: 7,634 GWh).
Electricity price hedges are hedging underlying exposures over various trade periods out to August 2013. As at 30 June
2010 the fair value of the electricity price hedges was $(32.0) million (2009: $(40.6) million), $(30.9) million of
which was designated in a cash fl ow hedge relationship (2009: $(38.8) million).
Gains and losses on hedged electricity price hedges recognised in the cash fl ow hedge reserve in other comprehensive
income will be continually released to the Income Statement in the year in which the underlying sale/purchase
transactions are recognised in the Income Statement.
Sensitivity analysis
The following table summarises the impact of increases/decreases in the relevant wholesale electricity forward prices
on Contact’s post-tax profi t for the year and on the cash fl ow hedge reserve component of other comprehensive income.
The sensitivity analysis is based on the assumption that the relevant market prices had increased/decreased by
10 per cent, with all other variables held constant:
Group and Parent
Favourable/(unfavourable)
Impact on post-tax profi t
Impact on other comprehensive income
30 June 2010
+10%
$000
30 June 2010
-10%
$000
30 June 2009
+10%
$000
30 June 2009
-10%
$000
(1,535)
6,518
(686)
(7,040)
251
13,013
(786)
(12,335)
(iii) Interest rate risk (cash fl ow and fair value)
Contact’s income and operating cash fl ows 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 fi xed 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 fl oating rate New Zealand dollar exposure. In addition,
New Zealand dollar interest rate swaps are used to cover domestic interest rate risk.
Cross currency interest rate swaps
The aggregate notional principal amount of the outstanding cross currency interest rate swap contracts at 30 June
2010 was $587.3 million (2009: $747.5 million). The cross currency interest rate swaps have been split into two
components for the purpose 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 fl ow hedge.
The hedged anticipated interest payments are expected to occur at various dates between one month and eight years
(2009: one month and nine years) from the end of the reporting period as a result of the maturities of the underlying
borrowings.
94
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Interest rate swaps
The aggregate notional principal amount of the outstanding interest rate swap contracts at 30 June 2010 was
$895.0 million (2009: $1,016.4 million) including $170.0 million of forward starting swaps (2009: $355.0 million).
The anticipated interest payment transactions are expected to occur at various dates between one month and nine
years (2009: one month and 10 years) from the end of the reporting period.
Sensitivity analysis
The following table summarises the impact on Contact’s post-tax profi t, if interest rates had been 100 basis points
higher or 25 basis points lower (2009: 100 basis points higher/lower), with all other variables held constant. 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 NZ IAS 39. There would be no eff ect on other comprehensive income. The change in
the sensitivity rates used on the prior year is driven by Contact’s expectation of future interest rate movements.
(b) Credit risk
Group and Parent
Favourable/(unfavourable)
Impact on post-tax profi t
30 June 2010
+100bps
$000
30 June 2010
-25bps
$000
30 June 2009
+100bps
$000
30 June 2009
-100bps
$000
7,207
(2,694)
16,472
(17,563)
Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in fi nancial 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 fi nancial institutions.
The Board has approved a policy of only dealing with creditworthy counterparties and obtaining suffi cient collateral, where
appropriate, as a means of mitigating the risk of fi nancial 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 fi nancial institutions and other organisations in the relevant industry. Contact's exposure and the credit
ratings of its counterparties are continually monitored, and the aggregate value of transactions concluded is spread amongst
approved counterparties.
The carrying amounts of fi nancial assets recognised in the Statement of Financial Position best represent Contact's maximum
exposure to credit risk at the end of the reporting period without taking account of the value of any collateral obtained.
Contact does not have any signifi cant 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 owing to Contact's large customer
base in a diverse range of industries throughout New Zealand. Contact has no signifi cant concentration of credit risk with
any one institution, despite there being signifi cant sales to M-co. M-co acts as an electricity market clearing agent and the
counterparty risk sits with the market participants. Market participants are required to provide letters of credit to M-co,
which would be called upon should any market participant default.
(c) Liquidity risk
Contact's liquidity risk arises from its ability to attract cost-eff ective funding, which is largely driven by its credit standing.
Prudent liquidity risk management implies maintaining suffi cient 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 continually forecasting actual cash fl ows and matching the maturity profi les of fi nancial assets
and liabilities.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
95
Contractual maturities of fi nancial liabilities and derivative fi nancial instruments
The contractual maturities disclosed below are the contracted undiscounted cash fl ows for all fi nancial liabilities, except
for the derivative fi nancial instruments which are the undiscounted settlements expected under the contracts. Balances due
within 12 months equal their carrying values as the impact of discounting is not signifi cant. As the amounts presented are
contracted undiscounted cash fl ows and include forward starting derivatives, the totals will not reconcile with the Statement
of Financial Position.
