2011
2011 Contents
1
2
4
6
9
20
24
37
49
Summary
Performance indicators
Chairman’s review
Chief Executive Offi cer’s review
Management discussion of fi nancial results
Company overview
Governance
Remuneration report
Security holder information
Financial contents
51
58
106
Financial statements
Notes to the fi nancial statements
Independent auditor’s report
108
Corporate directory
The 2011 Annual Meeting of Contact Energy Limited shareholders will be
held at the Rotorua Convention Centre, 1170 Fenton Street, Rotorua on
Wednesday 19 October 2011, commencing at 9.30am.
The Notice of Annual Meeting and shareholder voting/proxy form are
provided separately to shareholders.
Contact Energy Limited Annual Report 2011
1
Summary
For the fi nancial year ended 30 June 2011
•
•
•
Underlying earnings after tax for the year of $150.9 million. An increase of 1 per cent
from $149.8 million for the 12 months to 30 June 2010.
Commenced full commercial operation of the Ahuroa gas storage facility and the
Stratford peakers – the anticipated fl exibility that these assets will restore to Contact’s
generation portfolio has already been evidenced in second half-year earnings.
Commenced construction on the 166 megawatt (MW), $623 million Te Mihi
geothermal project.
• Consented three key energy developments:
–
–
–
Tauhara 2 – a 250 MW geothermal power station – consented for construction
_
.
on the Tauhara geothermal area near Taupo
Waitahora wind farm – a 156 MW wind farm – consented for construction in
southern Hawke’s Bay.
_
uru ma
_
Haua
along the western coast of the Waikato region to Te Akau South.
raki wind farm – a 504 MW wind farm – consented for construction
•
Strengthened the company’s balance sheet for investment in growth opportunities,
completing a one-for-nine renounceable Entitlement Off er in June 2011.
• Finished the fi nancial year with a net debt to net debt plus equity ratio of 27 per cent.
•
•
Increased retail sales volumes by 8 per cent, largely due to commercial (Time of Use)
customer sales.
Signifi cantly improved health and safety performance – an 11 per cent reduction
in employee incidents and a 28 per cent reduction in contractor incidents.
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 2011
Performance indicators
Underlying earnings for the period
Total operating revenue
231.3
230.4
158.7
149.8
150.9
2,757
1,998
2,220
2,164
2,231
3,000
2,500
n
o
i
l
l
i
m
$
2,000
1,500
1,000
500
2007A
2008A
2009A
2010A
2011A
2007
2008
2009
2010
2011
EBITDAF1
543.7
567.2
445.3
427.0
441.4
Operating cash fl ow per share2
72.0
74.2
72.3
60.9
60.2
e
r
a
h
s
r
e
p
s
t
n
e
C
80
70
60
50
40
30
20
10
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Underlying earnings per share2
Net debt/debt+equity
39.55
39.41
27.04
24.78
24.00
t
n
e
c
r
e
P
35
30
25
20
15
10
5
25
25
32
29
27
2007A
2008A
2009A
2010A
2011A
2007
2008
2009
2010
2011
Capital and investment expenditure
Underlying return on total assets
492.1
468.7
529.5
5.0
4.8
t
n
e
c
r
e
P
6
5
4
3
2
1
285.2
150.7
3.2
2.9
2.7
2007
2008
2009
2010
2011
2007A
2008A
2009A
2010A
2011A
n
o
i
l
l
i
m
$
n
o
i
l
l
i
m
$
e
r
a
h
s
r
e
p
s
t
n
e
C
n
o
i
l
l
i
m
$
250
200
150
100
50
600
500
400
300
200
100
45
40
35
30
25
20
15
10
5
600
500
400
300
200
100
Contact Energy Limited Annual Report 2011
3
Generation by fuel source
Wholesale electricity price
623
5,506
5,442
417
4,186
492
384
3,686
3,741
1,968
2,180
2,311
2,277
2,275
3,639
3,504
3,543
3,760
3,860
r
u
o
h
t
t
a
w
a
g
e
m
r
e
p
$
125
100
75
50
25
110.50
53.75
57.55
53.62
49.69
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Hydro
Geothermal
Thermal
Swaption
Retail electricity sales
Customer numbers (including LPG franchisees)
s
r
u
o
h
t
t
a
w
a
g
i
G
14,000
12,000
10,000
8,000
6,000
4,000
2,000
10,000
s
r
u
o
h
t
t
a
w
a
g
i
G
t
n
e
c
r
e
P
e
r
a
h
s
r
e
p
s
t
n
e
C
6,000
4,000
2,000
10
8
6
4
2
30
25
20
15
10
5
8,000
7,650
7,877
7,703
7,674
8,254
49
75
51
75
54
67
58
64
513
520
479
477
59
60
447
)
s
0
0
0
(
)
s
P
C
I
(
s
r
e
b
m
u
n
r
e
m
o
t
s
u
C
700
600
500
400
300
200
100
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Electricity
Gas
LPG
Underlying return on shareholders’ equity
Total assets
8.82
8.79
5.97
5.40
4.67
6,000
5,000
n
o
i
l
l
i
m
$
4,000
3,000
2,000
1,000
4,585
4,837
5,026
5,148
5,643
2007A
2008A
2009A
2010A
2011A
2007
2008
2009
2010
2011
Profi t distribution and dividends per share
Shareholders’ equity
27.0
28.0
28.0
25.0
23.0
2,621
2,621
2,660
2,777
3,236
n
o
i
l
l
i
m
$
3,500
3,000
2,500
2,000
1,500
1,000
500
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
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 (NZIFRS).
A Excludes change in fair value of fi nancial instruments and other signifi cant one-off items both net of tax where appropriate.
1 Earnings before net interest expense, income tax, depreciation, amortisation, change in fair value of fi nancial instruments and other signifi cant items.
2 Underlying earnings per share and operating cash fl ow per share have been calculated using the weighted average number of shares on issue during the year.
Comparatives have been restated to refl ect the one-for-nine renounceable Entitlement Off er in June 2011.
4
Contact Energy Limited Annual Report 2011
Chairman’s review
The fi nancial year ending 30 June 2011 (FY11) was another wet year, with hydro storage levels averaging
120 per cent of mean. In particular the third quarter of the fi nancial year, traditionally a time of lower demand,
saw strong infl ows into southern hydro lakes. This, combined with suppressed demand due to more diffi cult
economic circumstances, made it diffi cult for Contact to achieve any real growth in earnings when compared
to the prior year.
In FY11 Contact achieved earnings before net interest expense, income tax, depreciation, amortisation, change
in fair value of fi nancial instruments and other signifi cant items (EBITDAF) of $441.4 million, an increase of
3 per cent from $427 million in the 2010 fi nancial year (FY10). Underlying earnings after tax for the year were
$150.9 million, an increase of 1 per cent from $149.8 million in FY10.
Net debt as at 30 June 2011 was $1,194.8 million, compared with $1,347.1 million as at 30 June 2010. Late in
FY11 Contact raised $351 million of equity through a one-for-nine renounceable Entitlement Off er to strengthen
its balance sheet for investment in growth opportunities, the fi rst part of which is Te Mihi.
Existing term debt comprises US$330 million (NZ$587.3 million notional equivalent) of US private placements
of various maturities, $550 million of fi xed rate retail bonds and $100 million of fi xed rate wholesale bonds that
mature in May 2014 and April 2017 respectively.
Contact has additional liquidity available from $450 million of committed bank facilities, of which nil was drawn
at 30 June 2011.
The Contact Board of Directors resolved that the fi nal distribution to shareholders would be 12 cents per share,
resulting in a total distribution for the year of 23 cents per share, a reduction of 2 cents from the previous fi nancial
year. The 2011 distribution to shareholders refl ects the company’s fi nancial performance in the year in review.
The distribution represents a payout ratio of 100 per cent of Contact’s underlying earnings.
During FY11 Contact completed two signifi cant projects that will provide greater fl exibility for its generation
portfolio, support earnings in wet years and provide greater security of supply.
These projects are the Stratford peakers and the associated Ahuroa gas storage facility. In the fi rst few months of
operation, these facilities have already had a positive impact by reducing costs during periods of low wholesale
spot prices and delivering earnings during high price periods.
During FY11 Contact also commenced construction on its Te Mihi geothermal development, near Taupo. Once
complete, Contact will have a further 114 megawatts (MW) of base load renewable generation, which will provide
further fl exibility in its generation portfolio and reduce reliance on its gas-fi red combined-cycle plants. The
construction of Te Mihi refl ects Contact’s commitment to renewable generation and its belief that geothermal
generation is the country’s most cost-eff ective way to meet future electricity demand.
During this period Contact also received resource consents for three signifi cant renewable generation
developments, comprising two wind farms and a further geothermal plant.
During FY11 Contact increased retail sales, particularly through the Time of Use market. Contact was disappointed
to lose residential and small business customers during the period and is committed to off ering excellent service
and competitive pricing in what is a very dynamic market.
As discussed in the Half Year Report, David Baldwin resigned as Managing Director and moved to the position of
Chief Development Offi cer at Origin Energy on 1 April. David remains a director of Contact and will continue to
contribute to Contact’s generation development. I thank David for his valuable contribution over the last fi ve years.
Contact Energy Limited Annual Report 2011
5
In April we welcomed Dennis Barnes as the new Chief Executive of Contact. Dennis has a long association with
Origin Energy, having started with the company in 1998. Most recently Dennis held the role of General Manager
Energy Risk Management at Origin, based in Sydney. In addition to his experience at Origin, where he guided
Origin’s signifi cant and expanding operations in wholesale markets, Dennis has considerable skills and expertise
gained through many years operating in international energy markets.
We recognise that FY11 was diffi cult for New Zealand as it recovered from the impact of the global economic
recession and the Christchurch earthquakes. Looking forward, we expect demand for electricity to grow. Contact
is well positioned to help meet this demand.
Grant King
Chairman
6
Contact Energy Limited Annual Report 2011
Chief Executive Offi cer’s review
Focus on fl exibility, customers and future development
Flexibility already delivering positive results
Last year we reported that the 2011 fi nancial year (FY11) would be one of substantial change, with full
commercial operation commencing of two projects that are critical to Contact’s future.
It is therefore pleasing to report that the Ahuroa gas storage facility and Stratford peakers were opened this year
by the Prime Minister, Rt Hon. John Key, and we are already accruing benefi ts from the restoration of generation
portfolio fl exibility.
The fi xed costs associated with Contact’s thermal generation reduced as a result of the new assets. These
improvements are refl ected in this year’s results. In the second half of the year, lower gas take-or-pay volumes
and the fl exibility provided by the Stratford peakers and Ahuroa gas storage facility allowed Contact to manage
risk more effi ciently during periods of generally low wholesale prices. This resulted in an increase in hedged
generation EBITDAF of $52 million compared with the same period in 2010.
Prior to the introduction of the Stratford peakers and the Ahuroa gas storage facility, two gas-fi red combined-cycle
gas turbine plants would have been required during winter demand periods to provide price and transmission risk
coverage despite long periods of low wholesale spot prices. By utilising the Stratford peakers in combination
with the combined-cycle gas turbine plants instead, we can now provide the same demand risk cover at a lower
operating cost.
Similarly, the Ahuroa gas storage facility enables gas to be stored and used as required, lowering Contact’s
generation cost base. During the year, 5.8 petajoules (PJ) of gas were injected into Ahuroa, the equivalent of
$45 million of gas costs which, during periods of wet hydrology and low wholesale prices, are not required.
At the same time, Ahuroa’s fl exibility gave Contact the confi dence to not replace a major gas contract and
lowered the volume of gas that must be purchased under take-or-pay arrangements. During high wholesale
spot price periods, the Stratford peakers and Ahuroa gas storage facility enable higher generation volumes at
attractive margins.
Customers
Heavy and frequent rainfall this year ensured that fuel was plentiful. However, demand has been stagnant due
to a combination of a mild winter, the Christchurch earthquakes and subdued economic conditions.
Despite these factors, Contact’s retail sales volumes increased, with new customer acquisitions in the Time
of Use market key to this increase.
In the residential retail market, Contact experienced an unprecedented level of customer churn in the last quarter
of FY11. We are continuing to create new products and off ers to be competitive in a market that is constantly
changing. Accordingly, in August 2011, Contact increased its existing prompt payment discount for residential
customers who subscribe to Online OnTime and receive their bills online, from 12 per cent to 22 per cent. Contact
also commenced off ering new wholesale risk management products to larger industrial consumers, to help them
manage their energy purchase costs in this changing market.
Strategy for growth
Geothermal
Contact believes that geothermal generation represents the best and most cost-eff ective renewable generation
option to meet New Zealand’s energy needs. Contact continued its leadership in geothermal generation with the
commencement in 2011 of the $623 million Te Mihi project.
Work on the Te Mihi project commenced on a site approximately 5 kilometres from the Wairakei geothermal
power station and the Te Mihi power station is expected to be brought into operation in 2013. Once completed,
45 MW of the existing Wairakei station will be decommissioned, resulting in a net increase in output from the
power stations on the Wairakei geothermal resource of 114 MW.
Contact Energy Limited Annual Report 2011
7
In 2011, resource consent was also obtained for the construction of the 250 MW Tauhara 2 geothermal
_
development to be sited on the Tauhara geothermal fi eld, to the north-east of Taupo
development will be dependent on market conditions.
. Timing of the Tauhara 2
Investigation of the potential for development of the Taheke geothermal fi eld is ongoing in partnership with the
Taheke 8c and Adjoining Block Incorporation. This work has been progressing since the owners selected Contact
to be their partners in the development of the resource in FY10.
Wind hydro and gas developments
Contact continues to investigate wind, hydro and gas-fi red developments to help meet New Zealand’s long-term
demand needs.
In 2011 Contact was granted consents for two wind farm developments, the 156 MW Waitahora wind farm
consented for construction along the Puketoi Range near Dannevirke in southern Hawke’s Bay, and the
_
504 MW Haua
raki wind farm consented for construction on the west coast of the Waikato region.
_
uru ma
Contact has the most advantageous gas-fi red power station development sites in New Zealand, and consultation
is ongoing with the Stratford community and iwi on the development of a second set of gas-fi red peakers at the
Stratford power station.
Successful Entitlement Off er
To strengthen its balance sheet for investment in growth opportunities, Contact launched a successful one-for-nine
renounceable Entitlement Off er in June 2011. Approximately 65.7 million new shares, representing 94.5 per cent
of shares off ered in respect of entitlements, were purchased under the Off er.
Only 5.5 per cent of the new shares in respect of entitlements were unclaimed and a shortfall book build was
conducted to sell these shares. The Off er and shortfall book build were successful and raised a total of $351.2
million which will allow Contact to invest in growth opportunities, the fi rst of which is the Te Mihi project.
Our people
Safety
The Total Recordable Injury Frequency Rate is the total number of recordable injuries for employees per
million hours worked. Contact’s rate this year was 5.9, a signifi cant improvement from the previous year’s 6.6.
An improvement of 11 per cent for employees and 28 per cent for contractor incidents represents real progress
toward our goal of zero harm.
Enterprise Transformation programme
Contact’s three-wave Enterprise Transformation (ET) programme reached key milestones this year. ET involves
implementing SAP software and accompanying new processes across the company to support the business’s
fi nancial, generation asset management, and retail functions.
Wave 1, addressing Contact’s fi nance systems, was completed in October 2010. Wave 2, focusing on generation
operations, was completed in July 2011. Both were on schedule and on budget. This brings the company another
step closer to achieving its vision of becoming the region’s reference generation organisation through the improved
management of site safety, better information to support site management and new maintenance processes to
increase plant reliability and availability.
Contact will be rolling out the fi nal wave of ET in its retail business in 2012.
8
Contact Energy Limited Annual Report 2011
Our communities
In 2011 Contact continued to build on the relationships established with the communities in which we operate
_
through sponsorship of events and community activities in Taupo
, Central Otago and Taranaki, such as the Lake
_
Taupo
Cycle Challenge and the Contact Alexandra Blossom Festival.
_
The opening of the Stratford peakers and the Ahuroa gas storage facility involved South Taranaki iwi, Nga
and this successful event has opened the doors for a strong and enduring relationship to be developed.
ti Ruanui,
We continue to build our relationships with tangata whenua as we work to develop projects such as Te Mihi and
Tauhara and look to the future of Ohaaki. And we are earning and building on the trust placed in Contact by the
Taheke 8C Incorporation.
Looking forward
In the coming fi nancial year Contact’s immediate focus will be on delivery, realising value from the newly
commissioned assets to raise base earnings, and continuing to meet the needs of our customers. The Te Mihi
project will gather momentum and we will work to ensure Te Mihi is delivered on time and within budget.
With portfolio fl exibility greatly enhanced and consequent expected improvement in base earnings, we are
continuing a period of bold growth. I would like to thank the Board and everyone at Contact for their contribution
to our successes this year; there is much we can be proud of.
Dennis Barnes
Chief Executive Offi cer
Contact Energy Limited Annual Report 2011
9
Management discussion
of fi nancial results
for the 12-month period ended 30 June 2011
Financial results to 30 June 2011
Key fi nancial information
Operating revenue
Operating expenses1
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
Retail transaction processing outsourcing costs
Earnings before net interest expense and income tax
Net interest expense
Income tax expense
Profi t for the year
Underlying earnings after tax2
Underlying earnings per share (cents)
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
2,230.9
(1,789.5)
441.4
(166.3)
3.9
(5.9)
–
–
273.1
(62.4)
(60.4)
150.3
150.9
24.00
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
24.78
Shareholders’ equity
3,235.6
2,776.8
1
2
Includes electricity purchases.
Underlying earnings after tax removes signifi cant one-off items and the non-cash change in fair value of fi nancial instruments.
Variance
$ million
66.5
(52.1)
14.4
(4.4)
0.6
%
3%
(3%)
3%
(3%)
18%
(10.4)
(231%)
5.6
3.3
9.1
(6.4)
(7.1)
(4.4)
1.1
(0.78)
458.8
100%
100%
3%
(11%)
(13%)
(3%)
1%
(3%)
17%
EBITDAF
In FY11 Contact’s EBITDAF was $441 million, $14 million (3 per cent) higher than the prior corresponding
period (FY10).
Following the fl at EBITDAF in the fi rst half of FY11 compared with the fi rst half of FY10, second-half EBITDAF
increased 7 per cent to $216 million. EBITDAF contribution in the same period from Contact’s core electricity
business increased 8 per cent on the second half of FY10 due to the improvement in fl exibility with the Ahuroa
gas storage facility and Stratford peakers commissioned and gas contract levels falling 23 per cent.
The availability of the Ahuroa gas storage facility and lower gas take-or-pay obligations enabled generation from
Contact’s combined-cycle gas turbine plants and the swaption to be reduced in the second half of FY11 in response
to low wholesale electricity prices. This was most evident in June with the full commercial operation of the Stratford
peakers at the start of the month. The availability of the Ahuroa gas storage facility and the Stratford peakers place
Contact in an improved position to increase earnings, even with continuing wet conditions in FY12.
Weak wholesale spot prices and load re-balancing related to the state-owned enterprise asset transfers have increased
the level of retail competition. In response to the competitive market, Contact has continued to target markets and
channels that made economic sense. Time of Use sales increased 31 per cent to 3,920 gigawatt hours (GWh) and
further incentives have been off ered to customers on Contact’s lower-cost online billing and payment option.
10
Contact Energy Limited Annual Report 2011
FY11 revenue was up 3 per cent to $2,231 million due to increased retail volumes and prices. While national
electricity demand remained static, Contact’s retail sales volume increased by 8 per cent to 8,254 GWh,
predominantly due to the 31 per cent increase in Time of Use sales. Time of Use customers off er the benefi t of a
fl atter demand profi le, allowing better utilisation of generation capacity and lower costs of supply. The increase
in Time of Use sales allowed Contact to reduce its exposure to electricity spot sales in a period of weak wholesale
prices. Average retail prices increased 4 per cent on FY10.
Generation volumes increased 45 GWh from FY10 to 10,260 GWh. The average wholesale price for generation
was down $4 per megawatt hour (MWh) to $50 per MWh in FY11. Contact sold 1,233 GWh into the exposed
channel compared with 1,244 GWh in FY10.
FY11 operating expenses increased 3 per cent to $1,790 million, predominantly due to the introduction of
the Emissions Trading Scheme from 1 July 2010 and higher third-party network costs. Contact incurs carbon
emission costs associated with gas used in generation and sold to customers, LPG purchases and geothermal
generation. For FY11, this represented a total cost of $30 million. Network costs were $32 million (6 per cent)
higher than FY10 driven by increased Time of Use sales and a $5 per MWh increase in unit network charges for
mass market customers. The total cost of gas used in generation was up $14 million. The cost of gas used in
generation in the second half of FY11 was $21 million lower than the comparable period in FY10.
Depreciation
The depreciation expense increased by $4 million or 3 per cent. The increase largely refl ected the commissioning
of the Ahuroa gas storage facility, Stratford peakers and the Finance and Generation streams of Enterprise
Transformation going live during the year.
Change in fair value of fi nancial instruments
The reported profi t for the year included an unfavourable non-cash pre-tax movement of $6 million in the value
of fi nancial instruments. The movement was predominantly driven by an unfavourable movement in various
interest rate and currency derivatives. This compared with a favourable pre-tax movement of $5 million in FY10.
Interest expense
The net interest expense increased by $6 million or 11 per cent to $62 million in FY11. The increase in the
net interest expense was primarily attributable to a decrease in interest income due to lower levels of cash
held during the year, combined with a decrease in capitalised interest as major capital projects were completed.
This was partially off set by a lower average cost of funding. Interest of $42 million was capitalised in the year
compared with $48 million in FY10.
Income tax expense
The income tax expense for the period was $60 million (2010: $53 million). This represents an eff ective tax rate
of 28.7 per cent. The diff erence between this and the current corporate rate of 30 per cent is principally due to
the fi nal adjustment to restate deferred tax to the new corporate tax rate of 28 per cent eff ective for FY12 and
various incidental prior period adjustments.
Contact Energy Limited Annual Report 2011
11
Reported profi t
EBITDAF
Depreciation and amortisation
Change in fair value of fi nancial instruments
Equity accounted earnings of associates
Removal of New Plymouth asbestos and related costs
Retail transaction processing outsourcing costs
Net interest expense
Income tax expense
Profi t for the year
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
441.4
(166.3)
(5.9)
3.9
–
–
(62.4)
(60.4)
150.3
427.0
(161.9)
4.5
3.3
(5.6)
(3.3)
(56.0)
(53.3)
154.7
Variance
$ million
14.4
(4.4)
%
3%
(3%)
(10.4)
(231%)
0.6
5.6
3.3
(6.4)
(7.1)
(4.4)
18%
100%
100%
(11%)
(13%)
(3%)
Net profi t for the year was $150 million, down $4 million (3 per cent) compared with the prior year, primarily
due to the increase in EBITDAF of $14 million and the absence of other signifi cant one-off items in FY11. This was
more than off set by an unfavourable non-cash pre-tax movement in fi nancial instruments, and an increase in interest
expense and tax.
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 FY11, underlying earnings after tax were $151 million, up $1 million from
FY10. Notable adjustments included a re-estimate of the impact of the change in the corporate income tax rate
announced in the Government’s May 2010 Budget and fair value movements in fi nancial instruments.
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
Variance
$ million
Profi t for the year
Removal of New Plymouth asbestos and related costs (after tax)
Retail transaction processing outsourcing costs (after tax)
Change in fair value of fi nancial instruments (after tax)
Impact of change in corporate income tax rate
Removal of tax depreciation on buildings
Underlying earnings after tax
150.3
–
–
4.1
(3.5)
–
150.9
154.7
3.9
2.3
(3.2)
(42.7)
34.8
149.8
(4.4)
(3.9)
(2.3)
7.3
39.2
(34.8)
1.1
%
(3%)
(100%)
(100%)
231%
92%
(100%)
1%
Distributions to shareholders
The Contact Board of Directors resolved that the fi nal distribution to shareholders would be 12 cents per share.
In combination with the 11 cents per share interim distribution, the full-year distribution is 23 cents per share,
a reduction of 2 cents from the prior fi nancial year. The distribution represents a payout ratio of 100 per cent
of Contact’s underlying earnings after tax for the period. The distribution will be made via a tax-free bonus issue
under Contact’s Profi t Distribution Plan (PDP).
12
Contact Energy Limited Annual Report 2011
Financial position and liquidity
Net debt as at 30 June 2011 was $1,195 million, compared with $1,347 million as at 30 June 2010. Balance sheet
gearing improved from 32 per cent as at 30 June 2010 to 27 per cent as at 30 June 2011. The decrease in debt is
predominantly due to the one-for-nine renounceable Entitlement Off er carried out in June 2011.
Existing term debt comprises US$330 million (NZ$587 million notional equivalent) of US private placements
of various maturities, $550 million of fi xed rate retail bonds and $100 million of fi xed rate wholesale bonds that
mature in May 2014 and April 2017 respectively.
Contact has additional liquidity available from $450 million of committed bank facilities, of which nil was drawn at
30 June 2011.
Outlook
FY11 was marked by signifi cant achievements, with the completion of the Ahuroa gas storage facility,
commissioning of the Stratford peakers and commencement of the Te Mihi geothermal development. Costs have
continued to increase with the introduction of the Emissions Trading Scheme in FY11 and the expected increase in
network charges as the national grid upgrades are completed. FY12 will be focused on delivery, in terms of utilising
the newly commissioned assets to raise base earnings even if wet hydrology continues, profi tably growing retail
demand and ensuring Te Mihi is delivered on time and within budget.
Overview of performance for the period
Electricity market conditions
The average wholesale spot price for FY11 was $50 per MWh compared with $54 per MWh for FY10. In general,
hydrological conditions in FY11 were wetter than in FY10, with 64 per cent of the year having storage levels in
the upper quartile of historical ranges. High hydrology resulted in relatively low wholesale spot prices on average,
except for a temporary increase in prices in December 2010 as storage returned to mean levels and in March 2011
due to a series of transmission constraints and HVDC bi-pole outages.
500
400
300
200
100
*
)
h
W
M
/
$
(
e
c
i
r
P
1H
2H
Storage levels started
and remained high over
the fi rst six months
Price increase as hydro storage
levels started to decline
Transmisssion constraints
including 26 March
5,000
4,000
)
h
W
G
(
e
g
a
r
o
t
S
3,000
2,000
1,000
0
1
l
u
J
0
1
g
u
A
0
1
p
e
S
0
1
t
c
O
0
1
v
o
N
0
1
c
e
D
1
1
n
a
J
1
1
b
e
F
1
1
r
a
M
1
1
r
p
A
1
1
y
a
M
1
1
n
u
J
National average FY11
National average FY10
National mean
HAY prices FY11
HAY prices FY10
*
Prices are based on the revised draft remedial pricing schedule relating to the 26 March Undesirable Trading Situation. The Undesirable Trading Situation decision,
and the prices relating to it, are currently under appeal.
Contact Energy Limited Annual Report 2011
13
Strongly correlated to electricity demand, New Zealand’s gross domestic product and business confi dence have remained
at relatively low levels since emerging from fi ve quarters of recession at the start of 2009. While gross domestic product
increased slightly in FY11, the combined impact of the Christchurch earthquakes and warm temperatures resulted in
national demand (excluding the Tiwai Aluminium Smelter) decreasing 0.2 per cent compared with FY10.
Historical national demand
h
W
G
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
FY06
FY07
FY08
FY09
FY10
FY11
National demand (excluding Tiwai)
National demand (excluding Tiwai and Christchurch)
Segment results
The operational performance data for FY11 (FY10 in parentheses) is provided in the chart below, and in the table
on the following page.
Thermal
4,125 GWh (4,179)
(including swaption)
Exposed generation
EBITDAF: $30m (37)
Exposed volume: 1,233 GWh (1,244)
Unit generation operating cost: $38.6/MWh (34.2)
Average wholesale price: $62.9/MWh (63.7)
,
)
5
1
2
0
1
(
h
W
G
0
6
2
0
1
,
Hydro
3,860 GWh (3,760)
:
n
o
i
t
a
r
e
n
e
G
Geothermal
2,275 GWh (2,277)
CfD volume: 356 GWh (845)
Hedged generation
EBITDAF: $347m (295)
Retail volume: 8,671 GWh (8,126)
Energy transfer price: $88/MWh (81)
Expected line losses: 475 GWh (488)
GWAP – Haywards diff erential: $2/MWh (4)
Unit generation operating cost: $51.1/MWh (48.1)
(including LTMA costs: $54.0/MWh (51.5))
TOU volume 3,920 GWh (2,999)
Retail
EBITDAF: $28m (50)
Residential/SME volume: 4,333 GWh (4,675)
Energy purchase price: $88/MWh (81)
Actual line losses: 4.5% (3.2)
LWAP – Haywards diff erential: $5/MWh (2)
Location factor (LWAP/GWAP): 115% (113)
Network costs: $60/MWh (61)
Time of Use network costs: $29/MWh (26)
Mass market network costs: $86/MWh (81)
Cost to serve: $15/MWh (15)
Average sales price: $169/MWh (163)
Retail margin: 2% (4)
Total sales volume: 8,254 GWh (7,674)
e
h
t
o
t
n
i
d
l
o
s
y
g
r
e
n
E
t
e
k
r
a
m
e
l
a
s
e
l
o
h
w
s
r
e
m
o
t
s
u
c
o
t
d
l
o
s
y
g
r
e
n
E
Note: Line losses in hedged generation are based on an expected annual level of line losses; actual line losses are refl ected in retail.
14
Contact Energy Limited Annual Report 2011
Electricity segment
Wholesale electricity revenue
Retail electricity revenue
Steam revenue
Total electricity revenue
Electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
Carbon emissions
Meter lease internal charge1
Labour costs and other operating expenses
Total operating expenses
EBITDAF
Depreciation and amortisation
Segment result
Average wholesale electricity price ($ 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)
Embedded generation (GWh)
Total generation including swaption (GWh)
Average electricity purchase price ($ per MWh)2
Retail electricity purchases (GWh)
Generation – exposed (GWh)
CfD sales (GWh)
Retail electricity sales (GWh)
Electricity customer numbers
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
Variance
$ million
505.7
1,443.6
19.7
1,969.0
(476.7)
(541.3)
(279.3)
(25.1)
(29.2)
(212.3)
(1,563.9)
405.1
(156.5)
248.6
$49.69
($38.61)
($51.05)
$38.43
30.1
–
384
2,858
850
2,275
3,860
33
10,260
($55.14)
8,635
1,234
356
8,254
539.4
1,301.9
17.9
1,859.2
(480.4)
(509.7)
(265.3)
–
(29.0)
(193.2)
(1,477.6)
381.6
(153.3)
228.3
$53.62
($34.20)
($48.06)
$32.84
29.5
2
490
2,900
754
2,277
3,760
32
10,215
($58.77)
7,925
1,244
845
7,674
(33.7)
141.7
1.8
109.8
3.7
(31.6)
(14.0)
(25.1)
(0.2)
(19.1)
(86.3)
23.5
(3.2)
20.3
($3.93)
($4.41)
($2.99)
$5.59
0.6
(2)
(106)
(42)
96
(2)
100
1
45
$3.63
710
(10)
(490)
580
447,000
477,000
(30,000)
%
(6%)
11%
10%
6%
1%
(6%)
(5%)
–
(1%)
(10%)
(6%)
6%
(2%)
9%
(7%)
(13%)
(6%)
17%
2%
(100%)
(22%)
(1%)
13%
–
3%
3%
–
6%
9%
(1%)
(58%)
8%
(6%)
1
2
Inter-segment meter lease internal charge is eliminated upon consolidation of the two segments.
This price excludes Contracts for Diff erences.
Contact Energy Limited Annual Report 2011
15
Generation
Contact’s thermal generation in FY11 was 4,092 GWh, 54 GWh lower than in FY10. This was largely due to the
swaption volume being down 108 GWh as wholesale electricity prices were lower and the Stratford peakers were
utilised to provide risk cover in June.
Contact’s geothermal generation was down 2 GWh to 2,275 GWh in FY11 with the outage at Wairakei for statutory
maintenance and lower output from Ohaaki off set by generation from the new Te Huka power station.
Contact’s hydro generation at 3,860 GWh was 3 per cent or 100 GWh more than in FY10 as high storage levels and
tributary fl ows were utilised.
In FY11 the volumes used by hedged customers (retail and Contracts for Diff erences) increased 56 GWh to
9,027 GWh. This increase was largely due to a 31 per cent increase in Time of Use sales allowing Contact to
increase hedge levels. The average operating cost of hedged generation was $51 per MWh, up 6 per cent on
FY10 due to increased gas costs and the introduction of carbon costs. Overall, margins from hedged generation
increased $6 per MWh, increasing the contribution from the hedged generation by $52 million.
Exposed generation volumes and prices were similar to FY10 with volumes decreasing by 11 GWh to 1,233 GWh
and the average price down 1 per cent. The introduction of the Emissions Trading Scheme saw costs increase
$7 million for exposed generation. Revenues and other costs were similar to those in FY10.
Gas costs
The completion of the Ahuroa gas storage facility and a reduction in contracted gas levels from 52 PJ per annum
to 40 PJ improved Contact’s cost position in the second half of FY11 as generation was reduced in reaction to low
wholesale electricity prices. This was most evident in June, with the full commercial operation of the Stratford
peakers at the start of the month enabling improved pricing and transmission risk management.
Management of take-or-pay
gas volumes in FY10 and FY11
Gas take-or-pay volumes reduced
from 52 PJ to 40 PJ Jan 2011
Peakers
commissioned
June 2011
)
h
W
G
(
d
n
a
m
e
d
d
n
a
n
o
i
t
a
r
e
n
e
G
1100
1000
900
800
700
600
500
)
h
W
M
/
$
(
e
c
i
r
P
600
500
400
300
200
100
0
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
Demand FY10
Generation FY10
HAY prices FY10
Demand FY11
Generation FY11
HAY prices FY11
16
Contact Energy Limited Annual Report 2011
Reduced combined-cycle gas turbine generation and lower wholesale gas sales in the second half of 2011 resulted
in total gas used in FY11 being 4.1 PJ lower than in FY10 at 47.9 PJ. Hydrological conditions and consequential
periods of low wholesale prices during the year resulted in gas length of 11.8 PJ, up from 10.2 PJ in the prior
period. 5.8 PJ of the 11.8 PJ were injected into the Ahuroa gas storage facility, resulting in 6 PJ of gas that were
either sold at a net loss or paid for and not taken.
Gas that was sold at a net loss or not taken resulted in the eff ective cost of gas used in generation being $0.79 per
gigajoule (GJ) higher than the average contracted cost of gas, which is equivalent to $24 million of additional costs
during FY11, down $1 million from FY10.
The unit cost of gas used in generation before take-or-pay related costs increased $0.27 per GJ in FY11 due to a
signifi cant increase in gas price from 1 January 2010 under one of Contact’s main gas contracts, partially off set by
contracted reductions across other contracts.
The graph below shows the gas that was attributed to generation. Gas paid and not taken and the loss on
distressed sales are both attributed to hedged generation as the contracts and their obligations are in place
primarily to provide generation to ensure Contact’s retail demand is met.
Gas used in generation
$9.00
$9.27
2
3
29
4
2
30
)
J
P
(
e
m
u
l
o
V
40
30
20
10
0
FY10
FY11
Financial year
Gas used in generation
Gas paid and not taken
Loss-making industrial sales
10
8
6
4
0
)
n
o
i
s
s
i
m
s
n
a
r
t
g
n
i
d
u
l
c
n
i
(
J
G
/
$
As at 30 June 2011, Ahuroa gas storage held 16.3 PJ of natural gas and 0.6 PJ of LPG, of which 10.6 PJ of natural gas
are working volume. The successful commissioning of the extraction phase of gas storage occurred in February 2011.
Carbon costs
The Emissions Trading Scheme was introduced on 1 July 2010. The electricity segment incurs carbon costs based on
the amount of gas used in generation and the amount of steam extracted by geothermal power stations. In FY11 this
cost totalled $25 million for the electricity segment.
Contact Energy Limited Annual Report 2011
17
Retail
The contribution from retail electricity was $22 million lower than in FY10 at $28 million due to increases
in revenue being more than off set by increasing costs.
Retail electricity revenue increased 11 per cent to $1,444 million due to:
•
retail electricity sales increasing 8 per cent to 8,254 GWh with Time of Use volume up 31 per cent to
3,920 GWh and mass market volume down 7 per cent to 4,333 GWh
•
the average sales price for retail up 4 per cent or $6 per MWh.
The chart below illustrates the growth in demand during FY11. Overall North Island demand grew 25 per cent,
with Time of Use volume increasing 49 per cent and mass market up 4 per cent. North Island demand was
67 per cent of total demand in FY11 compared with 57 per cent in FY10.
Load split by customer type and island (sales)
h
W
G
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
7,674
2,348
43%
33%
923
2,327
2,076
FY10
57%
67%
8,254
1,911
837
2,422
3,084
FY11
NI Time of Use
SI Time of Use
NI mass market
SI mass market
The majority of the reduction in South Island demand came from mass market customers as Contact reduced its
exposure to South Island transmission risk and other retailers competed aggressively for mass market customers.
Despite the increase in sales volumes and price, the overall contribution from retail was down due to increasing
costs. The key cost movements were:
•
•
•
•
•
an increase in the internal energy purchase cost from $81 per MWh to $88 per MWh
third-party network costs up $27 million due to mass market network unit costs up $5 per MWh and
increased Time of Use volume
line losses up 1.3 per cent to 4.5 per cent resulting in a cost of $10 million in additional purchases
an increase in location costs from $2.15 per MWh to $4.81 per MWh. This represents the increase in the price
diff erential between the generation injection node and purchase node or grid exit point (LWAP). Location
costs are allocated to retail electricity based on the diff erence between the LWAP and the Haywards price node
other retail costs up by $6 million, refl ecting the contribution to the Christchurch earthquake-related costs
and the increased cost to acquire, retain and serve mass market customers off set by a reduction in bad debt
write-off s.
18
Contact Energy Limited Annual Report 2011
Other segment
The Other segment comprises Contact’s retail and wholesale gas, LPG and meters.
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
Variance
$ million
Wholesale gas revenue
Retail gas revenue
LPG revenue
Meter leases revenue
Meter leases revenue – internal1
Other revenue
Total Other segment revenue
Gas purchases and transmission
LPG purchases
Meter lease costs
Carbon emissions
Market levies
Labour costs and other operating expenses
Total operating expenses
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)
50.9
72.4
117.0
12.7
29.2
8.9
291.1
(101.8)
(85.4)
(22.0)
(5.2)
(1.0)
(39.4)
(254.8)
36.3
(9.8)
26.5
7.1
2.8
65,201
60,000
59,300
75.4
78.0
130.3
11.8
29.0
9.7
334.2
(131.4)
(99.2)
(21.0)
–
(1.7)
(35.5)
(288.8)
45.4
(8.6)
36.8
10.7
3.2
70,327
64,000
58,000
(24.5)
(5.6)
(13.3)
0.9
0.2
(0.8)
(43.1)
29.6
13.8
(1.0)
(5.2)
0.7
(3.9)
34.0
(9.1)
(1.2)
(10.3)
(3.6)
(0.4)
(5,126)
(4,000)
1,300
%
(32%)
(7%)
(10%)
8%
1%
(8%)
(13%)
23%
14%
(5%)
–
41%
(11%)
12%
(20%)
(14%)
(28%)
(34%)
(13%)
(7%)
(6%)
2%
1
Inter-segment internal meter leases revenue is eliminated upon consolidation of the two segments.
Contact Energy Limited Annual Report 2011
19
Other segment EBITDAF decreased $9.1 million to $36.3 million due to decreasing volumes and carbon costs.
Other segment contribution
Wholesale gas
Retail gas
LPG
Meters
Other
Other segment EBITDAF
12 months ended
30 June 2011
$ million
12 months ended
30 June 2010
$ million
Variance
$ million
(3.2)
6.4
7.2
17.0
8.9
36.3
(1.8)
8.9
10.5
18.2
9.6
45.4
(1.4)
(2.5)
(3.3)
(1.2)
(0.7)
(9.1)
%
(78%)
(28%)
(31%)
(7%)
(7%)
(20%)
The wholesale gas contribution decreased $1.4 million due to lower sales volumes and decreasing margins. Sales
volumes decreased from 9.2 PJ in FY10 to 3.1 PJ in FY11 due to the expiry of a long-term contract. Contractual
increases in gas purchase costs and pressure on prices due to over-supply resulted in decreasing margins in FY11.
A further 4 PJ of distressed gas sales were made in FY11, an increase of 2.5 PJ on FY10. Distressed gas sales are
short-term sales made at a discount to the purchase price of gas in order to monetise gas that Contact could not
inject into gas storage, sell to retail or wholesale customers, 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.
The retail gas contribution decreased $2.5 million with volumes down 0.4 PJ to 2.8 PJ and carbon costs of $1.1
million. As at 30 June 2011, Contact had 60,000 gas customers compared with 62,000 as at 31 December 2010
and 64,000 as at 30 June 2010.
The LPG contribution was down $3.3 million or 31 per cent. LPG sales were down 5,126 tonnes in FY11 primarily
due to a decrease in service station demand and lower reticulated demand following the Christchurch earthquakes.
Despite continued pricing pressure, a reduction in purchase costs saw the net sales price improve by $39 per
tonne. This benefi t was largely off set by the introduction of carbon costs of $30 per tonne or $2 million. Other
operating expenses increased $1.8 million due to LPG support of the Christchurch community in the aftermath of
the February earthquake. With support from Rinnai, Contact provided mobile hot water shower units, off ered free
9 kilogram bottle fi lls through the branch and service station channel and ensured security of supply to essential
services such as hospitals and rest homes. FY11 expenses also include provisions for anticipated reticulated
network repair and re-commissioning costs.
20
Contact Energy Limited Annual Report 2011
Company overview
Contact is one of New Zealand’s leading publicly listed companies,
with around 79,000 shareholders, a national staff of about 1,050 and
the ability to supply electricity and gas products across New Zealand.
Retail
Contact has approximately:
• 447,000 retail electricity customers
• 60,000 reticulated natural gas customers
• 59,500 LPG customers.
Generation
• Contact owns and operates 10 power stations across the North and South Islands.
•
•
•
•
•
In FY11, 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 recently commenced operation of New Zealand’s fi rst underground natural gas storage facility near
Stratford and the 200 MW gas-fi red peakers plant located at the Stratford power station.
_
Construction recently began near Taupo
eventually partially replace the Wairakei geothermal power station opened in 1958.
on the 166 MW Te Mihi geothermal power station, which will
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 40 MW)
Commissioned in 1989, the Ohaaki geothermal power station is currently producing around 40 MW of electricity.
Wairakei – geothermal, 157 MW plus 15 MW binary plant
Commissioned in 1958 as the fi rst geothermal plant of its kind anywhere in the world, Wairakei has become an
iconic symbol of New Zealand’s electricity generation system.
Poihipi Road – geothermal, 55 MW
Purchased by Contact in 2000, the Poihipi Road power station draws its steam from the Wairakei steamfi eld.
Contact Energy Limited Annual Report 2011
21
Te Huka – geothermal, 23 MW
Commissioned in 2010, Te Huka draws its steam from the Tauhara steamfi eld.
Stratford – combined-cycle gas turbine and gas-fi red peaking plant, 577 MW
Commissioned in 1998 and upgraded during 2008, the combined-cycle gas turbine is a high-effi ciency,
gas-fi red plant.
Commissioned in 2011, the peakers plant comprises two 100 MW General Electric LMS100 gas turbines,
and will add to New Zealand’s security of supply during periods of peak demand.
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
Contact owns 25 per cent of this peaking power station, based in Queensland, Australia, which was commissioned
in February 2000. 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.
22
Contact Energy Limited Annual Report 2011
National
overview
Contact is one of New Zealand’s largest publicly
act is one of New Zealand’s largest publicly
d companies, with the ability to supply
listed companies, with the ability to supply
ricity and gas products across the country.
electricity and gas products across the country.
ave 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
ristchurch, Queenstown and Wanaka, and we
in Christchurch, Queenstown and Wanaka, and we
ly bottled and automotive LPG nationwide.
supply bottled and automotive LPG nationwide.
Ötähuhu A
reactive power
Ötähuhu B
combined-cycle gas turbine 400 MW
Auckland Sales Team
Ohaaki
geothermal 105 MW
(currently operating at 40 MW)
Te Rapa cogeneration 44 MW
Wairakei geothermal 157 MW and 15 MW binary plant
Site of decommissioned New Plymouth power station
Poihipi geothermal 55 MW
Stratford power station 577 MW
– combined-cycle gas turbine 377 MW
– peaker gas turbine 200 MW
Ahuroa gas storage facility
Te Huka geothermal 23 MW
Levin Call Centre
Lower Hutt/Petone Retail Services Centre
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 2011
23
Hauäuru mä raki wind farm 504 MW (consented)
Te Mihi geothermal 166 MW (in construction)
New Plymouth site (available for redevelopment)
Additional Stratford combined-cycle gas turbine 500 MW (consented)
Ahuroa gas storage facility (possible expansion)
Ötähuhu C site combined-cycle gas turbine 400 MW
(consented)
Taheke 8C and Adjoining Blocks Inc. geothermal
joint venture (exploration)
Tauhara geothermal up to 250 MW
(consented)
Waitahora wind farm 156 MW
(consented)
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
24
Contact Energy Limited Annual Report 2011
Governance
Contact is a limited liability company incorporated under the
New Zealand Companies Act 1993.