Group
2010
Outfl ow/(infl ow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative fi nancial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative fi nancial instruments:
Forward foreign exchange derivatives
– Infl ow
– Outfl ow
Cross currency interest rate swaps
– Infl ow
– Outfl ow
Total
Group
2009
Outfl ow/(infl ow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative fi nancial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative fi nancial instruments:
Forward foreign exchange derivatives
– Infl ow
– Outfl ow
Cross currency interest rate swaps
– Infl ow
– Outfl ow
Total
contractual
cash fl ows
$000
242,170
1,600,704
2,846
Note
23
Less than
1 year
$000
242,170
82,486
1,191
30,037
36,761
7,411
11,889
(42,707)
44,127
(610,540)
748,000
(42,707)
44,127
(27,763)
27,321
1–2 years
$000
–
79,746
969
13,902
7,782
2–5 years
$000
–
1,211,689
686
More than
5 years
$000
–
226,783
–
8,724
12,725
–
4,365
–
–
–
–
–
–
(27,756)
32,200
(449,713)
559,664
(105,308)
128,815
2,051,398
346,125
106,843
1,343,775
254,655
Total
contractual
cash fl ows
$000
289,512
1,604,451
2,963
Note
23
Less than
1 year
$000
289,512
222,784
1,205
44,487
40,623
8,789
24,934
1–2 years
$000
–
73,817
783
16,123
11,841
2–5 years
$000
–
1,014,402
975
More than
5 years
$000
–
293,448
–
19,575
4,288
–
(440)
(111,637)
114,684
(109,654)
112,851
(1,983)
1,833
–
–
–
–
(831,010)
972,957
(175,462)
189,594
(29,809)
32,254
(332,236)
407,596
(293,503)
343,513
Total
2,127,030
564,553
104,859
1,114,600
343,018
96
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Parent
2010
Outfl ow/(infl ow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative fi nancial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative fi nancial instruments:
Forward foreign exchange derivatives
– Infl ow
– Outfl ow
Cross currency interest rate swaps
– Infl ow
– Outfl ow
Total
Parent
2009
Outfl ow/(infl ow)
Payables and accruals
Borrowings
Finance lease liabilities
Net settled derivative fi nancial instruments:
Electricity price hedges
Interest rate derivatives
Gross settled derivative fi nancial instruments:
Forward foreign exchange derivatives
– Infl ow
– Outfl ow
Cross currency interest rate swaps
– Infl ow
– Outfl ow
Total
contractual
cash fl ows
$000
271,536
1,600,998
2,803
Note
23
Less than
1 year
$000
271,536
82,780
1,166
30,037
36,761
7,411
11,889
(44,691)
46,152
(610,540)
748,000
(44,691)
46,152
(27,763)
27,321
1–2 years
$000
–
79,746
952
13,902
7,782
2–5 years
$000
–
1,211,689
685
More than
5 years
$000
–
226,783
–
8,724
12,725
–
4,365
–
–
–
–
–
–
(27,756)
32,200
(449,713)
559,664
(105,308)
128,815
2,081,056
375,801
106,826
1,343,774
254,655
Total
contractual
cash fl ows
$000
324,161
1,603,154
2,890
Note
23
Less than
1 year
$000
324,161
221,487
1,173
44,487
40,623
8,789
24,934
1–2 years
$000
–
73,817
742
16,123
11,841
2–5 years
$000
–
1,014,402
975
More than
5 years
$000
–
293,448
–
19,575
4,288
–
(440)
(106,071)
109,052
(104,088)
107,219
(1,983)
1,833
–
–
–
–
(831,010)
972,957
(175,462)
189,594
(29,809)
32,254
(332,236)
407,596
(293,503)
343,513
Total
2,160,243
597,807
104,818
1,114,600
343,018
Fair values
The carrying amount of fi nancial assets and fi nancial liabilities recorded in the fi nancial statements approximates their
fair values, with the exception of the wholesale and retail fi xed rate bonds. The retail fi xed rate bonds have a fair value of
$591.6 million (2009: $563.4 million), compared with a carrying value of $541.8 million (2009: $540.2 million). The
wholesale fi xed rate bonds have a fair value of $104.3 million (2009: N/a), compared with a carrying value of $99.8 million
(2009: N/a).
Estimation of fair values
The fair value of fi nancial assets and fi nancial liabilities is determined using a hierarchy as follows:
•
•
•
Level one – the fair value is determined using unadjusted quoted prices from an active market for identical assets and
liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. The quoted market price used for fi nancial instruments held by Contact is the current
bid price.
Level two – the fair value is derived from inputs other than quoted prices included within level one that are observable for
the asset or liability, either directly (i.e. from prices) or indirectly (i.e. derived from prices). Financial instruments in this
level include short-term electricity price hedges, forward foreign exchange derivatives, interest rate derivatives and foreign
currency denominated debt.
Level three – the fair value is derived from inputs that are not based on observable market data. Financial instruments
included in this level include certain long-term electricity price hedges, which are valued using internal price paths.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
97
Where the fair value of a derivative fi nancial instrument is calculated as the present value of the estimated future cash fl ows of
the instrument, the two key types of variable used by the valuation technique are:
•
•
forward price curves (for the relevant underlying interest rates, foreign exchange rates or electricity prices); and
discount rates.
The selection of variables requires signifi cant judgement and therefore there is a range of reasonably possible assumptions
in respect of these variables that could be used in estimating the fair values of these derivatives. Maximum use is made of
observable market data when selecting variables and developing assumptions for the valuation techniques.
The following table presents the hierarchy of the Group and Parent’s fi nancial assets and liabilities that are recognised at
fair value:
Group
2010
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
Financial assets at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Financial liabilities at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Fixed rate senior notes
Derivatives held for trading
–
–
–
–
–
–
5,018
724
5,191
56,555
530,085
33,365
–
–
5,018
724
35,595
–
–
–
40,786
56,555
530,085
33,365
Parent
2010
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
Financial assets at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Financial liabilities at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Fixed rate senior notes
Derivatives held for trading
–
–
–
–
–
–
4,977
724
5,191
56,555
530,085
33,365
–
–
4,977
724
35,595
–
–
–
40,786
56,555
530,085
33,365
The following table presents the changes in level three instruments:
Group and Parent
Balance as at 1 July 2009
Gains and losses recognised in profi t or loss*
Gains and losses recognised in cash fl ow hedge reserve
Balance as at 30 June 2010
* Change in fair value of fi nancial instruments.
Derivatives
designated as
cash fl ow hedging
instruments
$000
(49,134)
(3,022)
16,561
(35,595)
Total balance
$000
(49,134)
(3,022)
16,561
(35,595)
98
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Financial instruments by category
The following tables provide an analysis of fi nancial assets and fi nancial liabilities by category:
Group
2010
Held for
trading
$000
Loans and
receivables
$000
Note
Available-
for-sale
fi nancial
assets
$000
Other
fi nancial
liabilities
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash fl ow
hedging
instruments
$000
13
22
23
Assets
Cash and short-term deposits
Receivables
Derivative fi nancial instruments
Available-for-sale fi nancial assets
Total fi nancial assets
Total non-fi nancial assets
Total assets
Liabilities
Borrowings
Derivative fi nancial instruments
Payables and accruals
Total fi nancial liabilities
Total non-fi nancial liabilities
Total liabilities
–
–
–
–
–
921
217,352
–
–
218,273
–
–
–
2,935
2,935
–
–
–
–
–
–
–
724
–
724
–
–
5,018
–
5,018
–
33,365
–
33,365
–
–
–
–
–
–
–
–
1,282,413
–
242,170
–
56,555
–
–
40,786
–
1,524,583
56,555
40,786
Group
2009
Held for
trading
$000
Loans and
receivables
$000
Note
Available-
for-sale
fi nancial
assets
$000
Other
fi nancial
liabilities
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash fl ow
hedging
instruments
$000
13
22
23
Assets
Cash and short-term deposits
Receivables
Derivative fi nancial instruments
Available-for-sale fi nancial assets
Total fi nancial assets
Total non-fi nancial assets
Total assets
Liabilities
Borrowings
Derivative fi nancial instruments
Payables and accruals
Total fi nancial liabilities
Total non-fi nancial liabilities
Total liabilities
–
–
1,539
–
179,220
233,709
–
–
1,539
412,929
–
–
–
2,935
2,935
–
–
–
–
–
–
–
4,103
–
–
–
15,942
–
4,103
15,942
–
40,013
–
40,013
–
–
–
–
–
–
–
–
1,237,079
–
289,512
–
58,922
–
–
59,338
–
1,526,591
58,922
59,338
Total
$000
921
217,352
5,742
2,935
226,950
4,920,813
5,147,763
1,282,413
130,706
242,170
1,655,289
715,696
2,370,985
Total
$000
179,220
233,709
21,584
2,935
437,448
4,588,719
5,026,167
1,237,079
158,273
289,512
1,684,864
681,701
2,366,565
Contact Energy Limited Annual Report 2010
99
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Parent
2010
Assets
Receivables
Derivative fi nancial instruments
Total fi nancial assets
Total non-fi nancial assets
Total assets
Liabilities
Borrowings
Derivative fi nancial instruments
Payables and accruals
Total fi nancial liabilities
Total non-fi nancial liabilities
Total liabilities
Parent
2009
Assets
Cash and short-term deposits
Receivables
Derivative fi nancial instruments
Total fi nancial assets
Total non-fi nancial assets
Total assets
Liabilities
Borrowings
Derivative fi nancial instruments
Payables and accruals
Total fi nancial liabilities
Total non-fi nancial liabilities
Total liabilities
Available-
for-sale
fi nancial
assets
$000
Other
fi nancial
liabilities
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash fl ow
hedging
instruments
$000
–
–
–
–
724
724
–
4,977
4,977
Held for
trading
$000
Loans and
receivables
$000
Note
–
–
–
208,619
–
208,619
23
–
33,365
–
33,365
–
–
–
–
–
–
–
–
–
–
–
1,282,669
–
271,536
–
56,555
–
–
40,786
–
1,282,669
130,706
271,536
1,554,205
56,555
40,786
Note
13
Held for
trading
$000
Loans and
receivables
$000
–
–
1,539
177,848
204,666
–
1,539
382,514
23
–
40,013
–
40,013
–
–
–
–
Available-
for-sale
fi nancial
assets
$000
Other
fi nancial
liabilities
$000
Derivatives
designated
as fair value
hedging
instruments
$000
Derivatives
designated
as cash fl ow
hedging
instruments
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,103
–
–
15,942
4,103
15,942
1,235,710
–
324,161
–
58,922
–
–
59,287
–
1,559,871
58,922
59,287
Total
$000
208,619
5,701
214,320
4,892,550
5,106,870
1,684,911
708,555
2,393,466
Total
$000
177,848
204,666
21,584
404,098
4,570,109
4,974,207
1,235,710
158,222
324,161
1,718,093
676,457
2,394,550
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 benefi ts
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. The Board reviews the capital structure on a regular basis.