Contact’s company number is 660760. The company is listed on, and its shares are quoted on, the main board
equity security market (NZSX) operated by NZ Exchange Limited (NZX) and has retail bonds listed on the debt
security market (NZDX) operated by NZX.
The company’s listing is under the trading code ‘CEN’.
Contact’s Constitution is available on the company’s website (www.contactenergy.co.nz) and the New Zealand
Companies Offi ce website (www.companies.govt.nz).
Compliance with NZX Best Practice Code and other guidelines
Contact follows the principles set out in the NZX Corporate Governance Best Practice Code.
Contact also follows 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 satisfi es this requirement 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 guidelines recommend that the chairman be an independent director. Contact’s
Chairman, Grant King, is not an independent director. However, for the reasons set out above, Contact is satisfi ed
that it satisfi es the intent of 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.
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 Chief Executive Offi cer; ensuring the appropriate risk management systems
are established and risks monitored; and ensuring the integrity of corporate governance and overseeing Contact’s
commitment to its values, sustainable development, the environment and the health and safety of employees,
contractors, customers and the community.
The Board has delegated certain of its powers to committees of the Board, and the day-to-day management of the
company to the Chief Executive Offi cer. The ambit of these delegations is documented in the Board committee
charters and the company’s Delegated Authorities Policy and by relevant minuted resolutions of the Board.
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.
Contact Energy Limited Annual Report 2011
25
Operation of the Board
The Board meets regularly on a formal scheduled basis and otherwise as required. The Chairman and the Chief
Executive Offi cer establish the agenda for each Board meeting. Each month, as a standing item, the Chief Executive
Offi cer prepares a report to the Board that includes disclosure of performance against key health and safety
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 Chief Executive Offi cer and leadership
team on the key strategic and operational business issues facing Contact.
Board composition
The composition of the Board did not change during FY11. On 31 March 2011 David Baldwin ceased to be Managing
Director of Contact and was appointed to the Board as a non-executive director to fi ll a casual vacancy.
Accordingly, from 1 July 2010 to 30 June 2011 the Board comprised seven members as follows:
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Chairman and Origin Energy associate
Deputy Chairman and independent director
Managing Director and Origin Energy associate until 31 March 2011, thereafter Origin Energy associate
Origin Energy associate
Whaimutu Dewes
Independent director
Karen Moses
Sue Sheldon
Origin Energy associate
Independent director
Biographies of the directors are set out on the company’s website.
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), Sue Sheldon and Whaimutu Dewes meets to evaluate and approve various related
party transactions with Origin Energy.
In FY11, 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 Energy of hardware and
other services to allow Contact to benefi t from Origin Energy’s experience, resources and common deliverables in
this area, and the Secondment Agreement appointing Dennis Barnes to the position of Chief Executive Offi cer.
The Independent Directors Committee Charter is available on the company’s website.
Board Audit Committee
During the fi nancial year, the BAC comprised Sue Sheldon (Chair), Bruce Beeren and Whaimutu Dewes. NZSX
Listing Rule 3.6.2 requires that the BAC comprises solely of directors, has a minimum of three members, 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 and a former President of the Institute of Chartered Accountants of New Zealand.
Bruce Beeren is a Fellow of CPA Australia and the Australian Institute of Company Directors. Sue Sheldon and
Whaimutu Dewes are both independent directors.
26
Contact Energy Limited Annual Report 2011
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 providing oversight over 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 auditors and business assurance.
The Chief Executive Offi cer and the Chief Financial Offi cer attend 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 Business Assurance, Contact’s external auditors and the Chief Financial Offi cer, without any other members of
management being present.
The BAC Charter is available on the company’s website.
Health, Safety and Environment Committee
During the fi nancial year, the HSE Committee comprised Karen Moses (Chair), Phillip Pryke and Whaimutu Dewes.
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 available on the company’s website.
Nominations Committee
During FY11 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 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’s recommendations are provided to
the Board.
In FY11 the Nominations Committee considered the assessment of David Baldwin’s, Grant King’s and Sue Sheldon’s
performance as directors ahead of their standing for election/re-election at the October 2011 Annual Meeting, and
considered Board composition and succession issues.
The Nominations Committee Charter is available on the company’s website.
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 Chief Executive Offi cer’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 Chief Executive Offi cer and Contact employees, including the level of directors’ fees,
employee short-term incentives and the Long-Term Incentive (LTI) 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 available on the company’s website.
Contact Energy Limited Annual Report 2011
27
Attendance at meetings
In FY11 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
Karen Moses
Sue Sheldon
Board attendance
(scheduled and
special purpose)
12
12
12
12
11
12
12
Committee attendance
BAC
N/A
1**
3
4
4
2***
4
HSE
N/A
3
3
N/A
3
3
N/A
Remuneration
Nominations
Independent
directors
4
4
4
4
N/A
N/A
N/A
1
1
N/A
N/A
N/A
N/A
1
N/A
1
N/A
N/A
1
N/A
1
David Baldwin attended all committee meetings as an observer.
Notes:
*
** Phillip Pryke attended one BAC meeting as an observer.
*** Karen Moses attended two BAC meetings as an observer.
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 at the next Annual
Meeting every year. In accordance with this practice, in July 2011:
•
•
Contact undertook a formal assessment of the Board and the Board committees
the Board reviewed the performance of Grant King, Sue Sheldon and David Baldwin, being those directors
required to retire and stand for re-election, or to stand for election, at the 2011 Annual Meeting.
The Board recommended that shareholders vote in favour of the election of David Baldwin and re-election of Grant
King and Sue Sheldon.
Directors
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, David Baldwin
will stand for election at the 2011 Annual Meeting.
The NZSX Listing Rules and Contact’s Constitution also require a minimum of one-third of directors (other than
one executive director and any directors appointed to 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, Grant King and Sue Sheldon will retire and stand for re-election at the 2011
Annual Meeting.
28
Contact Energy Limited Annual Report 2011
Residence of directors
The NZSX Listing Rules and Contact’s Constitution require at least two directors to be ordinarily resident in
New Zealand. Whaimutu Dewes and Sue Sheldon satisfy this requirement.
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 resolved 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.
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 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 2011.
Contact Energy Limited Annual Report 2011
29
Entries recorded in the interest register
The following interest register entries were recorded for the company and its subsidiaries in FY11:
Security dealings of directors
Contact directors disclosed the following transactions in Contact securities in FY11. Note that all dealings are in
ordinary shares unless otherwise specifi ed.
Director
Grant King
Phillip Pryke
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of)
Nature of relevant interest
23/08/10
06/10/10
25/02/11
05/04/11
27/09/10
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
23/08/10
06/10/10
25/02/11
05/04/11
23/08/10
23/08/10
01/10/10
01/10/10
25/02/11
25/02/11
05/04/11
05/04/11
27/09/10
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
09/06/11
$5.78
$5.77
$6.23
$5.82
$5.71
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.78
$5.77
$6.23
$5.82
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.71
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.05
2,890
2,889
2,681
2,864
11
18
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 under the Profi t
Distribution Plan (PDP) by Fabco Investments Pty
Limited
457
456
Acquisition of bonus issue shares under the PDP
by Contact GA King Director Remuneration Share Trust
(457)
457
(456)
456
1,445
1,805
1,675
1,790
(1,201)
1,201
(1,195)
1,195
(1,473)
1,473
(1,329)
1,329
1,325
1,116
1,206
942
(1,206)
1,206
(942)
942
6,959
Transfer of bonus issue shares acquired under the PDP
from Contact GA King Director Remuneration Share
Trust to Fabco Investments Pty Limited
Shares acquired by NZPT on trust under the Contact
PJ Pryke Director Remuneration Share Trust
Transfer of shares from Contact PJ Pryke Director
Remuneration Share Trust to Pryke Pty Limited
Acquisition of bonus issue shares under the PDP by
Pryke Pty Limited
Acquisition of bonus issue shares under the PDP by
Contact PJ Pryke Director Remuneration Share Trust
Transfer of bonus issue shares acquired under the PDP
from Contact PJ Pryke Director Remuneration Share
Trust to Pryke Pty Limited
Acquisition of shares under the Entitlement Off er by
Pryke Pty Limited
09/06/11
$5.05
13/06/11
13/06/11
NIL (NCBO)
NIL (NCBO)
5,605
Acquisition of shares under the Entitlement Off er by
Contact PJ Pryke Director Remuneration Share Trust
(5,605)
5,605
Transfer of shares acquired under the Entitlement Off er
from Contact PJ Pryke Director Remuneration Share
Trust to Pryke Pty Limited
*
NIL (NCBO) means no change in benefi cial ownership.
30
Contact Energy Limited Annual Report 2011
Director
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of)
Nature of relevant interest
David Baldwin
17/11/10
Provision of
services under
employment
575,601 options to
acquire ordinary shares
Options to acquire ordinary shares under Contact’s
Employee LTI Scheme
Bruce Beeren
Whaimutu
Dewes
23/08/10
06/10/10
25/02/11
05/04/11
23/08/10
23/08/10
01/10/10
01/10/10
25/02/11
25/02/11
05/04/11
05/04/11
27/09/10
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
09/06/11
$5.78
$5.77
$6.23
$5.82
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.71
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.05
09/06/11
$5.05
13/06/11
13/06/11
NIL (NCBO)
NIL (NCBO)
23/08/10
06/10/10
25/02/11
05/04/11
27/09/10
31/03/11
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
09/06/11
09/06/11
$5.78
$5.77
$6.23
$5.82
$5.71
$5.84
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.05
$5.05
09/06/11
$5.05
13/06/11
13/06/11
NIL (NCBO)
NIL (NCBO)
1,734
1,589
1,474
1,575
(802)
802
(797)
797
(980)
980
(886)
886
192
191
370
309
(370)
370
(309)
309
1,281
1,896
Shares acquired by NZPT on trust under the Contact
BG Beeren Director Remuneration Share Trust
Transfer of shares from Contact BG Beeren Director
Remuneration Share Trust to BG Beeren
Acquisition of bonus issue shares under the PDP by
BG Beeren
Acquisition of bonus issue shares under the PDP by
Contact BG Beeren Director Remuneration Share Trust
Transfer of bonus issue shares acquired under the PDP
from Contact BG Beeren Director Remuneration Share
Trust to BG Beeren
Acquisition of shares under the Entitlement Off er by
BG Beeren
Acquisition of shares under the Entitlement Off er by
Contact BG Beeren Director Remuneration Share Trust
(1,896)
1,896
Transfer of shares acquired under the Entitlement Off er
from Contact BG Beeren Director Remuneration Share
Trust to BG Beeren
1,642
1,589
1,473
1,575
261
211
22
54
99
(54)
54
(99)
99
1221
182
756
Shares acquired by NZPT on trust under the Contact
WK Dewes Director Remuneration Share Trust
Acquisition of bonus issue shares under the PDP by:
1 WK Dewes, and
2 WK Dewes, JA Baillie and GW David
Acquisition of bonus issue shares under the PDP by
Contact WK Dewes Director Remuneration Share Trust
Transfer of bonus issue shares acquired under the PDP
from Contact WK Dewes Director Remuneration Share
Trust to WK Dewes, JA Baillie and GW David
Acquisition of shares under the Entitlement Off er by:
1 WK Dewes, and
2 WK Dewes, JA Baillie and GW David
Acquisition of shares under the Entitlement Off er by
Contact WK Dewes Director Remuneration Share Trust
(756)
756
Transfer of shares acquired under the Entitlement Off er
from Contact WK Dewes Director Remuneration Share
Trust to WK Dewes, JA Baillie and GW David
*
NIL (NCBO) means no change in benefi cial ownership.
Contact Energy Limited Annual Report 2011
31
Director
Karen Moses
Sue Sheldon
Date of
transaction
Consideration
per security*
Number of securities
acquired (disposed of)
Nature of relevant interest
23/08/10
06/10/10
25/02/11
05/04/11
27/09/10
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
23/08/10
06/10/10
25/02/11
05/04/11
27/09/10
27/09/10
31/03/11
31/03/11
27/09/10
31/03/11
28/09/10
28/09/10
31/03/11
31/03/11
09/06/11
09/06/11
$5.78
$5.77
$6.23
$5.82
$5.71
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.78
$5.77
$6.23
$5.82
$5.71
$5.71
$5.84
$5.84
$5.71
$5.84
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
$5.05
$5.05
09/06/11
$5.05
13/06/11
13/06/11
NIL (NCBO)
NIL (NCBO)
Shares acquired by NZPT on trust under the Contact
KA Moses Director Remuneration Share Trust
1,734
1,589
1,474
1,575
6
9
Acquisition of bonus issue shares under the PDP by
KA Moses
236
239
Acquisition of bonus issue shares under the PDP by
Contact KA Moses Director Remuneration Share Trust
Transfer of bonus issue shares acquired under the PDP
from Contact KA Moses Director Remuneration Share
Trust to KA Moses
Shares acquired by NZPT on trust under the Contact
SJ Sheldon Director Remuneration Share Trust
Acquisition of bonus issue shares under the PDP by:
1 SJ Sheldon, PJ Sheldon and MJ Walker, and
2 Private Nominees Limited
(236)
236
(239)
239
1,733
1,589
1,473
1,575
31
142
61
112
177
194
Acquisition of bonus issue shares under the PDP by
Contact SJ Sheldon Director Remuneration Share Trust
(177)
177
(194)
194
551
642
Transfer of bonus issue shares acquired under the PDP
from Contact SJ Sheldon Director Remuneration Share
Trust to SJ Sheldon, PJ Sheldon and MJ Walker
Acquisition of shares under the Entitlement Off er by:
1 SJ Sheldon, PJ Sheldon and MJ Walker, and
2 Private Nominees Limited
1,316
Acquisition of shares under the Entitlement Off er by
Contact SJ Sheldon Director Remuneration Share Trust
(1,316)
1,316
Transfer of shares acquired under the Entitlement Off er
from Contact SJ Sheldon Director Remuneration Share
Trust to SJ Sheldon, MJ Sheldon and MJ Walker
John Milne**
23/08/10
$5.78
867 + 866
23/08/10
23/08/10
26/08/10
26/08/10
27/09/10
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
NIL (NCBO)
(400 + 401)
400 + 401
(15,822 + 15,820)
15,822 + 15,820
$5.71
1,480 + 992
Shares acquired by NZPT on trust under the Contact
JHG Milne Director Remuneration Share Trust
Transfer of shares from Contact JHG Milne Director
Remuneration Share Trust to John Milne Trust and
Maureen Milne Trust
Acquisition of bonus issue shares under the PDP by
John Milne Trust and Maureen Milne Trust
*
**
NIL (NCBO) means no change in benefi cial ownership.
John Milne retired from his directorship with eff ect from 30 June 2010.
32
Contact Energy Limited Annual Report 2011
Securities of the company in which each director has a relevant interest as at 30 June 2011
Director
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon
Number of
ordinary shares1
Number of bonds
Number of
restricted ordinary shares2
Number of options
28,438
125,632
Nil
31,762
8,949
14,947
14,345
Nil
Nil
Nil
Nil
Nil
Nil
10,000
N/A
N/A
133,070
N/A
N/A
N/A
N/A
N/A
N/A
1,354,757
N/A
N/A
N/A
N/A
1
2
Including shares held under the Directors’ Share Scheme.
David Baldwin participated in the LTI Scheme during his secondment to Contact. David Baldwin retains these securities subject to exercise hurdles and vesting
requirements.
Directors’ interests in transactions
General disclosures
As at 30 June 2011 the following directors had made the following general disclosures in the interest register
of the company. Notices given or adjusted in FY11 are marked with an asterisk (*). Each such director will be
regarded as interested in all transactions between Contact and the disclosed entity.
Grant King
Origin Energy Limited and Group companies
Australian Petroleum Production and Exploration Association
Phillip Pryke
Co-Investor Capital Partners Pty Limited
Digital Performance Group Limited
Frog Hollow Limited
GMT Bond Issuer Limited
GMT Wholesale Bond Issuer Limited* (appointed October 2010)
Goodman (NZ) Limited
Goodman Property Aggregated Limited
Pauatahanui Projects Limited
Pryke Pty Limited
Tru-Test Corporation Limited
Tru-Test Pty Limited
David Baldwin
Origin Energy Limited
Gas Industry Company Limited* (resigned 20 April 2011)
Bruce Beeren
Origin Energy Limited and Group companies
Coal & Allied Industries Limited
Equipsuper Pty Limited
ConnectEast Group
Managing Director/Shareholder/Employee
Councillor
Director/Shareholder
Chairman
Director/Shareholder
Director/Shareholder
Director
Director
Director
Director/Shareholder
Director/Shareholder
Director
Director
Employee/Shareholder
Director
Director/Shareholder and former Employee/Executive Director
Director
Director
Director
Contact Energy Limited Annual Report 2011
33
Whaimutu Dewes
Ngati Porou Forests Limited
Ngati Porou Whanui Forests Limited
Ngati Porou Fisheries Limited
Ngati Porou Seafoods Limited
Real Fresh Limited
Iwi Rakau Limited
Whainiho Developments Limited
Advisory Board to Kalyx
Rugby World Cup Authority* (appointed December 2010)
Advisory Group on Green Growth* (appointed February 2011)
Housing New Zealand Board* (appointed June 2011)
Director
Chairman/Shareholder
Chairman
Director
Director
Director
Managing Director/Shareholder
Member
Member
Member
Member
Karen Moses
Origin Energy Limited and Group companies
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* (resigned November 2010)
Director/Employee/Shareholder
Director
Committee Member
Director
Director
Sue Sheldon
Paymark Limited
FibreTech New Zealand Limited
Freightways Limited
Reserve Bank of New Zealand
Sue Sheldon Advisory Limited
Smiths City Group Limited and subsidiaries*
(ceased Directorship 31 December 2010)
Telecom Corporation of New Zealand Limited
Wool Industry Network Limited* (ceased directorship September 2010)
Wool Grower Holdings Limited* (ceased directorship September 2010)
Director
Chairman
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.
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.
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 liabilities 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, against various potential legal liabilities.
In March 2011 Contact’s Board authorised a three-month-extension and in June 2011 the renewal of the Directors
and Offi cers and Statutory Liability Insurance covers for 12 months. These policies were certifi ed, in terms of
section 162 of the Companies Act 1993, that this cover is fair to the company.
34
Contact Energy Limited Annual Report 2011
Corporate policies
Confl icts of interest
In accordance with Contact’s Confl ict of Interests Policy and Guidelines, 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, or vote
in relation to the relevant matter. The company maintains a register of interests.
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 BAC highlighting any matters raised by staff in relation to the Code of Conduct. In FY11
there were no material issues reported in relation to the Code of Conduct.
Contact’s Code of Conduct is available on the company’s website.
Health, safety and environment
Improving HSE performance is a top priority at Contact and measuring individuals and business units against key
performance indicators (KPIs) is an integral part of assessing management’s achievement of annual goals.
Contact’s HSE Policy is available on the company’s website.
Whistleblowing Policy
Contact’s Whistleblowing Policy 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. Deloitte operates an independent ‘open line’ service on
behalf of Contact for employees, contractors and suppliers to use to report serious concerns. The Whistleblowing
Policy is consistent with and facilitates the Protected Disclosures Act 2000.
Contact’s Whistleblowing Policy is available on the company’s website.
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)
•
directors and specifi ed employees must adhere to additional obligations prior to any trade of Contact securities.
Contact’s Securities Trading Policy is available on the company’s website.
Financial reporting
Contact undertakes twice-yearly fi nancial reporting and also provides a suite of operational data on a monthly
basis through the NZX. 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.
The Chief Executive Offi cer and Chief Financial Offi cer have provided the Board with written confi rmation that
Contact’s fi nancial statements for FY11 have been prepared in accordance with New Zealand Generally Accepted
Contact Energy Limited Annual Report 2011
35
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 External Audit Independence Policy
prohibits the external auditor from undertaking any work that compromises, or is seen to compromise,
independence and objectivity.
The BAC requires the external auditor to confi rm on a six-monthly basis that it has:
•
•
remained independent of the Group at all times
complied with the provisions of all applicable laws and relevant professional guidance in respect of
independence, integrity and objectivity
•
adopted a ‘best practice’ approach in relation to matters of fi nancial independence and business relationships.
The BAC is responsible for pre-approving all other assurance and other services provided by the external auditor.
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 the
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 FY11 was $598,000.
KPMG also provided assurance services in relation to the prospectus for the Entitlement Off er ($46,914) and
IT security assurance services in relation to Contact’s ET project ($36,174).
Risk management
Contact has an Enterprise Risk Management System, which is aligned to the International Standard ISO 31000
Risk Management – Principles and Guidelines. The implementation of this system demonstrates that Contact is
committed to the eff ective management of risk, which is central to the continued growth and profi tability of the
company. A Risk Management Policy defi nes the framework for identifying, assessing and managing risks that
could have a material impact on the objectives of the company.
Contact’s Policy outlines the accountabilities of individuals for the governance of the Risk Management System,
the identifi cation, assessment and management of risks, and ensuring there is eff ective oversight of risks.
The Board and its committees are accountable for monitoring the company’s key risks. Regular reporting on risks
and their mitigation is provided to the Board, the Board and management committees, and business units.
The Enterprise Risk Management team and its champions in business units ensure risk management practices are
applied consistently across the business and are integrated within core processes, including strategic planning,
budgeting and forecasting, project delivery, contract management and capital expenditure.
Contact’s Risk Management Policy is available on the company’s website.
Assurance
Contact has an independent in-house business assurance function that provides objective assurance of the
eff ectiveness of the internal control framework.
The Business Assurance team 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.
The Business Assurance team adopts a risk-based assurance approach driven from the company’s Risk
Management System.
36
Contact Energy Limited Annual Report 2011
The Business Assurance team also assists external audit by reporting fi ndings from the internal assurance
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 the Business Assurance team reports to the Chief Risk Offi cer. The Business Assurance team
has the autonomy to report signifi cant issues directly to the Chief Executive Offi cer and the BAC or, if considered
necessary, the Chairman of the Board.
The BAC oversees the assurance programme and provides the Business Assurance team with the mandate to
perform the agreed assurance programme. The Business Assurance team 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.
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.
Profi t Distribution Plan
Contact implemented a 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 11 August 2011 is available on Contact’s website. This summary will remain on Contact’s website for at
least 12 months following the 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 FY11.