Contact monitors capital on the basis of the cash fl ow metrics required to sustain a BBB credit rating.
Contact also considers its gearing ratio in monitoring capital structure. This ratio is calculated as net debt divided by total
capital funding.
100
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
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 eff ect of foreign exchange hedging of the borrowings and before the
deduction of deferred fi nancing costs.
Total capital funding is calculated as shareholders’ equity, adjusted for the net eff ect of the fair value of fi nancial instruments,
plus net debt.
The gearing ratios at 30 June 2010 and 30 June 2009 were as follows:
Group
Net debt
Current borrowings
New Zealand dollar equivalent of term borrowings – after foreign exchange hedging and before
deferred fi nancing costs
Retail fi xed rate bonds – before deferred fi nancing costs
Wholesale fi xed rate bonds – before deferred fi nancing costs
Committed credit facilities
Other non-current borrowings
Cash and short-term deposits
Total net debt
Equity
Shareholders’ equity
Remove net eff ect of fair value of fi nancial instruments after tax
Adjusted equity
Total capital funding
Gearing ratio
30 June 2010
$000
30 June 2009
$000
Note
23
23
23
23
23
23
13
(3,180)
(4,311)
(587,299)
(550,000)
(100,000)
(106,200)
(1,344)
921
(747,527)
(550,000)
–
–
(1,535)
179,220
(1,347,102)
(1,124,153)
(2,776,778)
(48,317)
(2,659,602)
(57,298)
(2,825,095)
(2,716,900)
(4,172,197)
(3,841,053)
32.3%
29.3%
25 Payables and accruals
Electricity purchases accrual
Other trade payables and accruals
Advances from subsidiaries
Employee benefi ts
Interest payable
Total payables and accruals
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
34,192
199,647
–
17,029
11,562
46,012
230,999
–
14,723
12,501
30,870
163,187
69,148
16,561
11,562
39,943
193,467
78,250
14,085
12,501
262,430
304,235
291,328
338,246
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
26 Provisions
Group
Balance as at 1 July 2008
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance as at 30 June 2009
Balance as at 1 July 2009
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance as at 30 June 2010
Current
Non-current
Parent
Balance as at 1 July 2008
Provisions made during the year
Provisions used during the year
Unwind of discount rate
Balance as at 30 June 2009
Balance as at 1 July 2009
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance as at 30 June 2010
Current
Non-current
Contact Energy Limited Annual Report 2010
101
New Plymouth
$000
Restoration/
environmental
rehabilitation
$000
Retail
transaction
processing
outsourcing
$000
18,837
–
(15,352)
–
–
3,485
3,485
5,564
(2,661)
–
–
6,388
6,388
–
6,388
33,259
3,295
(3,129)
(1,215)
3,999
36,209
36,209
8,745
(2,845)
(87)
3,057
45,079
3,313
41,766
45,079
–
–
–
–
–
–
–
3,330
(427)
–
–
2,903
2,903
–
2,903
New Plymouth
$000
Restoration/
environmental
rehabilitation
$000
Retail
transaction
processing
outsourcing
$000
18,837
–
(15,352)
–
3,485
3,485
5,564
(2,661)
–
–
6,388
6,388
–
6,388
31,134
3,295
(3,068)
2,972
34,333
34,333
8,745
(2,702)
–
2,843
43,219
3,074
40,145
43,219
–
–
–
–
–
–
3,330
(427)
–
–
2,903
2,903
–
2,903
Other
$000
2,476
165
(390)
–
–
2,251
2,251
1,215
(114)
(1,147)
–
2,205
542
1,663
2,205
Other
$000
2,476
165
(390)
–
2,251
2,251
1,215
(114)
(1,147)
–
2,205
542
1,663
2,205
Total
$000
54,572
3,460
(18,871)
(1,215)
3,999
41,945
41,945
18,854
(6,047)
(1,234)
3,057
56,575
13,146
43,429
56,575
Total
$000
52,447
3,460
(18,810)
2,972
40,069
40,069
18,854
(5,904)
(1,147)
2,843
54,715
12,907
41,808
54,715
Refer to note 2 for discussion on the provision for removal of asbestos at New Plymouth power station. Cash outfl ows in relation
to this are expected to occur within the next year.
The restoration and environmental rehabilitation provisions include estimates of future expenditure for the abandonment
and restoration of areas from which natural resources are extracted and the expected cost of environmental rehabilitation
of commercial sites. The provision also includes estimates of future expenditure for the removal of asbestos from generation
properties. Cash outfl ows are typically expected to coincide with the end of the useful lives of the sites, with the exception
of asbestos removal costs which are expected to be incurred within the next fi ve years.
The retail transaction processing outsourcing provision represents the best estimate of the costs relating directly to the
outsourcing of some back-offi ce retail processes. Cash outfl ows in relation to this are expected to occur within the next year.
Other provisions cover a range of commercial matters that are the subject of legal privilege and/or confi dentiality arrangements.
102
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
27 Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are off set on the face of the Statement of Financial Position where they relate to entities within
a Consolidated Income Tax Group.