Credit rating
As at 11 August 2011, Standard & Poor’s long-term credit rating for Contact was BBB Stable. Fitch’s long-term
credit rating for Contact was BBB Stable.
As at 11 August 2011, the $550 million unsubordinated, unsecured fi xed rate bonds issued by Contact in March
2009 were rated BBB by Standard & Poor’s.
Donations
In FY11 Contact made donations amounting to $26,445. No subsidiaries made any donations during FY11. In
addition, Contact has pledged $4 million in response to the Christchurch earthquakes. This includes donations to
the Red Cross Relief Fund, free LPG refi lls and hardship support through fee waivers and grants for electricity and
gas customers.
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 in FY11.
Contact Energy Limited Annual Report 2011
37
Remuneration report
Directors’ remuneration
Directors’ fees
The current total directors’ fee pool approved by shareholders in 2008 is $1,500,000 per annum. The Board
passed resolutions and signed accompanying certifi cates to confi rm the distributions for FY11 among directors
of $1,008,307 as detailed below.
Remuneration details of directors
Details of the total remuneration and the value of other benefi ts received by each Contact director for FY11 are
as follows:
Director
Position
Board fees
Committee fees
Special fees
Total remuneration
Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon
Total
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Cash
$133,333
$83,333
$27,5001
$73,333
$73,333
$73,333
$73,333
Shares
$66,667
$41,667
–
$36,667
$36,667
$36,667
$36,667
Cash
–
$35,000
–
$37,000
$37,000
$20,000
$54,307
Cash
–
–
–
–
–
–
$32,5002
$200,000
$160,000
$27,500
$147,000
$147,000
$130,000
$196,807
$537,498
$255,0023
$183,307
$32,500
$1,008,307
1.
As Managing Director (up to and including 31 March 2011), David Baldwin did not receive any fees in his capacity as a director nor was he a participant in the
Directors’ Share Scheme. Fees received have been in David Baldwin’s capacity as director subsequent to 31 March 2011.
2. Sue Sheldon received special fees in relation to due diligence for the review of the Contact LTI Scheme and the Entitlement Off er.
3. Owing to trading period restrictions under Contact’s Securities Trading Policy, purchases of shares valued at $63,853.76 of this total amount occurred on 23 August 2011.
Directors’ fees exclude GST, where appropriate. In addition, Board members are entitled to be reimbursed for costs
directly associated with carrying out their duties, including travel costs.
Directors’ share scheme
Contact operates a directors’ 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 held by a trustee 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, Whaimutu Dewes, Bruce Beeren, Karen Moses and Sue Sheldon. 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.
38
Contact Energy Limited Annual Report 2011
In FY11 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 2011 and is available on the company’s website.
The table below details the shares of each of Contact’s directors that were transferred out of the Directors’ Share
Scheme trust in FY11.
Director
Phillip Pryke
Bruce Beeren
Date of acquisition
Date of transfer
Number of shares
Original acquisition price
29 August 2007
5 October 2007
25 February 2008
4 April 2008
29 August 2007
5 October 2007
25 February 2008
4 April 2008
23 August 2010
1 October 2010
25 February 2011
5 April 2011
23 August 2010
1 October 2010
25 February 2011
5 April 2011
1,201
1,195
1,473
1,329
802
797
980
886
$9.40
$9.42
$7.69
$8.47
$9.40
$9.42
$7.69
$8.47
In addition, on 23 August 2010 and 26 August 2010, 801 and 31,642 shares respectively held in the Directors’
Share Scheme on behalf of John Milne were transferred to Mr Milne’s family trusts following his retirement from
the Contact Board on 30 June 2010.
Managing Director and Chief Executive Offi cer remuneration
Employment arrangements
Dennis Barnes was appointed as Chief Executive Offi cer of Contact with eff ect on 1 April 2011 and is seconded to
the role by his employer, Origin Energy.
David Baldwin, Managing Director of Contact until 31 March 2011, was seconded to the role by his employer,
Origin Energy. David Baldwin did not receive any director fees while he was in the role of Managing Director.
During the term of their respective secondments, remuneration paid by Contact to Dennis Barnes for the
performance of his role as Chief Executive Offi cer, and to David Baldwin for the performance of his role as
Managing Director, is processed by Contact reimbursing Origin Energy for the cost of this remuneration.
An exception exists for performance share rights and restricted shares, and share options awarded under
Contact’s LTI Scheme, which are provided directly by Contact.
Remuneration
Remuneration paid by Contact to the Managing Director and now the Chief Executive Offi cer refl ects the breadth
and complexity of the role; references market remuneration data benchmarks; is linked to the achievement of
performance goals; and aligns with the creation of sustainable shareholder value in the long-term. The
remuneration packages paid to both David Baldwin and Dennis Barnes include 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 (share options, performance share rights or restricted shares).
Approximately two-thirds of both David Baldwin’s and Dennis Barnes’s potential annual remuneration from Contact
was/is at-risk/variable remuneration and one-third was/is paid as fi xed remuneration. The amount of short-term
incentive paid and the level of long-term incentive allocated to both David Baldwin and Dennis Barnes was/is
dependent on the degree to which company fi nancial; HSE; 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. Dennis Barnes’s annual
remuneration to 30 June 2011 also refl ected his appointment date of 1 April 2011, towards the end of the
fi nancial year.
Contact Energy Limited Annual Report 2011
39
The following tables detail the nature and amount of the remuneration paid to both David Baldwin in relation to
his role as Managing Director and Dennis Barnes in relation to his role as Chief Executive Offi cer during FY11.
Cash remuneration paid
Fixed cash remuneration
$
Variable cash remuneration1
$
Total cash remuneration paid
$
$718,412
$838,856
$340,229
$364,000
$1,058,641
$1,202,856
David Baldwin
Managing Director
(1 July 2010 to 31 March 2011)
Year ended 30 June 2011
Year ended 30 June 2010
Dennis Barnes
Chief Executive Offi cer
(1 April 2011 to 30 June 2011)
Year ended 30 June 2011
$196,250
$150,000
$346,250
1
Short-term incentive remuneration is determined following the end of the fi nancial year and is based on the achievement of performance goals and criteria set by
the Board.
Equity rights issued (options, performance share rights and restricted shares)2
Number of
options issued
during year
Number of
performance
share rights
issued
during year
Number of
restricted
shares issued
during year
Value of equity
rights issued
and amortising
during year3
$
Value of equity
rights issued in
past years and
amortising
during year3
$
Total equity
rights vested
during year
$
David Baldwin1
Managing Director
(1 July 2010 to 31 March 2011)
Year ended 30 June 2011
Year ended 30 June 2010
Dennis Barnes
Chief Executive Offi cer
(1 April 2011 to 30 June 2011)
470,946
253,609
104,655
–
$174,250
$405,962
–
44,728
$139,037
$379,234
Year ended 30 June 2011
106,082
23,574
–
$39,250
–
–
–
–
1
2
3
David Baldwin has participated in Contact’s LTI Scheme since its inception in 2006. Following the completion of his secondment to the role of Managing Director on
31 March 2011, David Baldwin will not be issued with any further securities under the Contact Energy LTI Scheme but will retain existing securities subject to exercise
hurdles and vesting requirements (this is permitted under the Restricted Share Plan Rules and Share Option Scheme Rules). Contact relied 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, which was amended on 22 August
2011). The full version of the waiver can be found on the company’s website.
Although share options, performance share rights and restricted shares are granted with eff ect from October each year under Contact’s LTI Scheme, they pertain to the
at-risk component of the prior fi nancial year’s remuneration. Dennis Barnes was issued with share options and performance share rights upon his appointment to the
role of Chief Executive Offi cer.
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 anniversaries of the grant date. Whether any options and performance share rights vest and become
exercisable, and any restricted shares vest and transfer as unrestricted shares, by or to David Baldwin or Dennis Barnes, is subject to the achievement of specifi ed
exercise hurdles as described on page 46. To comply with fi nancial reporting requirements, the fair value of the options, performance share rights 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, performance
share rights and restricted shares allocated to the relevant reporting period. None of the options, performance share rights or restricted shares allocated to David
Baldwin and Dennis Barnes vested in the 2010 and 2011 fi nancial years.
40
Contact Energy Limited Annual Report 2011
Movements during FY11 in the number of options over ordinary shares, performance share rights and restricted
shares held in Contact are set out in the following tables.
Restricted shares
Held as at 1 July 2010
Granted as compensation
Vested during year
Held at 30 June 2011
David Baldwin
Managing Director
(1 July 2010 to 31 March 2011)
Dennis Barnes
Chief Executive Offi cer
(1 April 2011 to 30 June 2011)
Options
David Baldwin
Managing Director
(1 July 2010 to 31 March 2011)
Dennis Barnes
Chief Executive Offi cer
(1 April 2011 to 30 June 2011)
Performance share rights
David Baldwin
Managing Director
(1 July 2010 to 31 March 2011)
Dennis Barnes
Chief Executive Offi cer
(1 April 2011 to 30 June 2011)
133,070
–
–
–
–
–
133,070
–
Held as at
1 July 2010
Granted as
compensation
Exercised
Held at
30 June 2011
Vested
during year
Vested and
exercisable at
30 June 2011
779,156
470,946
–
106,082
–
–
1,250,102
106,082
–
–
–
–
Held as at
1 July 2010
Granted as
compensation
Exercised
Held at
30 June 2011
Vested
during year
Vested and
exercisable at
30 June 2011
–
–
104,655
23,574
–
–
104,655
23,574
–
–
–
–
Employee remuneration
There are two components to employee remuneration – fi xed 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.
Short-Term Incentive (STI) 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 (STI)
comprise cash payments based on performance measured against KPI. In FY11 diff erent levels of incentives were
determined refl ecting the nature of roles in the company. KPI generally comprise company, team and individual
Contact Energy Limited Annual Report 2011
41
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.
Employee Long-Term Incentive (LTI) Scheme
Contact off ers a combination of share options and performance share rights under the current Contact LTI Scheme
to ensure incentives align participating employees’ performance with shareholders’ interests, in both favourable
and unfavourable share market conditions. Following a review of Contact’s LTI Scheme in 2010, no further
restricted shares have been issued since the 1 October 2009 grant date. Performance share rights (issued under
the Share Option Scheme) replaced restricted shares from October 2010. The Restricted Share Plan is now
grand-parented but restricted shares issued prior to October 2010 are still held by participants and remain subject
to exercise hurdles and vesting criteria.
Contact’s LTI Scheme for participating employees now consists of a Share Option Scheme under which both share
options and performance share rights are issued. Details of the Scheme are set out below (along with historical
details of restricted shares that remain on issue under the now grand-parented Restricted Share Plan).
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 Scheme, for FY11,
the Board allocated long-term incentive awards that are, by value, 50 per cent share options and 50 per cent
performance share rights. Under the Scheme, the share options and performance share rights will only become
exercisable to the extent that the relevant exercise hurdles are satisfi ed. The exercise hurdles for the share options
and performance share rights in relation to FY11 are set out on page 46. The number of share options and
performance share rights 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 performance share rights.
At 30 June 2011 there were 79 participants in Contact’s LTI Scheme.
In June 2011, Contact’s Board approved the following adjustments to unvested securities under Contact’s LTI
Scheme to compensate participants for any loss in value as a result of the Entitlement Off er:
•
•
An adjustment to the exercise price for options issued under the Share Option Scheme in accordance with the
formula set out in NZX Listing Rule 8.1.7(b).
The issue of further performance share rights in respect of performance share rights already issued under the
Share Option Scheme and restricted shares issued under the Restricted Share Plan.
Any additional securities issued remain subject to normal exercise hurdles and vesting periods. These actions are
permitted under the Restricted Share Plan Rules and the Share Option Scheme Rules. A total of 18,002 additional
performance share rights were issued in August 2011, following NZX approval under Listing Rule 8.1.4. The
adjustments made to the exercise price for options are detailed in the footnote of the table on page 42.
Share Option Scheme
Under the Share Option Scheme, 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 FY11, the market
price 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. Under the Share Option Scheme, the Board also issues performance share
rights to participants to acquire ordinary shares in Contact at zero cost.
As noted above, the options are exercisable subject to exercise hurdles as determined by the Board. The exercise
hurdles for share options and performance share rights issued in FY11 are described on page 46. 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 and performance share rights may
be exercised, again to the extent that the exercise hurdles are met.
42
Contact Energy Limited Annual Report 2011
The share options and performance share rights 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 and performance share rights 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 and performance share rights will lapse:
•
•
•
•
if the exercise hurdles are not met by the fi nal measurement date
if the share options or performance share rights are not exercised by the lapse date
on the date on which the participant ceases to be employed by the company or, in certain circumstances, the
ultimate parent 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 and performance share rights).
In the event of redundancy, the Share Option Scheme will continue, except that the number of share options and
performance share rights will be recalculated on a proportionate basis.
The share options and performance share rights are unlisted and are personal to the employee and therefore cannot
be traded.
In May 2007, NZX Regulation granted approval under NZSX Listing Rule 8.1.4 for the issue of share options under
the Share Option Scheme with eff ective grant dates of 1 July 2006 and 20 November 2006. NZX Regulation also
made 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 Scheme. The full version of the waiver and NZX decision can be
found on the company’s website.
The number of options currently on issue and their exercise status as at 30 June 2011 are set out in the table below.
Number of
options issued
Eff ective
grant date
Exercise
price per
option
First exercise date
Number
lapsed
Final lapse date
Vested
Number
exercisable
365,322
1 July 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
3,982,607
1 October 2010
$7.35
$8.28
$9.15
$7.63
$8.60
$5.75
$5.71
1 October 2009
81,2451
30 November 2011
1 October 2009
13,4132
30 November 2011
1 October 2010
227,7793
30 November 2012
1 October 2010
7,6984
30 November 2012
1 October 2011
326,0315
30 November 2013
1 October 2012
229,4396
30 November 2014
1 October 2013
56,7577
30 November 2015
No
No
No
No
No
No
No
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1
2
3
4
5
Owing to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Scheme 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).
Of the 13,413 options granted with an eff ective date of 15 January 2007, 7,927 vested during FY10 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.
Owing to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Scheme 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), 31 July 2009 (50,455 options), 6 July 2010 (44,848 options) and 13 August 2010 (6,636 options).
Owing to the cessation of employment of participants, 7,698 options from this tranche lapsed pursuant to the Share Option Scheme Rules on 24 December 2008.
Owing to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Scheme Rules on the following dates:
24 December 2008 (19,871 options), 31 December 2008 (57,065 options), 31 July 2009 (133,914 options), 6 July 2010 (59,348 options), 13 August 2010
(10,181 options) and 5 November 2010 (45,652 options).
Contact Energy Limited Annual Report 2011
43
6
7
Owing to the cessation of employment of participants, options from this tranche lapsed pursuant to the Share Option Scheme Rules on the following dates: 9 April
2010 (8,788 options), 25 June 2010 (36,727 options), 6 July 2010 (80,413 options), 13 August 2010 (12,071 options), 17 September 2010 (4,508 options),
5 November 2010 (62,630 options), 31 December 2010 (18,437 options) and 31 May 2011 (5,865 options). A further 3,539 options lapsed on 1 July 2011 due to
the cessation of employment of participants.
Owing to the cessation of employment of a participant, 56,757 options from this tranche lapsed pursuant to the Share Option Scheme Rules on 24 February 2011.
A further 23,157 and 32,789 options lapsed on 1 July 2011 and 12 August 2011 due to the cessation of employment of participants.
As a result of the one-for-nine Entitlement Off er and in accordance with both the Share Option Scheme Rules and
the formula set out in NZX Listing Rule 8.1.7(b), the following adjustments have been made to the exercise price
for options issued under the Share Option Scheme:
Eff ective grant date
1 July 2006 1 October 2007 1 February 2008 1 October 2008 1 October 2009 1 October 2010
Old exercise price of options
New exercise price of options
$7.35
$7.27
$9.15
$9.07
$7.63
$7.55
$8.60
$8.53
$5.75
$5.67
$5.71
$5.63
The number of performance share rights issued and their exercise status as at 30 June 2011 are set out in the
table below.
Number of performance
share rights issued
Eff ective
grant date
First
exercise date
Number lapsed
Final lapse date
Vested
Number
exercisable
885,056
1 October 2010 1 October 2013
12,6131
30 November 2015
No
Nil
1
A further 5,146 and 7,287 performance share rights lapsed on 1 July 2011 and 12 August 2011 due to the cessation of employment of participants.
A total of 18,002 additional performance share rights will be issued in August 2011 as a result of the Entitlement
Off er to compensate participants for any loss in value to their LTI. This is permitted under the Restricted Share Plan
Rules and the Share Option Scheme Rules.
Restricted Share Plan
Under the now grand-parented Restricted Share Plan, the Board issued restricted shares to the participants at the
market price determined at the eff ective grant date. Although participants have 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
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 a 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 in (including any security, or legal or equitable interest), a restricted share until
it becomes unrestricted.
No restricted shares were issued during FY11.
If the exercise hurdles are met, the restricted shares will be released from the trust to a 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.
44
Contact Energy Limited Annual Report 2011
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 participant 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 participant 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, or in certain circumstances, the
ultimate parent company (except in the case of redundancy), or
on the death of the participant (provided, however, that the Board may, in its discretion, allow legal title to the
restricted shares to be transferred to the participant’s successors).
In the event of redundancy, the Restricted Share Plan will continue, except that the number of restricted shares
will be recalculated on a proportionate basis.
While restricted, the restricted shares are unlisted and are personal to the employee and therefore cannot be
traded 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 the participant). The full version of the waiver and approval
can be found on the company’s website.
The number of restricted shares issued and their status as at 30 June 2011 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
2,504
83,242
3,091
104,712
241,940
Nil
Nil
Nil
1 July 2006
$7.35
1 October 2009
1 October 2011
15,765
20 November 2006
$7.55
1 October 2009
1 October 2011
15 January 2007
$8.28
1 October 2009
1 October 2011
2,737
1 October 2007
$9.15
1 October 2010
1 October 2012
1,156
1 February 2008
$7.63
1 October 2010
1 October 2012
19,247
1 October 2008
$8.60
1 October 2011
1 October 2013
3,581
1,024
39,941
1,440
45,833
58,200
1 October 2009
$5.75
1 October 2012
1 October 2014
40,4671
Nil
N/A
Nil
Nil
Nil
Nil
Nil
1 A further 624 restricted shares were transferred to the unallocated pool on 1 July 2011 due to the cessation of employment of the participant.
Contact Energy Limited Annual Report 2011
45
Pursuant to the Restricted Share Plan Rules, where a participant ceases employment, the 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 2011, there were 66,711 restricted shares held by the trustee in the
unallocated pool. The following table sets out the movements of the unallocated pool to 30 June 2011.
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
1,024
1,156
3,180
3,507
5,901
8,322
8,847
7,864
1,164
1,440
2,794
8,022
18,825
8,343
1,431
6,418
1,550
6,478
14,182
2,129
795
11,046
3,252
1,035
Date of transfer to
unallocated pool1
7 September 2007
30 June 2008
2 July 2008
31 December 2008
31 July 2009
6 July 2010
3 December 2007
2 April 2008
30 June 2008
2 July 2008
31 December 2008
31 July 2009
6 July 2010
13 August 2010
24 December 2008
24 December 2008
31 December 2008
31 July 2009
6 July 2010
13 August 2010
5 November 2010
9 April 2010
25 June 2010
6 July 2010
13 August 2010
17 September 2010
5 November 2010
31 December 2010
31 May 2011
Number of shares
reallocated to a
participant
Date of reallocation to
participant
2,737
3,980
2,679
3,581
6,369
Nil
1,156
3,180
3,507
5,901
8,322
8,847
Nil
Nil
1,440
2,794
8,022
18,825
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
31 October 2007
11 November 2008
11 November 2008
7 December 2009
7 December 2009
N/A
25 February 2008
11 November 2008
11 November 2008
11 November 2008
7 December 2009
7 December 2009
N/A
N/A
7 December 2009
7 December 2009
7 December 2009
7 December 2009
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1
An additional 624 restricted shares were transferred to the unallocated pool on 1 July 2011 due to the cessation of employment of a participant, bringing the total
number of restricted shares in the unallocated pool to 67,335.
46
Contact Energy Limited Annual Report 2011
Exercise hurdles
Broadly, the number of unrestricted ordinary shares to which a participant is entitled under the LTI Scheme
is determined by the achievement of a predetermined exercise hurdle or hurdles. For the restricted shares,
performance share rights and share options, 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 performance share rights and share options issued in FY11, participants’ vesting
entitlements will be calculated on three test dates, being 1 October 2013, 1 October 2014 and 1 October 2015.
Contact’s TSR will be determined as follows:
•
•
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 in the three-month period prior to the relevant test date.
Adjusting the calculation in (a) above to refl ect the assumed reinvestment of distributions (excluding
imputation credits) in the period from the eff ective grant date to the relevant test date.
A participant’s vesting entitlements will be based on a predetermined formula relative to the achievement of the
predetermined hurdle or hurdles. For the restricted shares and share options issued in FY11, these are:
•
•
•
Zero per cent vesting if Contact’s TSR over the performance period does not exceed the 50th percentile of
the TSRs of those companies that are in the NZX50 at grant date and remain listed at the relevant test dates.
50–100 per cent vesting (on a sliding scale, that is 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 TSRs 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.
100 per cent vesting if Contact’s TSR is at or above the 75th percentile of the TSRs of those companies that are
in the NZX50 at the grant date and remain listed at the relevant test date.
Contact Energy Limited Annual Report 2011
47
Employee remuneration
The table at right 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, performance share rights and restricted
shares allocated to the relevant reporting period)
during FY11 of at least $100,000 in brackets of
$10,000. As at 30 June 2011, no Contact subsidiary
had any employees.
The remuneration fi gures analysed include all
monetary payments actually paid during the course of
FY11, including the short-term variable remuneration
relating to FY10. The fi gures do not include amounts
paid post 30 June 2011 that related to the period
ended 30 June 2011.
The value of remuneration benefi ts analysed includes
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 2011.
The remuneration (and any other benefi ts) of the
previous Managing Director, David Baldwin, and
Chief Executive Offi cer, Dennis Barnes, is disclosed in
the Managing Director and Chief Executive Offi cer
remuneration section on page 38.
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
$340,001–$350,000
$350,001–$360,000
$360,001–$370,000
$370,001–$380,000
$390,001–$400,000
$410,001–$420,000
$450,001–$460,000
$480,001–$490,000
$490,001–$500,000
$590,001–$600,000
$620,001–$630,000
$630,001–$640,000
$760,001–$770,000
$840,001–$850,000
Total
Number of employees
Parent
56
61
58
27
19
32
10
11
7
7
5
5
6
6
3
2
3
5
3
3
1
1
2
1
1
1
1
1
1
1
1
2
1
1
1
1
1
348
48
Contact Energy Limited Annual Report 2011
Contact subsidiaries – directors and remuneration
Other than Paul Smith, who received the Australian dollar equivalent of $45,716 in FY11 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 2011.
Contact subsidiary
Contact Aria Limited
Contact Australia Pty Limited
Contact Operations Australia Pty Limited
Contact Wind Limited
Empower Limited
Rockgas Limited
Directors
Dennis Barnes
Elizabeth Kelly*
Dennis Barnes
Elizabeth Kelly*
Paul Smith
Dennis Barnes
Elizabeth Kelly*
Paul Smith
Dennis Barnes
Graham Cockroft
Alistair Yates
Dennis Barnes
Ruth Bound
Dennis Barnes
Graham Cockroft
Chris Brown
*
Paul Ridley-Smith replaced Elizabeth Kelly as a director of Contact Aria Limited, Contact Australia Pty Limited and Contact Operations Australia Pty Limited on
20 July 2011.
Contact Energy Limited Annual Report 2011
49
Security holder information
20 largest registered holders of Quoted Equity Securities (ordinary shares) as at 11 August 2011 (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
Accident Compensation Corporation
New Zealand Superannuation Fund Nominees Limited
Citibank Nominees (New Zealand) Limited
HSBC Nominees (New Zealand) Limited
Premier Nominees Ltd – Onepath Wholesale Australasian Share Fund
NZGT Nominees Limited – AIF Equity Fund
AMP Investments Strategic Equity Growth Fund
Custodial Services Limited
FNZ Custodians Limited
Origin Energy Universal Holdings Limited
Tea Custodians Limited
Westpac NZ Shares 2002 Wholesale Trust
Custody and Investment Nominees Limited
Asteron Life Limited
Custodial Services Limited
Masfen Securities Limited
Private Nominees Limited
Total top 20 holders (excluding Treasury Stock)
Total other ordinary shares
Total issued ordinary shares
359,962,548
24,108,168
22,604,576
16,823,025
15,555,267
11,449,684
8,369,259
7,016,383
6,696,152
6,472,537
6,412,240
5,758,924
4,452,385
4,279,383
3,381,212
3,304,455
3,180,118
2,766,636
2,724,882
2,554,889
517,872,723
177,195,565
695,068,288
Distribution of Quoted Security Holders and security holdings as at 11 August 2011
Ordinary shares: NZX code CEN
Size of holding
1 to 499
500 to 999
1,000 to 4,999
5,000 to 9,999
10,000 to 49,999
50,000 to 99,999
100,000 to 499,999
500,000 and above
Total
Number of holders
% of holders
Number of shares
% of shares
12,495
27,672
33,151
3,152
1,578
83
51
43
78,225
15.97
35.37
42.38
4.03
2.02
0.11
0.07
0.05
4,536,619
22,355,904
56,960,779
21,341,372
27,783,481
5,471,709
9,309,528
547,308,896
0.65
3.22
8.19
3.07
4.00
0.79
1.34
78.74
100.00
695,068,288
100.00
50
Contact Energy Limited Annual Report 2011
Retail bonds
Size of holding
1 to 4,999
5,000 to 9,999
10,000 to 49,999
50,000 to 99,999
100,000 to 499,999
500,000 and above
Total
Number of holders
% of holders
Number of bonds
% of bonds
1
1,178
6,083
1,326
733
80
9,401
0.01
12.53
64.71
14.1
7.8
0.85
3,000
6,661,000
119,839,000
72,911,000
107,920,000
242,666,000
0
1.21
21.79
13.26
19.62
44.12
100.00
550,000,000
100.00
Substantial security holders
According to notices given under the Securities Markets Act 1988, the following persons were substantial security
holders in the company as at 11 August 2011.
Substantial security holder
Number and class of listed voting securities
Percentage
Origin Energy New Zealand Limited and its subsidiaries
365,348,258
52.568
The total number of shares of Contact as at 11 August 2010 was 695,576,768, consisting of 695,068,288 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 11 August 2010 was 695,068,288.
Directors’ statement
This Annual Report is dated 6 September 2011 and is signed on behalf of the Board by
Grant King
Chairman
Phillip Pryke
Deputy Chairman
Contact Energy Limited Annual Report 2010
51
Financial Statements
for the year ended 30 June 2011
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
Statement of accounting policies
Segment reporting
Revenue
Operating expenses
Other signifi cant items
Net interest expense
Income tax
Distributions
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
Derivative fi nancial instruments
Payables and accruals
Provisions
Deferred tax
Commitments
Resource consents
Related party transactions
Key management personnel
Whirinaki generation plant
Contingent liabilities
Subsequent events
Independent Auditor’s Report
52
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Income Statement for the year ended 30 June 2011
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 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
2,209,290
21,564
(1,789,439)
2,143,017
21,391
(1,737,426)
1,958,128
42,625
(1,597,378)
1,848,978
45,401
(1,512,693)
441,415
426,982
403,375
381,686
(166,322)
(5,940)
–
3,862
(62,338)
210,677
(60,383)
(161,903)
4,531
(8,894)
3,272
(55,980)
208,008
(53,340)
(162,413)
(5,939)
–
–
(62,346)
172,677
(49,416)
(158,610)
4,531
39,180
–
(55,845)
210,942
(39,793)
150,294
154,668
123,261
171,149
23.89
25.58
Note
3
4
15, 16
23
5
20
6
7
9
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:
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 2011
$000
Group
30 June 2010
$000
Note
150,294
154,668
23
5,940
(4,531)
5
5
7
7
–
–
5,940
(1,782)
(3,503)
–
3,330
5,564
4,363
(1,309)
(42,650)
34,765
655
(4,831)
150,949
149,837
9
24.00
24.78
The accompanying notes form an integral part of these fi nancial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2011
53
Statement of Comprehensive Income for the year ended 30 June 2011
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
150,294
154,668
123,261
171,149
415
(122)
293
(3,888)
(1,192)
(4,787)
(221)
8,298
8,077
(2,209)
555
6,423
–
(82)
(82)
(3,765)
(1,192)
(5,039)
–
8,206
8,206
(2,248)
555
6,513
145,507
161,091
118,222
177,662
Profi t for the year
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
Impact of change in corporate income tax rate
26
26
Total other comprehensive income after tax
Total comprehensive income for the year
The accompanying notes form an integral part of these fi nancial statements.
54
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Statement of Changes in Equity for the year ended 30 June 2011
Group
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
Opening balance as at 1 July 2010
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Distributions declared
Total transactions with owners recorded directly in equity
Foreign
currency
translation
reserve
$000
Cash fl ow
hedge
reserve
$000
Share-
based
payment
reserve
$000
Retained
earnings
$000
Total
shareholders’
equity
$000
310
(182)
–
(38,660)
6,605
–
1,752
–
(36)
1,867,587
154,668
36
2,659,602
161,091
–
–
–
–
–
–
–
–
–
–
–
–
1,148
(10)
–
–
–
–
(165,437)
120,374
1,148
–
(165,437)
1,138
(165,437)
(43,915)
Share
capital
$000
828,613
–
–
120,374
–
10
–
120,384
948,997
128
(32,055)
2,854
1,856,854
2,776,778
948,997
–
463,863
–
–
463,863
128
292
(32,055)
(5,079)
2,854
–
1,856,854
150,294
2,776,778
145,507
–
–
–
–
–
–
–
–
–
2,510
–
–
–
(153,048)
463,863
2,510
(153,048)
2,510
(153,048)
313,325
Note
10
11
11
8
10
11
8
Closing balance as at 30 June 2011
1,412,860
420
(37,134)
5,364
1,854,100
3,235,610
Parent
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
Opening balance as at 1 July 2010
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based payment reserve
Distributions declared
Total transactions with owners recorded directly in equity
Note
10
11
11
8
10
11
8
Share
capital
$000
828,613
–
–
120,374
–
10
–
120,384
948,997
948,997
–
463,863
–
–
463,863
Foreign
currency
translation
reserve
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Cash fl ow
hedge
reserve
$000
(38,608)
6,513
–
Share-
based
payment
reserve
$000
Retained
earnings
$000
Total
shareholders’
equity
$000
1,752
–
(36)
1,787,900
171,149
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
(32,095)
(5,039)
2,854
–
1,793,648
123,261
2,713,404
118,222
–
–
–
–
–
2,510
–
–
–
(153,048)
463,863
2,510
(153,048)
2,510
(153,048)
313,325
Closing balance as at 30 June 2011
1,412,860
–
(37,134)
5,364
1,763,861
3,144,951
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 2011
Contact Energy Limited Annual Report 2011
55
Shareholders’ equity
Represented by:
Current assets
Cash and short-term deposits
Receivables and prepayments
Inventories
Carbon emission units
Derivative fi nancial instruments
Tax receivable
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
Derivative fi nancial instruments
Payables and accruals
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative fi nancial instruments
Provisions
Deferred tax
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
3,235,610
2,776,778
3,144,951
2,713,404
12
13
14
23
15
16
17
19
20
21
23
22
23
24
25
22
23
25
26
47,267
243,521
111,512
9,552
1,669
778
921
219,148
58,366
–
4,955
54
47,191
247,534
104,170
9,552
1,669
778
–
210,415
53,452
–
4,914
57
414,299
283,444
410,894
268,838
4,813,619
342,324
51,512
–
11,603
2,935
357
6,850
4,511,314
284,201
49,022
–
8,809
2,935
787
7,305
4,715,116
283,690
51,512
132,788
1,579
–
357
6,850
4,421,033
225,567
49,022
132,788
1,587
–
787
7,305
5,229,200
4,864,373
5,191,892
4,838,089
5,643,499
5,147,817
5,602,786
5,106,927
3,012
46,142
354,693
6,351
3,180
31,895
262,430
13,146
2,806
46,142
414,404
6,127
3,453
31,895
291,328
12,907
410,198
310,651
469,479
339,583
1,082,110
180,349
54,534
680,204
494
1,279,233
98,811
43,429
638,190
725
1,082,106
180,349
52,325
673,084
492
1,279,216
98,811
41,808
633,380
725
1,997,691
2,060,388
1,988,356
2,053,940
2,407,889
2,371,039
2,457,835
2,393,523
3,235,610
2,776,778
3,144,951
2,713,404
The Directors of Contact Energy Limited authorised these fi nancial statements for issue.
On behalf of the Board
Grant King
Chairman, 19 August 2011
Phillip Pryke
Deputy Chairman, 19 August 2011
The accompanying notes form an integral part of these fi nancial statements.
56
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Statement of Cash Flows for the year ended 30 June 2011
Cash fl ows from operating activities
Cash provided from:
Receipts from customers
Dividends received
Cash applied to:
Payments to suppliers and employees
Supplementary dividend paid to shareholders
Tax paid
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
2,198,125
1,864
2,185,718
3,862
1,955,128
1,480
1,893,401
2,936
2,199,989
2,189,580
1,956,608
1,896,337
(1,797,284)
(1,184)
(22,990)
(1,780,762)
(1,293)
(39,166)
(1,565,815)
(1,184)
(22,990)
(1,506,382)
(1,293)
(39,166)
8
7
(1,821,458)
(1,821,221)
(1,589,989)
(1,546,841)
Net cash infl ow from operating activities
378,531
368,359
366,619
349,496
Cash fl ows from investing activities
Cash provided from:
Interest received
Cash applied to:
Purchase of property, plant and equipment
Purchase of intangible assets
Removal of New Plymouth asbestos and related costs
Purchase of investment in Energyhedge Limited
Purchase of cushion gas
Repayment of loan to associate
1,078
1,078
4,848
4,848
995
995
4,768
4,768
20
17
(379,372)
(57,821)
(144)
–
–
–
(411,279)
(29,557)
(2,922)
(8)
(1,490)
(1,886)
(364,749)
(59,139)
(144)
–
–
–
(394,029)
(29,557)
(2,922)
(8)
(1,490)
–
(437,337)
(447,142)
(424,032)
(428,006)
Net cash (outfl ow) to investing activities
(436,259)
(442,294)
(423,037)
(423,238)
Cash fl ows from fi nancing activities
Cash provided from:
Proceeds from borrowings
Proceeds from other loans
Proceeds from Entitlement Off er
Cash applied to:
Interest paid
Distributions paid to shareholders
Financing costs
Profi t distribution-related costs
Entitlement Off er-related costs
Repayment of borrowings
Repayment of other loans and fi nance lease liabilities
10
10
–
356,518
351,169
100,000
250,258
–
–
356,518
351,169
100,000
250,258
–
707,687
350,258
707,687
350,258
(100,067)
(34,351)
(687)
–
(4,649)
–
(463,919)
(103,324)
(44,904)
(923)
(311)
–
(160,228)
(145,296)
(100,067)
(34,351)
(687)
–
(4,649)
–
(463,898)
(103,109)
(44,904)
(923)
(311)
–
(160,228)
(145,263)
(603,673)
(454,986)
(603,652)
(454,738)
Net cash infl ow from/(outfl ow to) fi nancing activities
104,014
(104,728)
104,035
(104,480)
Net increase/(decrease) in cash and cash equivalents
Add: cash and cash equivalents at the start of the year
46,286
(1,118)
(178,663)
177,545
47,617
(2,333)
(178,222)
175,889
Cash and cash equivalents at the end of the year
45,168
(1,118)
45,284
(2,333)
Cash and cash equivalents comprise:
Bank overdraft
Cash and short-term deposits
12, 22
12
(2,099)
47,267
(2,039)
921
(1,907)
47,191
(2,333)
–
12
45,168
(1,118)
45,284
(2,333)
The accompanying notes form an integral part of these fi nancial statements.
Contact Energy Limited and Subsidiaries
Contact Energy Limited Annual Report 2011
57
Statement of Cash Flows for the year ended 30 June 2011 (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
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 advance to subsidiary
Write-back of subsidiary advance
Other non-cash items
Movement in working capital
(Increase)/decrease in receivables and prepayments
(Increase) in inventories
Increase/(decrease) in payables and accruals
(Increase)/decrease in tax receivable
(Increase) in other assets
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
150,294
154,668
123,261
171,149
6
4
11
15, 16
20
23
7
5
5
62,338
62,338
55,980
55,980
62,346
62,346
55,845
55,845
12,095
1,311
2,928
166,322
(2,382)
5,940
36,934
–
–
538
15,046
8,023
1,596
161,903
(261)
(4,531)
10,250
–
–
(1,225)
10,663
1,311
2,928
162,413
–
5,939
34,747
–
–
1,185
11,988
8,114
1,596
158,610
–
(4,531)
8,255
26
(48,100)
–
223,686
190,801
219,186
135,958
(35,962)
(53,630)
42,831
(724)
(10,302)
19,936
(42,460)
(11,876)
2,628
(1,318)
(47,398)
(51,202)
71,449
(721)
(10,302)
2,587
(46,852)
30,252
1,875
(1,318)
(57,787)
(33,090)
(38,174)
(13,456)
Net cash infl ow from operating activities
378,531
368,359
366,619
349,496
The accompanying notes form an integral part of these fi nancial statements.
58
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Notes to the fi nancial statements
for the year ended 30 June 2011
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 2011 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 2011.
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 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, and
generation plant and equipment purchased prior to 1 October 2004, which is stated at deemed historical cost as identifi ed in
the accounting policies below.
Changes in accounting policies
The accounting policies set out below have been applied consistently to all years presented in these fi nancial statements.
As a result of the introduction of the Emissions Trading Scheme, Contact has adopted a new accounting policy on emissions
trading from 1 July 2010 as identifi ed in the accounting policies below.
There have been no other changes in accounting policies in the year.
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 2010
and have been adopted by Contact in the preparation of these fi nancial statements. The adoption of these amendments has had
no material impact on the fi nancial statements.
•
•
•
NZ IAS 7 Statement of Cash Flows (amendment) – the amendment clarifi es that only expenditure that results in a recognised
asset can be classifi ed as a cash fl ow from investing activities.
NZ IAS 32 Financial Instruments (amendment) – the amendment clarifi es that share rights, warrants or options may be
classifi ed as equity instruments subject to certain criteria being satisfi ed.
NZ IAS 36 Impairment of Assets (amendment) – the amendment clarifi es that the largest cash-generating unit (or group of
units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment as defi ned in
NZ IFRS 8.
Contact has elected not to early adopt the following standards, considered relevant to these fi nancial statements, which have
been issued but are not yet eff ective:
•
•
•
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.
Improvements to NZ IFRS 2010 – these improvements include various amendments eff ective for periods beginning on or after
1 July 2011.
FRS 44 New Zealand Additional Disclosures – approved April 2011 and eff ective for annual reporting periods beginning on or
after 1 July 2011.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
59
•
•
•
•
NZ IFRS 9 Financial Instruments – approved November 2009 and eff ective for annual reporting periods beginning on or after
1 January 2013.
NZ IFRS 10 Consolidated Financial Statements – approved June 2011 and eff ective for annual reporting periods beginning on
or after 1 January 2013.
NZ IFRS 11 Joint Arrangements – approved June 2011 and eff ective for annual reporting periods beginning on or after
1 January 2013.
NZ IFRS 12 Disclosure of Interests in Other Entities – approved June 2011 and eff ective for annual reporting periods beginning
on or after 1 January 2013.
•
NZ IFRS 13 Fair Value Measurement Statements – approved June 2011 and eff ective for annual reporting periods beginning on
or after 1 January 2013.
Contact does not currently intend to early adopt any of these standards or amendments before their eff ective dates.
With the exception of NZ IFRS 9 Financial Instruments, 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 other than increased disclosure. It is likely
that the changes arising from NZ IFRS 9 will aff ect the classifi cation and measurement of fi nancial assets and liabilities as well as
the rules around derecognition. A detailed review is underway to determine the eff ect on the fi nancial statements.
Accounting estimates and judgements
Contact’s signifi cant areas of estimation and critical judgements in these fi nancial statements are as follows:
Derivative fi nancial instruments
Note 23 contains information about the assumptions and the risk factors relating to derivative fi nancial instruments and their
valuation. The base future settlement price path for electricity derivatives is derived from the Australian Securities Exchange
New Zealand Electricity Futures and Options price path overlaid with Contact’s fi nancial model for future electricity prices.
Intangible assets – gas storage rights
Contact has exercised judgement in determining the useful life of the gas storage rights. The useful life is based on the current
assumption of the period over which future economic benefi ts are expected to be derived. The useful life is reviewed annually.
Refer to note 16.
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 management judgement include customer numbers and customer churn, price infl ation, terminal growth rates, cost
of product (e.g. gas costs, wholesale electricity price path, LPG purchase costs), operating costs, and the weighted average
cost of capital. Refer to note 16.
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 the gas, which is the recoverable amount of the gas based on its intended use.
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 life of the assets employed on the sites and the period over which asbestos is expected to be removed. Refer to
note 25.
60
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
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.
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.
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.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
61
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 is 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.
Emissions trading
Carbon emission units purchased for compliance purposes are recognised at initial cost (purchase price) less any accumulated
impairment losses. For the purpose of impairment testing, carbon emission units are allocated to the individual cash-generating
units to which they relate. Carbon emission units are surrendered on a fi rst-in fi rst-out basis according to the liquidity of the
units. Although carbon emission units can be banked, they will generally be surrendered within one year and are therefore
recognised as current intangible assets and not amortised.
Any purchased forward contracts of carbon emission units for compliance purposes are measured at cost on the dates Contact
acquires the units. For all forward contracts, Contact determines whether the contracts meet the defi nition of a fi nancial
instrument during the period between when the forward contracts are entered into and when the units are received. Where
forward contracts for carbon emission units are entered into and continue to be held in accordance with Contact’s own usage
expectation, Contact makes use of the ‘own use’ exemption. This allows forward contracts on those units not to be accounted
for as fi nancial instruments.
Where the ‘own use’ exemption does not apply, forward contracts for the purchase of carbon emission units are measured at fair
value from the date of inception until the receipt of the units. Gains and losses arising from changes in the fair value are
recognised in the Income Statement.
Contact recognises a liability in respect of its obligation to deliver carbon emission units as the obligation arises. The liability is
measured at the cost of the purchased units less accumulated impairment losses on a fi rst-in fi rst-out basis to the level of units or
forward contracts held, with the balance recognised at fair value at the end of the reporting period. Any change in the liability is
recognised within operating expenses 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 Scheme and a Restricted Share Plan.
The fair value of the employee services received in exchange for the grant of the options, performance share rights 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 value of the equity instruments granted, taking into account
market performance conditions only. Non-market vesting conditions are included in the assumptions determining the number
of options, performance share rights 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,
performance share rights and restricted shares that are expected to become exercisable or vest.
62
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
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 cost of drilling exploration wells and the cost of acquiring new interests.
The cost of drilling exploration wells is initially capitalised as development capital work in progress pending the determination
of the success of the area.
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.
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 reporting currency are translated into the reporting 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 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 obligation crystallises, or as Contact uplifts the gas, depending on the contracted terms.
Gas storage – cushion gas
Cushion gas is necessary to develop and maintain 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 inventory 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 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.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
63
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 net
recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement.
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 infl 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 cash infl ows largely independent from 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.
The amortisation rates are as follows:
Type of asset
Computer software
Gas storage rights
Patents
Amortisation rate
10–33%
3%
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.
Inventories
Consumables, spare parts and LPG
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.
64
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Inventory gas
Gas reserves in excess of the levels required for cushion gas are treated as inventory. Inventory gas is stated at the lower of cost
or net realisable value. The cost of inventory gas is determined on a weighted average basis and includes expenditure incurred in
bringing the fuel stocks to their present location and condition. Net realisable value is the estimated recoverable amount of the
gas based on its intended use.
Inventory gas 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 assets if 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 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 revenue
Dividend income
Dividend income is recognised in the Income Statement on the date that the dividend is declared.
Interest income
Interest income is recognised in the Income Statement as it accrues using the eff ective interest rate method.
Payables
Payables are stated at cost.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
65
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 to cost 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 that 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 certain generation plant and equipment assets, 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. Generation plant and equipment assets where the asset’s future economic benefi ts are expected to be consumed
on a usage basis, 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
Generation plant and equipment assets on an equivalent hours of use basis
Depreciation rate
Not depreciated
1–33%
1–18%
1–33%
25,000–100,000 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 are 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.
66
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
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 sites. Such estimates are valued at the present value of the expenditure expected to be
required to settle the obligation.
Estimations are also made for the expected cost of environmental rehabilitation of commercial sites. A 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.