Group
Property, plant and equipment
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Movement in deferred tax
Group
Property, plant and equipment**
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Assets
30 June 2010
$000
Assets
30 June 2009
$000
Liabilities
30 June 2010
$000
Liabilities
30 June 2009
$000
–
–
2,113
5,884
17,831
19,440
–
–
–
2,179
4,241
15,173
23,889
–
(667,877)
(2,270)
–
–
–
–
(7,211)
(661,121)
(2,235)
–
–
–
–
(3,512)
45,268
45,482
(677,358)
(666,868)
Assets
30 June 2010
$000
Assets
30 June 2009
$000
Liabilities
30 June 2010
$000
Liabilities
30 June 2009
$000
–
–
2,113
5,741
16,738
19,440
–
–
–
2,179
4,053
14,048
23,889
–
(663,586)
(174)
–
–
–
–
(7,552)
(658,290)
(174)
–
–
–
–
(4,237)
44,032
44,169
(671,312)
(662,701)
Balance
1 July 2009
$000
Recognised in
income
$000
Recognised
in other
comprehensive
income
$000
(661,121)
(2,235)
2,179
4,241
15,173
23,889
(3,512)
(621,386)
(51,221)
(74)
85
1,643
3,503
(1,359)
(4,277)
(51,700)
–
39
–
–
–
(2,248)
–
(2,209)
Change in
tax rate*
$000
Balance
30 June 2010
$000
44,465
–
(151)
–
(845)
(842)
578
(667,877)
(2,270)
2,113
5,884
17,831
19,440
(7,211)
43,205
(632,090)
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Group
Property, plant and equipment**
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment**
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment**
Investment in associate
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Contact Energy Limited Annual Report 2010
103
Balance
1 July 2008
$000
Recognised in
income
$000
(641,732)
(2,071)
1,759
5,166
18,007
22,930
(861)
(596,802)
(19,389)
1,133
420
(925)
(2,834)
17,431
(2,651)
(6,815)
Balance
1 July 2009
$000
Recognised in
income
$000
(658,290)
(174)
2,179
4,053
14,048
23,889
(4,237)
(618,532)
(49,446)
–
85
1,688
3,535
(1,359)
(3,893)
(49,390)
Balance
1 July 2008
$000
Recognised in
income
$000
(640,017)
(174)
1,759
4,930
16,930
22,853
(1,863)
(595,582)
(18,273)
–
420
(877)
(2,882)
17,430
(2,374)
(6,556)
Recognised
in other
comprehensive
income
$000
–
(1,297)
–
–
–
(16,472)
–
(17,769)
Recognised
in other
comprehensive
income
$000
–
–
–
–
–
(2,248)
–
(2,248)
Recognised
in other
comprehensive
income
$000
–
–
–
–
–
(16,394)
–
(16,394)
Change in
tax rate*
$000
Balance
30 June 2009
$000
–
–
–
–
–
–
–
–
(661,121)
(2,235)
2,179
4,241
15,173
23,889
(3,512)
(621,386)
Change in
tax rate*
$000
Balance
30 June 2010
$000
44,150
–
(151)
–
(845)
(842)
578
(663,586)
(174)
2,113
5,741
16,738
19,440
(7,552)
42,890
(627,280)
Change in
tax rate*
$000
Balance
30 June 2009
$000
–
–
–
–
–
–
–
–
(658,290)
(174)
2,179
4,053
14,048
23,889
(4,237)
(618,532)
*
The change in tax rate column refl ects the net change in deferred tax as a result of the reduction in the corporate income tax
rate to 28 per cent eff ective for Contact’s income tax year ending 30 June 2012. The eff ect of the change was recognised in
the Income Statement (Group $42.7 million and Parent $42.3 million) and in other comprehensive income (Group and
Parent $0.6 million) consistent with the underlying items that gave rise to the deferred tax.
** Contact holds its property, plant and equipment on capital account for income tax purposes. Where the generation plant
and equipment are held at deemed historical cost, and this diff ers from tax cost, a resulting taxable temporary diff erence
is created that is recognised in deferred tax. Any deferred tax liability on the diff erence between deemed historical cost and
tax cost would not crystallise under existing income tax legislation if the assets were to be sold at the end of the reporting
period. At 30 June 2010, this deferred tax liability was $364.8 million (2009: $413.0 million).
Unrecognised deferred tax assets and liabilities
There were no unrecognised deferred tax assets and liabilities.
104
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
28 Commitments
Capital and investment commitments
Not later than one year
Later than one year and not later than fi ve years
Later than fi ve years
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
86,158
70,390
296
173,612
75,658
551
86,158
70,390
296
173,426
75,658
551
Total capital and investment commitments
156,844
249,821
156,844
249,635
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 buildings and accommodation. The remainder relate to vehicles and plant and equipment.
Not later than one year
Later than one year and not later than fi ve years
Later than fi ve years
Total operating lease commitments
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
6,614
14,967
11,540
33,121
6,592
13,395
9,728
5,119
10,615
6,672
4,796
10,816
5,114
29,715
22,406
20,726
Lease commitments are stated exclusive of GST.
Operating lease income
The operating lease income is of a rental nature and on normal commercial terms and conditions.
Not later than one year
Later than one year and not later than fi ve years
Later than fi ve years
Total operating lease income
Operating lease income is stated exclusive of GST.
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
1,476
3,107
177
4,760
1,015
2,704
357
4,076
1,157
2,525
80
3,762
770
1,854
208
2,832
Other operating commitments
Other operating commitments include a portion of regular major inspections entered into for generation assets, with the
remainder of commitments under these agreements included in capital and investment commitments. Other commitments relate
to retail transaction processing outsourcing costs.
Not later than one year
Later than one year and not later than fi ve years
Later than fi ve years
Total other operating commitments
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
6,909
11,279
6,837
25,025
6,661
5,703
–
12,364
6,909
11,279
6,837
25,025
6,661
5,703
–
12,364
Contact Energy Limited Annual Report 2010
105
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Gas commitments
Maui contracts with Maui Development Limited
Contact has entered into four contracts to secure Maui gas from Maui Development Limited, each with a 1 April 2007 fi rst
delivery date and a 31 December 2014 expiry date. Delivery of gas from early 2014 is subject to confi rmation of suffi cient
Maui reserves. Under the four contracts, and while the contracts remain in eff ect, Contact has agreed to make fi xed 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 fi xed monthly payments over the period from 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 fi eld until 31 December
2013. Under the current contract that expires on 31 March 2012, Contact is committed to pay fi xed fees and may have to pay
additional fees if the amount of gas actually uplifted is less than a contractually specifi ed amount on each day. Under the second
contract that has a fi rst delivery date of 1 April 2012 and expiry date of 31 December 2013, Contact has agreed to make fi xed
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.
29 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 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 2015 (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) and a
200 MW gas-fi red peaking power station at Stratford. Development of the Stratford gas-fi red peaking power station is near
completion.
Contact has obtained consents to construct and operate a 17.2 MW hydro power station on the Hawea Dam.
In 2008 Contact fi led applications for an up to 177 MW wind farm at Waitahora, near Dannevirke in the Tararua District. Initial
consents were declined, and Contact appealed to the Environment Court. Following mediation between the parties, the proposal
has been refi ned and consents are being sought for approximately 156 MW. The appeal will be heard in the fi rst half of the 2011
fi nancial year.
_
Contact has also fi led applications for an up to 540 MW wind farm on the west Waikato coast called Haua
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 was adjourned for 12 months to allow Contact to address issues raised by the Board of Inquiry. The hearing
is to resume in the fi rst half of the 2011 fi nancial year for a refi ned wind farm of 507 MW.
_
uru ma
Contact has also fi led applications with the Environmental Protection Authority for a 250 MW geothermal project (Tauhara II)
near Taupo. The consent hearing is scheduled to commence in September 2010 with a decision expected in January 2011.
In addition Contact has applied to vary one of its Clutha hydro consents, which will provide a greater operating range in
Lake Roxburgh.
106
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
30 Related party transactions
Parent company
As at 30 June 2010, Origin Energy Pacifi c Holdings Limited was the majority shareholder in the Parent, owning 51.0 per cent
(2009: 50.6 per cent) of the ordinary shares of the Parent.
Further shares amounting to 0.8 per cent (2009: 0.8 per cent) of the Parent’s ordinary shares were held by Origin Energy
Universal Holdings Limited and Origin Energy New Zealand Limited at 30 June 2010. All three companies are 100 per cent
owned by Origin Energy Limited (Origin), an Australian incorporated company.
The ultimate parent entity of Contact is Origin.
Identity of related parties with whom material transactions have occurred
Notes 19, 20 and 21 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 Group entities, the Directors and members of the Leadership 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 2010 in relation to David’s role as Managing Director totalled $1.2 million
(2009: $1.0 million), which includes the cost of his salary and other employment benefi ts including a 2009/2010
short-term incentive payment. At 30 June 2010 $0.5 million (2009: $0.2 million) of this amount remained outstanding.
In addition, share-based payments under Contact’s Employee Long-Term Incentive Scheme amounting to $0.5 million
(2009: $0.5 million) were accrued for David, being the fair value of the share-based payments relating to this reporting
period. Refer to note 12.
•
•
•
•
In the year ended 30 June 2010, Origin was employed for consulting work on the Stratford Peaker project. Transactions
totalled $0.5 million (2009: $0.1 million). At 30 June 2010, no amounts remained outstanding (2009: $0.1 million).
Contact and Origin undertook a joint marketing project for the renewal of both parties’ insurance cover. Contact and Origin
are covered under separate policies. Incentive payments to the insurance brokers to date total $0.1 million (2009: nil) being
Contact’s share of the incentive payment. No amounts remained outstanding at 30 June 2010 (2009: nil).
Contact and Origin have entered into a Master Services Agreement for the provision of professional, consulting and/or
administrative services between the parties. There were no material transactions under this agreement during the year.
A payment of $2.6 million was made to Origin in April 2009 in relation to the acquisition of natural gas reserves following an
independent reservoir measurement relating to the initial gas and LPG reserves acquired as part of the acquisition of the gas
storage rights in 2008. No further payments were made in the year ended 30 June 2010.
Transactions with Origin subsidiaries
•
Contact and Origin Energy Resources NZ (TAWN) Limited have entered into an agreement in respect of the development
and operation of the Ahuroa gas storage facility. During the year ending 30 June 2010, the transactions under this agreement
totalled $7.8 million (2009: $3.8 million). At 30 June 2010, no amounts remained outstanding (2009: $0.6 million).