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 amount 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.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
2 Segment reporting
Contact Energy Limited Annual Report 2011
67
Identifi cation of reportable segments
Contact has identifi ed its operating segments based on the internal reports that are reviewed and used by the Chief Executive
Offi cer in assessing performance and in determining the allocation of resources. The Chief Executive Offi cer 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 pay the ‘Other’ segment an equivalent cost for Contact-owned meters as it would for
third party owned meters.
The following items are not allocated to operating segments as they are not reported to the chief operating decision-maker at a
segmental level:
•
•
•
•
•
•
•
•
change in fair value of fi nancial instruments,
other signifi cant items,
equity accounted earnings of associates,
net interest expense,
income tax expense,
assets,
liabilities,
capital expenditure.
Presentational changes
Presentational changes have been made to the allocation of certain costs between segments. These changes, which have been
applied retrospectively, relate to the allocation of:
•
•
•
•
HVAC rental rebates between ‘hedged generation’ and ‘retail electricity’,
purchases between ‘hedged generation’ and ‘retail electricity’,
gas costs between ‘hedged generation’ and ‘Other’ segment,
operating expenses between ‘hedged generation’, ‘retail electricity’ and ‘Other’ segment.
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.
68
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Segment note
Group
2011
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
Equity accounted earnings of associates
Net interest expense
Income tax expense
Profi t for the year
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
Electricity
$000
1,969,012
(1,351,578)
617,434
(212,355)
405,079
(156,545)
248,534
Electricity
$000
1,859,223
(1,284,331)
574,892
(193,279)
381,613
(153,274)
228,339
Other
$000
Inter-segment
$000
Total
$000
291,088
(215,469)
75,619
(39,283)
36,336
(9,777)
26,559
(29,246)
29,246
2,230,854
(1,537,801)
–
–
–
–
–
693,053
(251,638)
441,415
(166,322)
275,093
(5,940)
3,862
(62,338)
(60,383)
150,294
Other
$000
Inter-segment
$000
Total
$000
334,167
(253,310)
80,857
(35,488)
45,369
(8,629)
36,740
(28,982)
28,982
2,164,408
(1,508,659)
–
–
–
–
–
655,749
(228,767)
426,982
(161,903)
265,079
4,531
(8,894)
3,272
(55,980)
(53,340)
154,668
*
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 2011
$000
30 June 2010
$000
346,884
29,919
28,276
405,079
294,610
36,673
50,330
381,613
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
3 Revenue
Wholesale electricity revenue
Retail electricity revenue
Gas revenue
LPG revenue
Steam revenue
Total revenue
4 Operating expenses
Electricity purchases
Electricity transmission, distribution and levies
Gas purchases and transmission
LPG purchases
Meter costs
Emission costs
Labour costs
Christchurch earthquake costs*
Other operating expenses
Contact Energy Limited Annual Report 2011
69
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
505,701
1,443,602
123,241
117,037
19,709
539,359
1,301,924
153,490
130,304
17,940
505,701
1,309,477
123,241
–
19,709
539,359
1,138,189
153,490
–
17,940
2,209,290
2,143,017
1,958,128
1,848,978
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
476,723
542,315
381,059
85,416
22,032
30,257
98,456
4,000
149,181
480,360
511,413
396,719
99,175
20,992
–
83,490
–
145,277
439,002
488,578
381,685
–
18,519
28,276
95,426
4,000
141,892
429,311
451,405
397,944
–
16,922
–
80,532
–
136,579
Total operating expenses
1,789,439
1,737,426
1,597,378
1,512,693
*
Christchurch earthquake costs include donations made to the Red Cross Earthquake Relief Fund, free LPG refi lls off ered to
customers, hardship support through bill waivers and grants for electricity and gas customers.
Other operating expenses include:
Auditor’s remuneration
– Audit services: KPMG *
Total auditor’s remuneration
Donations
Write-off of receivables
Increase/(decrease) in provision for impairment of receivables
Rental expense on operating leases
Write-off of Energyhedge Limited
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
598
598
26
12,095
6
6,849
8
612
598
612
612
75
15,046
(891)
6,583
–
598
26
10,663
–
5,213
8
612
75
11,988
(800)
5,005
–
20
*
In the year ended 30 June 2011, KPMG charged $46,914 for other assurance services in relation to the prospectus for the
Entitlement Off er. These amounts have been included in the transaction costs of the Entitlement Off er, which have been
recognised in equity. In addition KPMG charged $36,174 for IT security assurance services in relation to Contact’s Enterprise
Transformation project, which was capitalised to the cost of the asset.
Labour costs include:
Contributions to KiwiSaver
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
1,982
1,624
1,861
1,568
70
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
5 Other signifi cant items
Retail transaction processing outsourcing costs
Removal of New Plymouth asbestos and related costs
Write-back of subsidiary advance*
Write-off of advance to subsidiary
Total other signifi cant items
Note
25
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
–
–
–
–
–
3,330
5,564
–
–
8,894
–
–
–
–
–
3,330
5,564
(48,100)
26
(39,180)
*
As a result of the amalgamation of Stratford Power Limited into Empower Limited on 7 September 2009, $48.1 million
relating to a subsidiary advance was written-back to the Parent in the year ended 30 June 2010.
6 Net interest expense
Interest expense
Interest expense: unwind on restoration provision
Interest expense capitalised
Interest income
Net interest expense
Note
25
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
101,350
3,903
(41,838)
(1,077)
105,509
3,057
(48,208)
(4,378)
101,350
3,826
(41,838)
(992)
105,509
2,843
(48,208)
(4,299)
62,338
55,980
62,346
55,845
The weighted average capitalisation rate on funds borrowed is 7.54 per cent per annum (2010: 7.4 per cent).
7 Income tax
Income tax expense
Profi t before income tax
Tax thereon at 30%
Plus/(less) tax eff ect of adjustments:
Impact of 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 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
210,677
208,008
172,677
210,942
63,203
62,402
51,803
63,283
(3,503)
–
(13)
1,669
–
(973)
–
(42,650)
34,765
7
151
(669)
(666)
–
(3,516)
–
–
1,769
–
(640)
–
(42,335)
34,412
–
(297)
(669)
(171)
(14,430)
60,383
53,340
49,416
39,793
23,449
36,934
60,383
43,090
10,250
53,340
14,669
34,747
31,538
8,255
49,416
39,793
*
The 2010 Budget contained two provisions which have had a material eff ect on the Group and Parent’s tax expense:
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
71
•
•
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 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 is no longer able to
claim tax depreciation on buildings from its income tax year ending 30 June 2012. This resulted in an increased deferred
tax liability in the year ended 30 June 2010 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 2011
$000
30 June 2010
$000
205,256
(13,830)
165
22,990
186,219
(20,823)
694
39,166
214,581
205,256
The imputation credits are available to shareholders through the consolidated imputation group. Under current legislation,
imputation credits can be attached to future dividends at a ratio of 30/70.
8 Distributions
Group and Parent
Distribution payment date
Cents per share
30 June 2011
$000
30 June 2010
$000
Distributions
2009 year fi nal distribution
2010 year interim distribution
2010 year fi nal distribution
2011 year interim distribution
Supplementary dividend
Foreign investor tax credit
Total distributions
22 September 2009
30 March 2010
27 September 2010
31 March 2011
17.0
11.0
14.0
11.0
–
–
84,915
68,133
1,184
(1,184)
99,503
65,934
–
–
1,293
(1,293)
153,048
165,437
All distributions 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 2011, the Board declared a distribution in the form of a non-taxable bonus issue under the PDP equivalent to 12.0
cents per share, for shares on issue at 5 September 2011, the record date, with bonus shares allocated and/or cash distributed,
if elected, on 27 September 2011. Refer to note 33.
72
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
9 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 2011
30 June 2010**
24.00
23.89
629,068,222
4.16
695,068,288
24.78
25.58
604,650,134
4.06
604,934,976
** The June 2010 comparatives have been restated to refl ect the one-for-nine renounceable Entitlement Off er in June 2011.
Refer to note 10.
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 and the Entitlement Off er.
For the purpose of calculating the weighted average number of shares on issue, the restricted shares previously issued under
Contact’s Employee Long-Term Incentive Scheme are excluded until the shares become unrestricted.
The dilutive eff ect of share options, performance share rights and restricted shares has not been taken into account in the
calculation of diluted earnings per share at 30 June 2011 and 30 June 2010, 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 2011 and 30 June 2010 is based on the total net assets less intangible
assets, divided by the number of shares on issue at the end of each year. The calculation of net tangible assets per share at
30 June 2010 has been adjusted to refl ect the one-for-nine renounceable Entitlement Off er in June 2011.
10 Share capital
Group and Parent
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
Opening balance as at 1 July 2010
Share capital issued
Share capital repurchased and cancelled during the year
Entitlement Off er
Transaction costs
Closing balance as at 30 June 2011
Ordinary shares – unrestricted
Number
$000
585,314,624
26,907,379
(7,288,507)
1,480
–
828,613
165,437
(44,904)
10
(159)
604,934,976
948,997
604,934,976
26,537,944
(5,942,974)
69,538,342
–
948,997
153,048
(34,351)
351,169
(6,003)
695,068,288
1,412,860
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 14,871,511 and 11,666,433 ordinary shares pursuant to the Parent’s PDP on 27 September 2010 and
31 March 2011 respectively. The PDP allows shareholders to elect to have the Parent buy back the shares issued to them at
the issue price. As a result of shareholder elections, the Parent completed an off -market buy-back of 2,736,590 shares on
27 September 2010 and 3,206,384 shares on 31 March 2011. These shares were immediately cancelled upon buy-back.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
73
On 9 June 2011, the Parent issued 65,741,274 shares in relation to a one-for-nine renounceable Entitlement Off er made to all
New Zealand and Australian resident shareholders at an issue price of $5.05 per share. On 13 June 2011, the Parent issued a
further 3,797,068 shares in relation to a shortfall bookbuild for Rights not taken up during the initial off er.
Contact has previously issued 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 11.
11 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 as a mix of share options and performance share rights (options with an exercise price of zero), both under a
Share Option Scheme, and restricted shares under a Restricted Share Plan. Under the Share Option Scheme and Restricted Share
Plan, the share options and performance share rights 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, share options and
performance share rights issued under the Share Option Scheme and Restricted Share Plan, the hurdle is a comparison of
Contact’s total shareholder return (TSR) relative to the TSR of a reference group comprising the NZX50 index over the relevant
period, commencing on the eff ective grant date.
As a result of a review of the Employee Long-Term Incentive Scheme in 2010, no further restricted shares have been issued since
the 1 October 2009 grant date. Performance share rights replaced restricted shares from October 2010. The Restricted Share
Plan is now grand-parented but restricted shares issued prior to October 2010 are still held by participants and remain subject
to the exercise hurdles and vesting criteria.
The share options, performance share rights 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 Share Option Scheme and Restricted Share Plan during the
year ended 30 June 2011 was $2.9 million (2010: $1.6 million).
Share Option Scheme
Under the Share Option Scheme, 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 years ended 30 June 2011 and
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. Under the Share Option Scheme, the Board also issues performance share
rights to participating employees to acquire ordinary shares in the Parent at zero cost.
The share options and performance share rights do not entitle the participating employees to receive dividends or distributions
from, nor vote in respect of, the shares subject to the share options and performance share rights.
There is a vesting period of approximately three years from the eff ective grant date before share options and performance share
rights 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 and performance share
rights may be exercised, again to the extent that the performance hurdles are met.
The share options and performance share rights 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 and performance
share rights 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 and performance share rights will lapse:
•
•
•
•
if the performance hurdles are not met by the last measurement date, or
if the share options or performance share rights are not exercised by the lapse date, or
on the date on which the participant ceases to be employed by the Parent or, in certain cirumstances, the ultimate parent
company (Origin Energy Limited) (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 and performance share rights).
74
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
In the event of redundancy, the Share Option Scheme will continue, except that the number of share options and performance
share rights will be recalculated on a proportionate basis.
The number of share options granted and lapsed during the reporting period and on issue at the end of the reporting period is
summarised below:
Group and Parent
2011
Eff ective
grant date
First
exercise date
1 Jul 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
1 Oct 2010
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
1 Oct 2012
1 Oct 2013
Expiry date
30 Nov 2011
30 Nov 2011
30 Nov 2012
30 Nov 2012
30 Nov 2013
30 Nov 2014
30 Nov 2015
Exercise
price per
option
$7.35
$8.28
$9.15
$7.63
$8.60
$5.75
$5.71
Balance at
1 July 2010
284,077
13,413
314,031
15,008
670,919
1,656,203
–
Granted
Lapsed
Balance at
30 June 2011
Exercisable
at 30 June
2011
–
–
–
–
–
–
3,982,607
–
(13,413)
(51,484)
–
(115,181)
(183,924)
(56,757)
284,077
–
262,547
15,008
555,738
1,472,279
3,925,850
2,953,651
3,982,607
(420,759)
6,515,499
–
–
–
–
–
–
–
–
Group and Parent
2010
Eff ective
grant date
First
exercise date
1 Jul 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
1 Oct 2009
1 Oct 2009
1 Oct 2010
1 Oct 2010
1 Oct 2011
1 Oct 2012
Expiry date
30 Nov 2011
30 Nov 2011
30 Nov 2012
30 Nov 2012
30 Nov 2013
30 Nov 2014
Exercise
price per
option
Balance at
1 July 2009
Granted
Lapsed
Balance at
30 June 2010
Exercisable
at 30 June
2010
$7.35
$8.28
$9.15
$7.63
$8.60
$5.75
316,898
13,413
364,486
15,008
804,833
–
–
–
–
–
–
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
–
7,927
–
–
–
–
7,927
A further 59,485 share options have lapsed since 30 June 2011.
The number of performance share rights granted and lapsed during the reporting period and on issue at the end of the reporting
period is summarised below:
Group and Parent
2011
Eff ective
grant date
First
exercise date
Expiry date
Exercise
price per
option
Balance at
1 July 2010
Granted
Lapsed
Balance at
30 June 2011
Exercisable
at 30 June
2011
1 Oct 2010
1 Oct 2013
30 Nov 2015
$0.00
–
–
885,056
(12,613)
872,443
885,056
(12,613)
872,443
–
–
A further 12,433 performance share rights have lapsed since 30 June 2011.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
75
Restricted Share Plan
Under the now grand-parented 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.
No restricted shares were issued during the year ended 30 June 2011. For restricted 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. Payment of the allocation price for the
restricted shares was 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 or, in certain circumstances, the ultimate parent
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.
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 is summarised below:
Group and Parent
2011
Eff ective
grant date
First test
date
Final test
date
Shares
issued
Unallocated pool
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
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
Allocation
price per
share
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
$5.75
Unvested
balance
at 1 July
2010
8,028
55,125
–
1,024
55,066
2,807
94,318
292,112
508,480
Returned to
unallocated
pool
Granted
Vested
–
–
–
–
–
–
–
–
–
58,683
–
–
(1,024)
(9,028)
–
(16,192)
(32,439)
–
–
–
–
–
–
–
–
–
–
Unvested
balance
at 30 June
2011
66,711
55,125
–
–
46,038
2,807
78,126
259,673
508,480
76
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Group and Parent
2010
Eff ective
grant date
First test
date
Final test
date
Shares
issued
Unallocated pool
1 Jul 2006
20 Nov 2006
15 Jan 2007
1 Oct 2007
1 Feb 2008
1 Oct 2008
1 Oct 2009
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
Allocation
price per
share
$7.35
$7.55
$8.28
$9.15
$7.63
$8.60
$5.75
Unvested
balance
at 1 July
2009
24,159
61,494
–
2,504
63,913
2,807
113,143
–
Returned to
unallocated
pool
42,069
(6,369)
–
–
(8,847)
–
(18,825)
(8,028)
Granted
(58,200)
–
–
–
–
–
–
300,140
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
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 at a future date.
As at 30 June 2011, 66,711 (2010: 8,028) restricted shares were held by the trustee in the unallocated pool. A further 624
restricted shares have been transferred to the unallocated pool since 30 June 2011.
Adjustments to the Share Option Scheme and Restricted Share Plan
In June 2011, Contact’s Board approved the following adjustments under the Share Option Scheme and Restricted Share Plan to
compensate participants for any loss in value as a result of the Entitlement Off er:
•
•
an adjustment to the exercise price for options issued under the Share Option Scheme in accordance with the formula set out
in NZX Listing Rule 8.1.7(b), and
the issue of further performance share rights in respect of performance share rights already issued under the Share Option
Scheme and restricted shares issued under the Restricted Share Plan.
Any additional securities issued remain subject to normal exercise hurdles and vesting periods. As a result, the Board approved
the following adjustments to the exercise price for options issued under the Share Option Scheme:
Group and Parent
2011
Tranche
Old exercise price of options
New exercise price of options
1 July
2006
$7.35
$7.27
1 October
2007
1 February
2008
1 October
2008
1 October
2009
1 October
2010
$9.15
$9.07
$7.63
$7.55
$8.60
$8.53
$5.75
$5.67
$5.71
$5.63
On 19 August 2011, the Board also approved the issue of 18,002 additional performance share rights.
Fair value of share-based payments
The fair value of services received in return for share options and performance share rights granted is based on the fair value of
share options and performance share rights granted, measured using a combination of Monte-Carlo simulation and a binomial
option pricing model. The valuation of the options and performance share rights granted in the year ended 30 June 2011 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 2011
30 June 2010
4.3%
3.8%
5.1
18.0%
3.8
5.0%
5.0%
5.1
26.0%
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 performance share
rights issued during the year.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
12 Cash and cash equivalents
Unrestricted cash
Cash and short-term deposits
Bank overdrafts (refer to note 22)
Cash and cash equivalents in the Statement of Cash Flows
13 Receivables and prepayments
Contact Energy Limited Annual Report 2011
77
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
47,267
47,267
(2,099)
45,168
921
921
(2,039)
(1,118)
47,191
47,191
(1,907)
45,284
–
–
(2,333)
(2,333)
Retail electricity, other receivables and accruals
Less: provision for impairment
Wholesale electricity receivables
Net receivables
Prepayments
Interest receivable
Advances to subsidiaries
Advance to associates
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
193,383
(6,307)
53,147
240,223
2,985
3
–
310
176,308
(6,301)
47,049
217,056
1,796
1
–
295
163,024
(4,521)
53,147
211,650
2,985
3
32,896
–
141,391
(4,521)
47,049
183,919
1,796
1
24,699
–
29
Total receivables and prepayments
243,521
219,148
247,534
210,415
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 a
number of customers who pay outside 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 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
21,874
8,010
2,497
32,381
18,885
6,510
2,722
28,117
18,687
7,035
2,232
27,954
14,755
4,459
2,431
21,645
Included in other operating expenses are receivables written-off during the year totalling $12.1 million (Group) and $10.7
million (Parent) (2010: $15.0 million (Group) and $12.0 million (Parent)). Refer to note 4.
Provision for impairment
Provision for impairment at the start of the year
(Increase)/decrease in provision for the year
Provision for impairment at the end of the year
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
(6,301)
(6)
(6,307)
(7,192)
891
(6,301)
(4,521)
–
(4,521)
(5,321)
800
(4,521)
78
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
14 Inventories
LPG
Consumables and spare parts
Inventory gas
Total inventories
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
7,162
6,597
97,753
111,512
4,677
6,774
46,915
58,366
–
6,417
97,753
104,170
–
6,537
46,915
53,452
Inventory gas relates to the gas reserves in the Ahuroa reservoir in excess of the reserves required for cushion gas. Refer to note 17.
15 Property, plant and equipment
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 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
11,355
(14,015)
–
4,979,746
427,370
–
(2,068)
Balance as at 30 June 2010
4,416,436
63,031
279,681
134,506
490,638
20,756
5,405,048
Balance as at 1 July 2010
Additions
Transfers from capital work in progress
Reclassifi cation of asset class
Transfer to intangible assets
Disposals
4,416,436
151,876
422,832
6,748
–
(58,309)
63,031
741
215
(10,706)
–
(227)
279,681
8,787
7,972
5,382
(2,229)
(10,330)
134,506
28,365
(21,279)
(1,480)
–
–
490,638
261,867
(401,386)
2,224
–
–
20,756
6,085
(8,354)
(2,168)
–
–
5,405,048
457,721
–
–
(2,229)
(68,866)
Balance as at 30 June 2011
4,939,583
53,054
289,263
140,112
353,343
16,319
5,791,674
Depreciation and impairment losses
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)
Balance as at 1 July 2010
Depreciation charge
Reclassifi cation of asset class
Transfer to intangible assets
Disposals
(714,641)
(140,503)
989
–
58,309
(13,969)
(1,422)
1,365
–
16
(162,294)
(13,259)
(2,354)
2,219
10,319
Balance as at 30 June 2011
(795,846)
(14,010)
(165,369)
–
–
–
–
–
–
–
–
–
–
(2,830)
–
–
(2,830)
(2,830)
–
–
–
–
(2,830)
–
–
–
–
–
–
–
–
–
–
(740,145)
(155,410)
1,821
(893,734)
(893,734)
(155,184)
–
2,219
68,644
(978,055)
Carrying value
As at 30 June 2010
As at 30 June 2011
3,701,795
49,062
117,387
134,506
487,808
20,756
4,511,314
4,143,737
39,044
123,894
140,112
350,513
16,319
4,813,619
Contact Energy Limited Annual Report 2011
79
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
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 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
Balance as at 1 July 2010
Additions
Transfers from capital work in progress
Reclassifi cation of asset class
Disposals
4,416,436
151,876
422,832
6,748
(58,309)
58,519
533
45
(10,225)
–
147,360
6,915
6,264
4,468
(9,053)
134,506
28,365
(21,279)
(1,480)
–
464,758
254,424
(401,386)
2,224
–
16,511 5,238,090
445,368
–
–
(67,362)
3,255
(6,476)
(1,735)
–
Balance as at 30 June 2011
4,939,583
48,872
155,954
140,112
320,020
11,555 5,616,096
Depreciation and impairment losses
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)
Balance as at 1 July 2010
Depreciation charge
Reclassifi cation of asset class
Disposals
(714,641)
(140,503)
989
58,309
(13,093)
(1,255)
1,408
–
(89,323)
(9,527)
(2,397)
9,053
Balance as at 30 June 2011
(795,846)
(12,940)
(92,194)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(665,266)
(152,117)
326
(817,057)
(817,057)
(151,285)
–
67,362
(900,980)
Carrying value
As at 30 June 2010
As at 30 June 2011
3,701,795
45,426
58,037
134,506
464,758
16,511 4,421,033
4,143,737
35,932
63,760
140,112
320,020
11,555 4,715,116
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 Ma-ori 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 at 30 June 2010, would have been in the range of $3.9 billion to $5.0 billion.