•
•
•
•
Gas sales of $0.1 million to Origin Energy Resources NZ Limited were made in the year ended 30 June 2010 (2009: nil).
At 30 June 2010, no amounts remained outstanding (2009: nil).
Contact entered into an agreement with Origin Energy Services Limited in the current year to provide infrastructure and
data centre services for Contact’s new SAP system. Transactions for the year amounted to $1.1 million (2009: nil) of which
no amounts were outstanding at year end (2009: nil).
Contact, Origin Energy Resources NZ (TAWN) Limited and Origin Energy Five Star Holdings Limited entered into an
agreement in the current year in respect of drilling and other costs associated with the development of assets for the
Ahuroa gas storage facility. During the year ended 30 June 2010, the transactions under this agreement totalled
$24.6 million (2009: nil). At 30 June 2010, $0.6 million remained outstanding (2009: nil).
Contact and Origin Energy Resources NZ Limited entered into an electricity supply contract to supply Origin’s facilities in
Taranaki in the current year. Transactions for the year amounted to $0.9 million (2009: nil). At 30 June 2010, $0.5 million
remained outstanding (2009: nil).
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
Contact Energy Limited Annual Report 2010
107
•
•
•
•
•
Contact and Origin Energy Resources NZ Limited previously entered into an LPG Gas Sales Agreement for the supply
of LPG from the Rimu Production Station and any LPG produced from the Waihapa Production Station. There were no
transactions for the year as this agreement has now expired (2009: transactions of $2.9 million, with $0.2 million
outstanding at year end).
Rockgas Limited and Origin Energy LPG Limited have entered into an LPG Sale and Purchase Agreement for the purchase and
shipping of imported LPG. During the year ended 30 June 2010, transactions totalled $24.8 million (2009: $45.0 million).
At 30 June 2010, $2.0 million remained outstanding (2009: $4.6 million).
Rockgas Limited has entered into an LPG Gas Sale Agreement with Origin Energy Resources NZ (Rimu) Limited and Origin
Energy Resources NZ (TAWN) Limited for the supply of LPG from the Rimu Production Station. Transactions for the year
totalled $1.7 million (2009: $2.9 million). At 30 June 2010, $0.1 million remained outstanding (2009: $0.2 million).
Rockgas Limited has entered into an LPG Sales and Logistics Agreement with Origin Energy Resources (Kupe) Limited
and Kupe Mining (No.1) Limited for the supply of LPG from the Kupe Production Station. Transactions for the year totalled
$19.1 million (2009: nil). At 30 June 2010, $4.4 million remained outstanding (2009: nil).
Rockgas Limited and Origin Energy Contracting Limited had an agreement in place during the year whereby Origin
Energy Contracting Limited provided coastal LPG shipping services to Rockgas Limited. Transactions for the year totalled
$3.3 million (2009: $0.1 million). At 30 June 2010, no amounts remained outstanding (2009: nil).
Transactions with subsidiaries and associates
•
Advances to/from subsidiaries and associates are included in notes 14, 23 and 25 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 $13.8 million for the
year ended 30 June 2010 (2009: $16.0 million). All balances are settled through the intercompany account.
The Parent had transactions with Stratford Power Limited and subsequently Empower Limited in respect of gas purchases,
which are calculated at arm’s length. Stratford Power Limited was a 100 per cent owned subsidiary until it was amalgamated
into Empower Limited eff ective 7 September 2009 (refer to note 20). Purchases from Stratford Power Limited and Empower
Limited totalled $104.2 million for the year ended 30 June 2010 (2009: $115.2 million). All balances are settled through
the intercompany account.
The Parent charges Rockgas Limited a management fee for various management services. Total fees charged for the year
ended 30 June 2010 amounted to $10.9 million (2009: nil). All balances are settled through the intercompany account.
Contact pays various operating expenses on behalf of its wholly owned subsidiaries, which are passed on directly to those
subsidiaries.
During the year ended 30 June 2010, Rockgas Limited had transactions with Rockgas Timaru Limited (Rockgas Timaru),
an associate, in respect of the supply of LPG to Rockgas Timaru amounting to $1.1 million (2009: $1.1 million), and in
respect of the provision of deliveries by Rockgas Timaru amounting to $0.1 million (2009: $0.3 million), both of which
are calculated at arm’s length. At 30 June 2010, a receivable of $0.2 million remained outstanding (2009: $0.2 million
receivable).
Transactions with Directors and key management personnel
•
Fees paid or accrued to Directors and Offi cers of Origin for director services for the year ended 30 June 2010 totalled
$0.5 million (30 June 2009: $0.4 million). At 30 June 2010 $0.1 million remained outstanding (30 June 2009: $0.1 million).
•
New Zealand based Directors and members of the Leadership Team purchase gas and electricity from the Group for
domestic purposes.
108
Contact Energy Limited Annual Report 2010
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
31 Key management personnel
The table below includes the remuneration of Directors, the Managing Director and his Leadership Team.
Directors’ fees
Managing Director and Leadership Team
Salary and other short-term benefi ts
Share-based payments
Total Managing Director and Leadership Team
Total key management personnel
Group and Parent
For the year ended 30 June 2010
Director*
G King
P Pryke
B Beeren
J Milne (retired 30 June 2010)
K Moses
S Sheldon
W Dewes (appointed 22 February 2010)
D Baldwin**
Total
Group and Parent
For the year ended 30 June 2009
Director*
G King***
P Pryke
B Beeren
J Milne
K Moses***
T Saunders (resigned 30 June 2009)
S Sheldon (appointed 16 March 2009)
D Baldwin (appointed 16 March 2009)**
Total
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Managing Director
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Managing Director
Group
30 June 2010
$000
Group
30 June 2009
$000
Parent
30 June 2010
$000
Parent
30 June 2009
$000
Note
993
853
993
853
12
4,537
1,065
5,602
6,595
4,911
1,050
5,961
6,814
4,537
1,065
5,602
6,595
4,911
1,050
5,961
6,814
Board fees
$
200,000
137,500
105,000
105,000
105,000
105,000
38,575
–
796,075
Board fees
$
133,333
150,000
100,000
100,000
66,667
100,000
29,445
–
679,445
Committee and
special fees
$
Total
remuneration
$
–
17,500
37,000
60,000
20,000
32,000
30,710
–
197,210
200,000
155,000
142,000
165,000
125,000
137,000
69,285
–
993,285
Committee and
special fees
$
Total
remuneration
$
–
–
44,714
77,500
10,000
33,150
7,842
–
173,206
133,333
150,000
144,714
177,500
76,667
133,150
37,287
–
852,651
*
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.
*** Grant King and Karen Moses did not receive fees in relation to their role as Contact Directors prior to 1 November 2008.
Contact Energy Limited Annual Report 2010
109
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2010
32 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 receives an annual fee under the Operating and Maintenance Management Services Agreement.
Following the announcement of sector reforms, ownership of the Whirinaki generating plant is anticipated to be transferred from
the Crown to Meridian Energy Limited, a State Owned Enterprise.
33 Contingent liabilities
There were no known material contingent liabilities at 30 June 2010 (2009: nil).
34 Subsequent events
On 19 August 2010, the Board declared a distribution pursuant to the PDP in the form of a non-taxable bonus issue for the year
ended 30 June 2010 equivalent to 14.0 cents per share, for shares on issue at 3 September 2010, the record date, with bonus
shares allocated and/or cash distributed, if elected, on 27 September 2010. Refer to note 9.
From 1 July 2010, Contact is required to participate under the New Zealand Emissions Trading Scheme. Contact will be required
to surrender eligible carbon units or pay a fi xed price to the Government to off set its carbon emissions at the end of each carbon
trading period.
110
Contact Energy Limited Annual Report 2010
Audit Report
To the shareholders of Contact Energy Limited
We have audited the fi nancial statements on pages 54 to 109. The fi nancial statements provide information about the past
fi nancial performance and fi nancial position of the company and group as at 30 June 2010. This information is stated in
accordance with the accounting policies set out on pages 60 to 69.
Directors’ responsibilities
The Directors are responsible for the preparation of fi nancial statements which give a true and fair view of the fi nancial
position of the company and group as at 30 June 2010 and the results of their operations and cash fl ows for the year ended
on that date.
Auditors’ responsibilities
It is our responsibility to express an independent opinion on the fi nancial 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 fi nancial statements.
It also includes assessing:
•
•
the signifi cant estimates and judgements made by the Directors in the preparation of the fi nancial 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 suffi cient evidence
to obtain reasonable assurance that the fi nancial 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
fi nancial statements.
Partners and employees of our fi rm 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 fi rm has no other relationship with or interest in the company or any of its subsidiaries.
Unqualifi ed 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 fi nancial statements on pages 54 to 109:
– comply with New Zealand generally accepted accounting practice;
–
give a true and fair view of the fi nancial position of the company and group as at 30 June 2010 and the results
of their operations and cash fl ows for the year ended on that date.
Our audit was completed on 19 August 2010 and our unqualifi ed 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
Whaimutu Dewes
Karen Moses
Sue Sheldon
Leadership team
David Baldwin, Managing Director
Steve Bielby, General Counsel and Company Secretary
Ruth Bound, General Manager, Retail and Strategic Marketing
Graham Cockroft, Chief Operating Offi cer
Mark Elliott, Chief Financial Offi cer
Luc Hennekens, General Manager, Information and Communication Technology
Liz Kelly, General Manager, Development and Acquisitions
Dean Stebbing, Kaawai Rautaki
Annika Streefl and, General Manager, People and Culture
Andy Williams, General Manager, Enterprise Transformation
Head offi ce
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 fi nancial 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 fi nal distribution
Cut-off date for receipt of election notices for buy back of bonus shares
under Profi t Distribution Plan
Final distribution date
End of fi rst quarter
Annual meeting
Half year end
Results announcement for the half year ended 31 December 2010
End of third quarter
Financial year end
20 August 2010
3 September 2010
Noon, 21 September 2010
27 September 2010
30 September 2010
27 October 2010
31 December 2010
February 2011
31 March 2011
30 June 2011
The paper this report is printed on is from sustainable plantation forests. The manufacturer is ISO accredited and an environmental
award winner. The ink used in this report is vegetable based, mineral free and from 100 per cent renewable resources.