80
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
16 Intangible assets
Group
Cost
Balance as at 1 July 2009
Additions
Disposals
Balance as at 30 June 2010
Balance as at 1 July 2010
Additions
Transfer from property, plant and equipment
Disposals
Balance as at 30 June 2011
Amortisation and impairment losses
Balance as at 1 July 2009
Amortisation charge
Disposals
Balance as at 30 June 2010
Balance as at 1 July 2010
Amortisation charge
Transfer from property, plant and equipment
Disposals
Balance as at 30 June 2011
Carrying value
As at 30 June 2010
As at 30 June 2011
Parent
Cost
Balance as at 1 July 2009
Additions
Disposals
Balance as at 30 June 2010
Balance as at 1 July 2010
Additions
Disposals
Balance as at 30 June 2011
Amortisation and impairment losses
Balance as at 1 July 2009
Amortisation charge
Disposals
Balance as at 30 June 2010
Balance as at 1 July 2010
Amortisation charge
Disposals
Balance as at 30 June 2011
Carrying value
As at 30 June 2010
As at 30 June 2011
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)
30,868
2,485
–
51,897
36,050
(135)
265,928
38,535
(135)
33,353
87,812
304,328
33,353
1,659
–
–
87,812
67,592
2,229
(7,080)
304,328
69,251
2,229
(7,080)
35,012
150,553
368,728
–
–
–
–
–
(294)
–
–
(294)
(12,547)
(6,493)
135
(13,769)
(6,493)
135
(18,905)
(20,127)
(18,905)
(10,844)
(2,219)
7,080
(20,127)
(11,138)
(2,219)
7,080
(24,888)
(26,404)
181,941
181,941
–
–
33,353
68,907
284,201
34,718
125,665
342,324
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,868
2,485
–
51,897
36,050
(135)
206,072
38,535
(135)
33,353
87,812
244,472
33,353
1,659
–
87,812
67,592
(7,080)
244,472
69,251
(7,080)
35,012
148,324
306,643
–
–
–
–
–
(294)
–
(294)
(12,547)
(6,493)
135
(12,547)
(6,493)
135
(18,905)
(18,905)
(18,905)
(10,834)
7,080
(18,905)
(11,128)
7,080
(22,659)
(22,953)
33,353
68,907
225,567
34,718
125,665
283,690
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
81
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:
Assumptions
Method of determination
Customer numbers and customer churn
Gross margin per customer
Operating costs
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 operating costs 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 Energy Limited (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) for an area that includes the Ahuroa reservoir.
In December 2010 Contact was issued Petroleum Mining Permit (PMP) 52278 with a term of 40 years. The PMP exists
concurrently with the PML but gives Contact exclusive rights to the Ahuroa reservoir.
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 2011 (2010: nil).
17 Gas storage – cushion gas
As part of the acquisition of the gas storage rights (refer to note 16), 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 14.
82
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
18 Investment in jointly controlled entity
Name of entity
Gasbridge Joint Venture
30 June 2011
30 June 2010
Principal activity
50%
50%
Liquefi ed natural gas importation development
Interest held by Group
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. 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 terminal. As a result of this decision, Contact wrote-off its share of the assets of the Gasbridge Joint Venture relating
to the facility. The following amounts represent Contact’s 50 per cent share of the remaining 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 (liabilities)/assets
Income
Expenses
Loss after income tax
Proportionate interest in joint venture’s commitments
30 June 2011
$000
30 June 2010
$000
4
4
5
5
(1)
–
(5)
(5)
–
7
7
2
2
5
3
(10)
(7)
–
There are no contingent liabilities relating to Contact’s interest in the joint venture and no contingent liabilities in the joint
venture itself (2010: nil).
19 Investment in subsidiaries
Interest held by Parent
Name of entity
30 June 2011
30 June 2010
Principal activity
Country of
incorporation
Empower Limited
Contact Aria Limited
Contact Wind Limited
Rockgas Limited
Contact Australia Pty Limited
Contact Operations Australia Pty Limited
100%
100%
100%
100%
100%
100%
100% Electricity retailer and gas wholesaler
100% Investment holding company
100% Wind generation development
100% LPG retailer
100% Investment holding company
100% Manages Australian interests relating to operation and
New Zealand
New Zealand
New Zealand
New Zealand
Australia
Australia
maintenance of Oakey Power Holdings Pty Limited
All subsidiaries have a 30 June balance date.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
20 Investment in associates
Contact Energy Limited Annual Report 2011
83
Interest held by Group
Name of entity
30 June 2011
30 June 2010
Principal activity
Oakey Power Holdings Pty Limited
Rockgas Timaru Limited
Energyhedge Limited
25%
50%
20%
25% Electricity generation
50% LPG distribution
20% Futures trading
Country of
incorporation
Australia
New Zealand
New Zealand
Carrying value of associates
Carrying value at the start of the year
Purchase of investment in Energyhedge
Write-off 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
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
8,809
–
(8)
3,862
420
(1,480)
11,603
8,687
8
–
3,272
(147)
(3,011)
8,809
1,587
–
(8)
–
–
–
1,579
1,579
8
–
–
–
–
1,587
*
In the year ended 30 June 2011 Contact wrote-off its investment in Energyhedge Limited following the transition of the
energy hedge trading platform to the ASX.
Rockgas Timaru Limited has a balance sheet date of 31 March.
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 2011
$000
30 June 2010
$000
146,324
100,355
49,507
15,186
146,487
111,803
43,791
13,334
There are no contingent liabilities relating to Contact’s interest in associates and no contingent liabilities in the associates
themselves (2010: nil).
21 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 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$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.
84
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
22 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 23.
Carrying value of borrowings
Borrowing
currency
denomination
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Current borrowings
Bank overdraft
Finance lease liabilities
Total current 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
8.0% retail fi xed rate bonds May 2014
7.86% wholesale fi xed rate bonds April 2017
Total non-current portion of term borrowings
Committed credit facilities
Finance lease liabilities
NZD
NZD
USD
USD
USD
USD
USD
NZD
NZD
NZD
NZD
2,099
913
3,012
97,989
112,848
135,851
53,691
36,536
436,915
543,681
99,788
2,039
1,141
3,180
121,094
136,282
163,223
64,913
44,573
530,085
541,809
99,795
1,907
899
2,806
2,333
1,120
3,453
97,989
112,848
135,851
53,691
36,536
436,915
543,681
99,788
121,094
136,282
163,223
64,913
44,573
530,085
541,809
99,795
1,080,384
–
1,726
1,171,689
106,200
1,344
1,080,384
–
1,722
1,171,689
106,200
1,327
Total non-current borrowings
1,082,110
1,279,233
1,082,106
1,279,216
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 using the
eff ective interest rate 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
2011
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
(1,006)
(149,378)
550,000
(6,319)
–
Wholesale
fi xed
rate bonds
$000
100,000
(212)
–
Total term
borrowings
$000
1,237,299
(7,537)
(149,378)
Carrying value of term borrowings
436,915
543,681
99,788
1,080,384
Current
Non-current
Group and Parent
2010
New Zealand dollar equivalent of notional borrowings
Deferred fi nancing costs
Net fair value adjustment
–
436,915
–
543,681
–
99,788
–
1,080,384
436,915
543,681
99,788
1,080,384
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 2011
Contact Energy Limited Annual Report 2011
85
Compliance with covenants
All borrowing covenant requirements were met at 30 June 2011 and at 30 June 2010.
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.
Credit facilities
Contact has total committed facilities at 30 June 2011 of $450.0 million, of which nil has been drawn (2010: $520.0 million,
$106.2 million drawn). As at 30 June 2011, $150.0 million of the facilities mature in December 2012, $270.0 million mature in
March 2016 and $30.0 million mature in May 2016.
These committed credit facilities also support a $250.0 million commercial paper programme. This programme is unutilised at
30 June 2011 (30 June 2010: unutilised).
Finance lease liabilities
Future minimum lease payments are as follows:
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
959
1,876
2,835
(196)
2,639
1,191
1,655
2,846
(361)
2,485
941
1,871
2,812
(191)
2,621
1,166
1,637
2,803
(356)
2,447
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.
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
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
913
1,726
2,639
1,141
1,344
2,485
899
1,722
2,621
1,120
1,327
2,447
86
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
23 Derivative fi nancial instruments
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 are summarised below:
Group
Cross currency interest rate swaps
Interest rate derivatives
Cross currency interest rate swaps – margin
Forward foreign exchange derivatives
Electricity price hedges
Total derivative 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 2011
$000
Fair value
liabilities
30 June 2011
$000
Fair value
assets
30 June 2010
$000
Fair value
liabilities
30 June 2010
$000
771
–
–
–
1,255
2,026
1,669
357
2,026
(150,160)
(30,723)
(6,026)
(14,093)
(25,489)
(226,491)
(46,142)
(180,349)
(226,491)
724
–
–
91
4,927
5,742
4,955
787
5,742
(56,555)
(32,405)
(3,325)
(1,511)
(36,910)
(130,706)
(31,895)
(98,811)
(130,706)
Fair value
assets
30 June 2011
$000
Fair value
liabilities
30 June 2011
$000
Fair value
assets
30 June 2010
$000
Fair value
liabilities
30 June 2010
$000
771
–
–
–
1,255
2,026
1,669
357
2,026
(150,160)
(30,723)
(6,026)
(14,093)
(25,489)
(226,491)
(46,142)
(180,349)
(226,491)
724
–
–
50
4,927
5,701
4,914
787
5,701
(56,555)
(32,405)
(3,325)
(1,511)
(36,910)
(130,706)
(31,895)
(98,811)
(130,706)
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
87
Changes in fair value of fi nancial instruments
The changes in the fair value of fi nancial instruments recognised in the Income Statement and cash fl ow hedge reserve are
summarised below:
Group
Favourable/(unfavourable)
Cross currency interest rate swaps
Borrowings
Hedge
accounting
designation
Fair value hedge
Interest rate derivatives
Cross currency interest rate swaps – margin
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
No hedge
Cash fl ow hedge
Cash fl ow hedge
Cash fl ow hedge
No hedge
Total change in fair value of fi nancial instruments
Income
Statement
30 June 2011
$000
Cash fl ow
hedge reserve
30 June 2011
$000
Income
Statement
30 June 2010
$000
Cash fl ow
hedge reserve
30 June 2010
$000
(93,558)
93,439
(119)
1,477
(6,160)
–
(1,627)
489
–
(5,940)
–
–
–
205
3,459
(12,673)
8,887
–
(4,957)
(5,079)
(1,012)
1,104
92
3,683
3,135
–
(3,097)
718
–
4,531
–
–
–
647
(4,123)
807
10,967
–
(1,693)
6,605
Parent
Favourable/(unfavourable)
Cross currency interest rate swaps
Borrowings
Hedge
accounting
designation
Fair value hedge
Interest rate derivatives
Cross currency interest rate swaps – margin
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
No hedge
Cash fl ow hedge
Cash fl ow hedge
Cash fl ow hedge
No hedge
Total change in fair value of fi nancial instruments
Income
Statement
30 June 2011
$000
Cash fl ow
hedge reserve
30 June 2011
$000
Income
Statement
30 June 2010
$000
Cash fl ow
hedge reserve
30 June 2010
$000
(93,558)
93,439
(119)
1,477
(6,160)
1
(1,627)
489
–
(5,939)
–
–
–
205
3,459
(12,633)
8,887
–
(4,957)
(5,039)
(1,012)
1,104
92
3,683
3,135
–
(3,097)
718
–
4,531
–
–
–
647
(4,123)
715
10,967
–
(1,693)
6,513
88
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Movement in cash fl ow hedge reserve
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 (ineff ectiveness)
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
Balance as at 1 July 2010
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 (ineff ectiveness)
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 2011
Group
$000
(38,660)
1,680
2,213
505
647
1,863
(303)
Parent
$000
(38,608)
1,538
2,213
555
647
1,863
(303)
(32,055)
(32,095)
(32,055)
(9,871)
283
182
6,405
1,238
(3,316)
(32,095)
(9,871)
283
222
6,405
1,238
(3,316)
(37,134)
(37,134)
Risk management
Contact is committed to having appropriate systems to identify material risks, and to ensuring that the fi nancial impact of
these risks are well understood and reported, limits are in place to control selected exposures, and collective and individual
responsibilities and accountabilities are assigned and understood. Risk management is carried out by a central treasury
department (Treasury) for interest rate and foreign exchange exposures and Wholesale and Energy Risk functions for the
management and oversight of commodity risk through the Commodity Risk Management System, which provides the framework
for identifying, monitoring and managing the commodity exposures of Contact. Treasury, Energy Risk and Wholesale operate
under policies approved by the Board. 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 currencies other than Contact’s
functional currency, New Zealand dollars. The currencies giving rise to this risk are primarily the 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 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.
Forward foreign exchange contracts
The aggregate notional principal amount of the outstanding forward foreign exchange contracts at 30 June 2011 is
$196.6 million (2010: $44.4 million). As at 30 June 2011, all forward foreign exchange contracts are designated in
a cash fl ow hedge relationship.
The hedged anticipated transactions denominated in foreign currencies are expected to occur at various dates between
one month and four years and one month (2010: between one month and nine 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 2011 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 ended 30 June 2011, 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 2011
Sensitivity analysis
Contact Energy Limited Annual Report 2011
89
At 30 June 2011, 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 $10.9 million higher/
lower (2010: $2.7 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 electricity prices. To manage its commodity price risk in
respect of electricity, Contact utilises electricity price hedges including options, where Contact sells and buys
electricity price 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 2011 is 656
gigawatt hours (GWh) (2010: 1,028 GWh). The aggregate notional volume of the outstanding variable volume
electricity price hedges at 30 June 2011 is 846 GWh (2010: 1,073 GWh).
Electricity price hedges are hedging underlying exposures over various trade periods out to December 2014. As at
30 June 2011 the fair value of the electricity price hedges is $(24.2) million (2010: $(32.0) million), of which
$(23.7) million is designated in a cash fl ow hedge relationship (2010: $(30.9) million).
The hedged anticipated transactions are expected to occur at various dates between one month and three years and
six months (2010: between one month and four years and six months) from the end of the reporting period. 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 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 have 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 2011
+10%
$000
30 June 2011
-10%
$000
30 June 2010
+10%
$000
30 June 2010
-10%
$000
1,047
5,221
433
(3,910)
(1,535)
6,518
(686)
(7,040)
(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 currencies 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 2011
is $587.3 million (2010: $587.3 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 seven years
(2010: one month and eight years) from the end of the reporting period as a result of the maturities of the underlying
borrowings.
90
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Interest rate swaps
The aggregate notional principal amount of the outstanding interest rate swap contracts at 30 June 2011 is
$730.0 million (2010: $895.0 million) including $95.0 million of forward starting swaps (2010: $170.0 million).
The anticipated interest payment transactions are expected to occur at various dates between one month and eight
years (2010: one month and nine 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, 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.
Group and Parent
Favourable/(unfavourable)
Impact on post-tax profi t
30 June 2011
+100bps
$000
30 June 2011
-25bps
$000
30 June 2010
+100bps
$000
30 June 2010
-25bps
$000
7,646
(1,990)
7,207
(2,694)
(b) Credit risk
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 cash, short-term investments,
trade receivables, other receivables and derivative fi nancial instruments.
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 NZX Energy. NZX Energy 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
NZX Energy, which could be called upon should any market participant default.
(c) Liquidity risk
Contact’s liquidity risk arises from its need to ensure it has access to suffi cient committed fi nancing to meet its committed
expenditure and debt repayment obligations over an appropriate time period.
Prudent liquidity risk management requires Contact to maintain suffi cient liquidity, which can comprise cash and marketable
securities and/or the availability of funding through committed credit facilities and the spreading of debt maturities. To
reduce refi nancing risk, debt maturities are spread over a number of years.
Liquidity risk is monitored by continually forecasting actual cash fl ows.
Contractual maturities of fi nancial liabilities and derivative fi nancial instruments
The contractual and expected maturities disclosed below are the contracted undiscounted cash fl ows for all fi nancial liabilities,
except for the derivative fi nancial instruments where the contractual maturities are the undiscounted settlements expected under
the contracts. 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.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
91
Group
2011
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
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
contractual
cash fl ows
$000
229,440
1,317,434
2,835
Note
22
Less than
1 year
$000
229,440
77,237
959
1–2 years
$000
–
165,249
1,427
2–5 years
$000
–
879,262
449
More than
5 years
$000
–
195,686
–
23,196
33,776
17,324
11,013
5,632
8,383
240
11,188
–
3,192
(179,462)
196,647
(137,722)
150,229
(35,707)
40,659
(6,033)
5,759
–
–
(486,092)
700,125
(23,151)
22,981
(113,371)
162,456
(261,733)
386,249
(87,837)
128,439
1,837,899
348,310
234,728
1,015,381
239,480
Total
contractual
cash fl ows
$000
242,170
1,600,704
2,846
Note
22
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
Total
2,051,398
346,125
106,843
1,343,775
254,655
92
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Parent
2011
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
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
contractual
cash fl ows
$000
261,054
1,317,434
2,812
Note
22
Less than
1 year
$000
261,054
77,237
941
1–2 years
$000
–
165,249
1,422
2–5 years
$000
–
879,262
449
More than
5 years
$000
–
195,686
–
23,196
33,776
17,324
11,013
5,632
8,383
240
11,188
–
3,192
(179,462)
196,647
(137,722)
150,229
(35,707)
40,659
(6,033)
5,759
–
–
(486,092)
700,125
(23,151)
22,981
(113,371)
162,456
(261,733)
386,249
(87,837)
128,439
1,869,490
379,906
234,723
1,015,381
239,480
Total
contractual
cash fl ows
$000
271,536
1,600,998
2,803
Note
22
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
Total
2,081,056
375,801
106,826
1,343,774
254,655
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 bonds have a fair value of $598.8 million
(2010: $591.6 million), compared with a carrying value of $543.7 million (2010: $541.8 million). The wholesale bonds have
a fair value of $108.4 million (2010: $104.3 million), compared with a carrying value of $99.8 million (2010: $99.8 million).
Estimation of fair values
The fair values of fi nancial assets and fi nancial liabilities are 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. Fair value is determined by using a discounted future cash fl ow valuation model derived from a directly
(i.e from prices) or indirectly (i.e derived from prices using a discounted future cash fl ow valuation model) observable
applicable forward price curve (for the relevant interest rate, foreign exchange rate or commodity price) and a discount rate.
Financial instruments in this level include short-term electricity derivatives, forward foreign exchange contracts, interest rate
derivatives and foreign currency denominated debt.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
93
•
Level three – the fair value is derived from inputs that are not based on observable market data and is estimated by
using a discounted future cash fl ow valuation model involving internal price curves (for the relevant commodity price)
and a discount rate. Financial instruments included in this level include certain long-term electricity price hedges, which
are valued using internal price paths.
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 rate, foreign exchange rate 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 Parents’ fi nancial assets and liabilities that are recognised at
fair value:
Group
2011
Financial assets at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Derivatives held for trading
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
Group
2010
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
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
–
–
–
–
–
–
–
1,184
771
71
22,736
150,160
436,915
31,326
–
–
–
22,269
–
–
–
1,184
771
71
45,005
150,160
436,915
31,326
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
–
–
–
–
–
–
5,018
724
5,191
56,555
530,085
33,365
–
–
5,018
724
35,595
–
–
–
40,786
56,555
530,085
33,365
94
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Parent
2011
Financial assets at fair value
Derivatives designated as cash fl ow hedging instruments
Derivatives designated as fair value hedging instruments
Derivatives held for trading
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
Parent
2010
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
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
–
–
–
–
–
–
–
1,184
771
71
22,736
150,160
436,915
31,326
–
–
–
22,269
–
–
–
1,184
771
71
45,005
150,160
436,915
31,326
Level one
$000
Level two
$000
Level three
$000
Total balance
$000
–
–
–
–
–
–
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
Balance as at 1 July 2010
Gains and losses recognised in profi t or loss*
Gains and losses recognised in cash fl ow hedge reserve
Balance as at 30 June 2011
* 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)
(35,595)
(1,586)
14,912
(22,269)
The following table summarises the impact of a reasonable change in the assumptions used to measure the fair value of fi nancial
instruments categorised as level three. A 10 per cent increase/decrease in the internal electricity forward price with all other
variables held constant would have the following eff ect on Contact’s post-tax profi t for the year and on the cash fl ow hedge
reserve component of other comprehensive income.
Group and Parent
Favourable/(unfavourable)
Impact on post-tax profi t
Impact on other comprehensive income
30 June 2011
+10%
$000
30 June 2011
-10%
$000
30 June 2010
+10%
$000
30 June 2010
-10%
$000
1,395
9,025
85
(7,714)
(1,207)
11,882
(1,967)
12,405
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Financial instruments by category
The following tables provide an analysis of fi nancial assets and fi nancial liabilities by category:
Contact Energy Limited Annual Report 2011
95
Group
2011
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
Group
2010
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
12
21
22
12
21
22
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
–
–
71
–
71
47,267
240,536
–
–
–
–
–
2,935
287,803
2,935
–
–
–
–
–
–
–
771
–
771
–
–
1,184
–
1,184
–
31,326
–
31,326
–
–
–
–
– 1,085,122
–
–
229,440
–
–
150,160
–
– 1,314,562
150,160
–
45,005
–
1,085,122
226,491
229,440
45,005 1,541,053
866,836
2,407,889
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
–
–
–
–
–
921
217,352
–
–
–
–
–
2,935
218,273
2,935
–
–
–
–
–
–
–
724
–
724
–
–
5,018
–
5,018
–
33,365
–
33,365
–
–
–
–
– 1,282,413
–
–
242,170
–
– 1,524,583
–
56,555
–
56,555
–
40,786
–
1,282,413
130,706
242,170
40,786 1,655,289
715,750
2,371,039
Total
$000
47,267
240,536
2,026
2,935
292,764
5,350,735
5,643,499
Total
$000
921
217,352
5,742
2,935
226,950
4,920,867
5,147,817
96
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Parent
2011
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
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
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
Held for
trading
$000
Loans and
receivables
$000
–
–
71
71
47,191
244,549
–
291,740
–
–
–
–
–
–
–
–
–
–
771
771
–
–
1,184
1,184
Note
12
Total
$000
47,191
244,549
2,026
293,766
5,309,020
5,602,786
22
–
31,326
–
31,326
–
–
–
–
– 1,084,912
–
–
261,054
–
–
150,160
–
– 1,345,966
150,160
–
45,005
–
1,084,912
226,491
261,054
45,005 1,572,457
885,378
2,457,835
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
–
–
–
208,619
–
208,619
–
–
–
–
–
–
–
724
724
–
4,977
4,977
Total
$000
208,619
5,701
214,320
4,892,607
5,106,927
22
–
33,365
–
33,365
–
–
–
–
– 1,282,669
–
–
271,536
–
– 1,554,205
–
56,555
–
56,555
–
40,786
–
1,282,669
130,706
271,536
40,786 1,684,911
708,612
2,393,523
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Contact Energy Limited Annual Report 2011
97
Capital risk management objectives
Contact’s capital includes share capital, reserves and retained earnings. Contact’s objective when managing capital is 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 an investment credit rating.
Contact manages its capital structure to ensure it can continue to attract capital from investors and banks on reasonable terms.
Contact seeks to retain a modest gearing ratio of net debt to total capital funding and maintain earnings suffi cient to cover its
interest borrowing costs satisfactorily.
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 2011 and 30 June 2010 are as follows:
Group
Net debt
Current borrowings
New Zealand dollar equivalent of notional 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
Note
30 June 2011
$000
30 June 2010
$000
22
22
22
22
22
22
12
(3,012)
(3,180)
(587,299)
(550,000)
(100,000)
–
(1,726)
47,267
(587,299)
(550,000)
(100,000)
(106,200)
(1,344)
921
(1,194,770)
(1,347,102)
(3,235,610)
(52,561)
(2,776,778)
(48,317)
(3,288,171)
(2,825,095)
(4,482,941)
(4,172,197)
26.7%
32.3%
Adjusted equity
Total capital funding
Gearing ratio
24 Payables and accruals
Electricity purchases accrual
Other trade payables and accruals*
Advances from subsidiaries
Employee benefi ts
Interest payable
Total payables and accruals
Note
29
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
49,732
272,005
–
22,754
10,202
34,192
199,647
–
17,029
11,562
45,460
249,550
86,438
22,754
10,202
30,870
163,187
69,148
16,561
11,562
354,693
262,430
414,404
291,328
*
Other trade payables and accruals include transactions with Contact’s ultimate parent entity (Origin) and its subsidiaries.
Refer to note 29.
98
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
25 Provisions
Group
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
Balance as at 1 July 2010
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance as at 30 June 2011
Current
Non-current
Parent
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
Balance as at 1 July 2010
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Unwind of discount rate
Balance as at 30 June 2011
Current
Non-current
Restoration/
environmental
rehabilitation
$000
Retail
transaction
processing
outsourcing
$000
39,694
14,309
(5,506)
(87)
3,057
51,467
51,467
5,004
(3,871)
–
3,903
56,503
3,639
52,864
56,503
–
3,330
(427)
–
–
2,903
2,903
–
(1,390)
–
–
1,513
1,513
–
1,513
Restoration/
environmental
rehabilitation
$000
Retail
transaction
processing
outsourcing
$000
37,818
14,309
(5,363)
–
2,843
49,607
49,607
4,321
(3,684)
–
3,826
54,070
3,415
50,655
54,070
–
3,330
(427)
–
–
2,903
2,903
–
(1,390)
–
–
1,513
1,513
–
1,513
Other
$000
2,251
1,215
(114)
(1,147)
–
2,205
2,205
950
(116)
(170)
–
2,869
1,199
1,670
2,869
Other
$000
2,251
1,215
(114)
(1,147)
–
2,205
2,205
950
(116)
(170)
–
2,869
1,199
1,670
2,869
Total
$000
41,945
18,854
(6,047)
(1,234)
3,057
56,575
56,575
5,954
(5,377)
(170)
3,903
60,885
6,351
54,534
60,885
Total
$000
40,069
18,854
(5,904)
(1,147)
2,843
54,715
54,715
5,271
(5,190)
(170)
3,826
58,452
6,127
52,325
58,452
The restoration and environmental rehabilitation provision includes 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 and New Plymouth. 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.
Contact Energy Limited Annual Report 2011
99
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
26 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 associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment
Investment in associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Movement in deferred tax
Group
Property, plant and equipment
Investment in associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Assets
30 June 2011
$000
Assets
30 June 2010
$000
Liabilities
30 June 2011
$000
Liabilities
30 June 2010
$000
–
–
2,537
6,488
12,379
17,079
510
38,993
–
–
2,113
5,884
17,831
19,440
–
(716,334)
(2,863)
–
–
–
–
–
(673,977)
(2,270)
–
–
–
–
(7,211)
45,268
(719,197)
(683,458)
Assets
30 June 2011
$000
Assets
30 June 2010
$000
Liabilities
30 June 2011
$000
Liabilities
30 June 2010
$000
–
–
2,537
6,488
11,196
17,079
498
37,798
–
–
2,113
5,741
16,738
19,440
–
(710,720)
(162)
–
–
–
–
–
(669,686)
(174)
–
–
–
–
(7,552)
44,032
(710,882)
(677,412)
Balance
1 July 2010
$000
Recognised
in income
$000
(673,977)
(2,270)
2,113
5,884
17,831
19,440
(7,211)
(45,409)
(675)
454
1,067
(5,413)
1,782
7,757
(638,190)
(40,437)
Recognised
in other
comprehensive
income
$000
–
(123)
–
–
–
(3,765)
–
(3,888)
Change in
tax rate*
$000
Balance
30 June 2011
$000
3,052
205
(30)
(463)
(39)
(378)
(36)
(716,334)
(2,863)
2,537
6,488
12,379
17,079
510
2,311
(680,204)
100
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Group
Property, plant and equipment
Investment in associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment
Investment in associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Parent
Property, plant and equipment
Investment in associates
Inventories
Employee benefi ts
Provisions
Financial instruments
Other
Total
Balance
1 July 2009
$000
Recognised
in income
$000
(666,021)
(2,235)
2,179
4,241
15,173
23,889
(3,512)
(52,421)
(74)
85
1,643
3,503
(1,359)
(4,277)
(626,286)
(52,900)
Balance
1 July 2010
$000
Recognised
in income
$000
(669,686)
(174)
2,113
5,741
16,738
19,440
(7,552)
(44,208)
–
454
1,210
(5,587)
1,782
8,086
(633,380)
(38,263)
Balance
1 July 2009
$000
Recognised
in income
$000
(663,190)
(174)
2,179
4,053
14,048
23,889
(4,237)
(50,646)
–
85
1,688
3,535
(1,359)
(3,893)
(623,432)
(50,590)
Recognised
in other
comprehensive
income
$000
–
39
–
–
–
(2,248)
–
(2,209)
Recognised
in other
comprehensive
income
$000
–
–
–
–
–
(3,765)
–
(3,765)
Recognised
in other
comprehensive
income
$000
–
–
–
–
–
(2,248)
–
(2,248)
Change in
tax rate*
$000
Balance
30 June 2010
$000
44,465
–
(151)
–
(845)
(842)
578
(673,977)
(2,270)
2,113
5,884
17,831
19,440
(7,211)
43,205
(638,190)
Change in
tax rate*
$000
Balance
30 June 2011
$000
3,174
12
(30)
(463)
45
(378)
(36)
(710,720)
(162)
2,537
6,488
11,196
17,079
498
2,324
(673,084)
Change in
tax rate*
$000
Balance
30 June 2010
$000
44,150
–
(151)
–
(845)
(842)
578
(669,686)
(174)
2,113
5,741
16,738
19,440
(7,552)
42,890
(633,380)
*
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 is recognised
in the Income Statement; Group and Parent $3.5 million (2010: Group $42.7 million and Parent $42.3 million) and in
other comprehensive income; Group and Parent $(1.2) million (2010: Group and Parent $0.6 million) consistent with the
underlying items that give rise to the deferred tax.
Unrecognised deferred tax assets and liabilities
There are no unrecognised deferred tax assets and liabilities.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
27 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
Contact Energy Limited Annual Report 2011
101
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
296,761
96,766
272
86,158
70,390
296
296,761
96,766
272
86,158
70,390
296
Total capital and investment commitments
393,799
156,844
393,799
156,844
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 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
7,577
17,859
9,798
35,234
6,614
14,967
11,540
33,121
6,039
14,021
5,057
25,117
5,119
10,615
6,672
22,406
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.
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
1,355
2,235
217
3,807
1,476
3,107
177
4,760
1,216
1,858
50
3,124
1,157
2,525
80
3,762
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.
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.
102
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
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 a second
contract that has a fi rst delivery date of 1 April 2012 and an expiry date of 31 December 2013, Contact has agreed to make fi xed
annual payments for the right to take gas. Under a third agreement Contact has an option to take gas on a daily basis through to
31 December 2011.
All 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.
28 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 and its Ahuroa underground gas storage facility
in Taranaki as well as to enable the direct supply of geothermal energy to industry in Taupo. The duration of resource consents,
once exercised, 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 operations, Contact has consents to construct and operate a net 220 MW geothermal power
station at Te Mihi (near Taupo). Construction has commenced on a two-unit 166 MW Te Mihi power station and works are well
underway. Contact also holds consents to install a third unit at Te Mihi.
At Otahuhu, Contact holds resource consents to construct and operate a new 400 MW combined-cycle power station (Otahuhu C)
for which the lapse date (the date by which the consents must be exercised) has been extended to 2015. The consents themselves
expire in 2021. Contact also has the ability to construct and operate a 120 MW open-cycle power station under its existing
consents (Otahuhu A).
In Taranaki Contact has consents to construct and operate an up to 500 MW combined-cycle power station at its Stratford site
(TCC 2) for which the lapse period has been extended to 2017. These consents expire in 2034.
Contact has obtained consents to construct and operate a 17.2 MW hydro power station on the Hawea Dam.
In December 2010, Contact secured consents for a 250 MW geothermal project (Tauhara II) near Taupo.
In March 2011, Contact was granted the consents necessary to build a 156 MW wind farm at Waitahora, near Dannevirke in the
Tararua District.
In May 2011, Contact was granted consents for a 504 MW wind farm on the west Waikato coast called Haua-uru ma- raki.
29 Related party transactions
Parent company
As at 30 June 2011, Origin Energy Pacifi c Holdings Limited is the majority shareholder in the Parent, owning 51.8 per cent
(2010: 51.0 per cent) of the ordinary shares of the Parent.
Further shares amounting to 0.8 per cent (2010: 0.8 per cent) of the Parent’s ordinary shares are held by Origin Energy Universal
Holdings Limited and Origin Energy New Zealand Limited at 30 June 2011. All three companies are 100 per cent owned by Origin,
an Australian incorporated company.
The ultimate parent entity of Contact is Origin.
Identities of related parties with whom material transactions have occurred
Notes 18, 19 and 20 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.
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Material related party transactions
Contact Energy Limited Annual Report 2011
103
Transactions with ultimate parent entity
•
The Parent issued 7,679,632 and 6,035,007 ordinary shares to its Origin shareholders pursuant to the Parent’s PDP
on 27 September 2010 and 31 March 2011 respectively (2010: 8,252,200 on 22 September 2009 and 5,563,640 on
31 March 2010). As a result of elections, the Parent completed an off -market buy-back of 606,849 shares on 27 September
2010 and 589,718 shares on 31 March 2011 (2010: 868,865 on 22 September 2009 and 568,385 on 31 March 2010).
•
On 9 June 2011, the Parent issued 36,206,220 shares to its Origin shareholders as part of the Entitlement Off er made to
all New Zealand and Australian resident shareholders at an issue price of $5.05 per share. A further 3,322,068 shares were
issued as part of the book-build. Refer to note 10.
Amounts paid/payable
•
•
•
•
•
•
Dennis Barnes, Chief Executive Offi cer of Contact, is seconded to Contact from his employer Origin. Fees incurred or accrued
since Mr Barnes’ appointment on 1 April 2011 total $0.4 million (2010: nil), which includes the cost of his salary and other
employment benefi ts including a 2010/2011 short-term incentive payment. At 30 June 2011, $0.3 million remains
outstanding (2010: nil). In addition, share-based payments under Contact’s Employee Long-Term Incentive Scheme
amounting to $0.04 million (2010: nil) were accrued for Mr Barnes, being the fair value of the share-based payments
relating to this reporting period. Refer to note 11.
David Baldwin, former Managing Director of Contact, was seconded to Contact from his employer Origin until 31 March
2011. Fees incurred or accrued during the year ended 30 June 2011 in relation to Mr Baldwin’s role as Managing Director
totalled $1.1 million (2010: $1.2 million), which includes the cost of his salary and other employment benefi ts including
a 2010/2011 short-term incentive payment. At 30 June 2011, $0.4 million (2010: $0.5 million) of this amount remains
outstanding. In addition, share-based payments under Contact’s Employee Long-Term Incentive Scheme amounting to
$0.6 million (2010: $0.5 million) were accrued for Mr Baldwin, being the fair value of the share-based payments relating
to this reporting period. Refer to note 11.
Origin was employed for consulting work on the Stratford Peaker project. There were no transactions during the year ended
30 June 2011 (2010: $0.5 million). At 30 June 2011, no amounts remain outstanding (2010: nil).
Contact, Origin and Origin Energy Services Limited have entered into an agreement in respect of the purchase of SAP-related
intellectual property. During the year ended 30 June 2011, the transactions under this agreement totalled $5.0 million
(2010: nil). At 30 June 2011, $2.5 million of this amount remains outstanding (2010: nil).
Contact and Origin have an agreement in respect of the purchase of SAP-related software. During the year ended 30 June
2011, the transactions under this agreement totalled $0.1 million (2010: nil). At 30 June 2011, $0.1 million remains
outstanding (2010: nil).
Contact and Origin have entered into a Master Services Agreement for the provision of professional, consulting and/or
administrative services between the parties. In the year ended 30 June 2011, two members of staff were seconded from
Contact to Origin and seven members of staff were seconded from Origin to Contact. These services were charged at normal
commercial rates. Subsequent to the Christchurch earthquake, Origin seconded several employees to Contact on a temporary
basis. These services were charged at normal commercial rates.
Transactions with Origin subsidiaries
Amounts paid/payable
•
•
•
•
Contact and Origin Energy Resources NZ (TAWN) Limited have an agreement in respect of the development and operation
of the Ahuroa gas storage facility. During the year ended 30 June 2011, the transactions under this agreement totalled
$12.5 million (2010: $7.8 million). At 30 June 2011, $12.0 million remains outstanding (2010: nil).
Contact has an agreement with Origin Energy Services Limited to provide infrastructure and data centre services for
Contact’s SAP system. During the year ended 30 June 2011, the transactions under this agreement totalled $2.6 million
(2010: $1.1 million). At 30 June 2011, $0.2 million remains outstanding (2010: nil).
Contact, Origin Energy Resources NZ (TAWN) Limited and Origin Energy Five Star Holdings Limited have an agreement 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 2011, the transactions under this agreement totalled $2.8 million (2010: $24.6 million). At 30 June
2011, $0.3 million remains outstanding (2010: $0.6 million).
Rockgas Limited and Origin Energy LPG Limited have an LPG Sale and Purchase Agreement for the purchase and shipping
of imported LPG. During the year ended 30 June 2011, transactions totalled $7.4 million (2010: $24.8 million). At 30 June
2011, $1.9 million remains outstanding (2010: $2.0 million).
104
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
•
•
•
Rockgas Limited has 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
$0.9 million (2010: $1.7 million). At 30 June 2011, $0.2 million remains outstanding (2010: $0.1 million).
Rockgas Limited has 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 $35.9 million
(2010: $19.1 million). At 30 June 2011, $2.6 million remains outstanding (2010: $4.4 million).
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
$0.2 million (2010: $3.3 million). At 30 June 2011, no amounts remain outstanding (2010: nil).
Amounts received/receivable
•
•
Gas sales of $0.1 million to Origin Energy Resources NZ Limited were made in the year ended 30 June 2011 (2010: $0.1
million). At 30 June 2011, no amounts remain outstanding (2010: nil).
Contact and Origin Energy Resources NZ Limited have an electricity supply contract to supply Origin’s facilities in Taranaki.
Transactions for the year amounted to $0.8 million (2010: $0.9 million). At 30 June 2011, $0.7 million remains outstanding
(2010: $0.5 million).
Transactions with subsidiaries and associates
•
Advances to/from subsidiaries and associates are included in notes 13 and 24 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 management fees, which
are calculated at arm’s length. These charges totalled $11.3 million for the year ended 30 June 2011 (2010: $13.8 million).
All balances are settled through the intercompany account.
The Parent had transactions with Empower Limited in respect of gas purchases, which are calculated at arm’s length.
Purchases from Empower Limited totalled $56.7 million for the year ended 30 June 2011 (2010: $104.2 million).
All balances were settled through the intercompany account and this contract ended on 31 December 2010.
The Parent charges Rockgas Limited a management fee for various management services. Total fees charged for the year ended
30 June 2011 amounted to $11.0 million (2010: $10.9 million). 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 2011, Rockgas Limited had transactions with Rockgas Timaru Limited (Rockgas Timaru),
an associate, in respect of the supply of LPG to Rockgas Timaru amounting to $1.0 million (2010: $1.1 million), and in
respect of the provision of deliveries by Rockgas Timaru amounting to $0.1 million (2010: $0.1 million), both of which
were calculated at arm’s length. At 30 June 2011, no amount remains outstanding (2010: $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 2011 totalled
$0.5 million (30 June 2010: $0.5 million). At 30 June 2011, $0.1 million remains outstanding (30 June 2010: $0.1 million).
•
New Zealand based Directors and members of the Leadership Team purchase gas and electricity from the Group for
domestic purposes.
30 Key management personnel
The table below includes remuneration of Directors, the Chief Executive Offi cer and his Leadership Team.
Group
30 June 2011
$000
Group
30 June 2010
$000
Parent
30 June 2011
$000
Parent
30 June 2010
$000
Note
Directors’ fees
1,008
993
1,008
993
Chief Executive Offi cer and Leadership Team
Salary and other short-term benefi ts
Share-based payments
Total Chief Executive Offi cer and Leadership Team
Total key management personnel
11
6,068
1,493
7,561
8,569
4,537
1,065
5,602
6,595
6,068
1,493
7,561
8,569
4,537
1,065
5,602
6,595
Contact Energy Limited and Subsidiaries
Notes to the fi nancial statements
for the year ended 30 June 2011
Group and Parent
For the year ended 30 June 2011
Director
G King
P Pryke
B Beeren
K Moses
S Sheldon
W Dewes
D Baldwin*
Total
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
Contact Energy Limited Annual Report 2011
105
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Managing Director
Board fees
$
Committee and
special fees
$
Total
remuneration
$
200,000
125,000
110,000
110,000
110,000
110,000
27,500
–
35,000
37,000
20,000
86,807
37,000
–
200,000
160,000
147,000
130,000
196,807
147,000
27,500
792,500
215,807
1,008,307
Board fees
$
Committee and
special fees
$
Total
remuneration
$
200,000
137,500
105,000
105,000
105,000
105,000
38,575
–
–
17,500
37,000
60,000
20,000
32,000
30,710
–
200,000
155,000
142,000
165,000
125,000
137,000
69,285
–
796,075
197,210
993,285
*
On 31 March 2011, David Baldwin’s secondment from Origin ended. As Managing Director Mr Baldwin did not receive any
fees in his capacity as a Director on the Board. Fees received have been in Mr Baldwin’s capacity as a non-executive Director
subsequent to 1 April 2011.
31 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.
In December 2010 the Crown off ered the Whirinaki generating plant for sale by open tender. The Crown has indicated a wish
to transfer ownership of the plant on either 1 December 2011 or 1 October 2012.
32 Contingent liabilities
There are no known material contingent liabilities at 30 June 2011 (2010: nil).
33 Subsequent events
On 19 August 2011, the Board declared a distribution pursuant to the PDP in the form of a non-taxable bonus issue for the year
ended 30 June 2011 equivalent to 12.0 cents per share, for shares on issue at 5 September 2011, the record date, with bonus
shares allocated and/or cash distributed, if elected, on 27 September 2011. Refer to note 8.
On 19 August 2011, the Board approved the issue of 18,002 performance share rights. Refer to note 11.
106
Contact Energy Limited Annual Report 2011
Contact Energy Limited and Subsidiaries
Independent Auditor’s Report
To the shareholders of Contact Energy Limited
Report on the Company and Group Financial Statements
We have audited the accompanying fi nancial statements of Contact Energy Limited (‘the company’) and the group,
comprising the company and its subsidiaries, on pages 52 to 105. The fi nancial statements comprise the statements
of fi nancial position as at 30 June 2011, the income statements and statements of comprehensive income, changes in
equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory
information, for both the company and the group.
Directors’ Responsibility for the Company and Group Financial Statements
The directors are responsible for the preparation of company and group fi nancial statements in accordance with
generally accepted accounting practice in New Zealand and International Financial Reporting Standards that give
a true and fair view of the matters to which they relate, and for such internal control as the directors determine is
necessary to enable the preparation of company and group fi nancial statements that are free from material misstatement
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these company and group fi nancial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the company and group fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the company
and group fi nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment
of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the company and group’s preparation of the fi nancial
statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the company
and group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates, as well as evaluating the presentation of the fi nancial statements.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit
opinion.
Our fi rm has also provided other assurance services to the company and group. Partners and employees of our fi rm also
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 and group.
Opinion
In our opinion the fi nancial statements on pages 52 to 105:
•
•
•
comply with generally accepted accounting practice in New Zealand;
comply with International Financial Reporting Standards;
give a true and fair view of the fi nancial position of the company and the group as at 30 June 2011 and of the
fi nancial performance and cash fl ows of the company and the group for the year then ended.
Contact Energy Limited Annual Report 2011
107
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, we
report that:
• we have obtained all the information and explanations that we have required; and
•
in our opinion, proper accounting records have been kept by Contact Energy Limited as far as appears from our
examination of those records.
19 August 2011
Wellington
108
Contact Energy Limited Annual Report 2011
Corporate directory
Board of Directors
Grant King, Chairman
Phillip Pryke, Deputy Chairman
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon
Leadership team
Dennis Barnes, Chief Executive Offi cer
Ruth Bound, General Manager, Retail and Strategic Marketing
Graham Cockroft, Chief Operating Offi cer
Mark Elliott, Chief Financial Offi cer
Luc Hennekens, Chief Information Offi cer and General Manager, Information and Communication Technology
Paul Ridley-Smith, General Counsel and Company Secretary
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: (04) 499 4001 Facsimile: (04) 499 4003
Email: investor.centre@contactenergy.co.nz
Website: www.contactenergy.co.nz
NZX trading code: CEN
Company number: 660760
Contact Energy Limited Annual Report 2011
109
Share registrar
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
159 Hurstmere Road
Takapuna, Auckland 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:
Chief Financial Offi cer
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 2011
End of third quarter
Financial year end
22 August 2011
5 September 2011
Noon, 23 September 2011
27 September 2011
30 September 2011
19 October 2011
31 December 2011
February 2012
31 March 2012
30 June 2012
Notes
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.