Contact Energy Annual Report 2014

FY2014 Annual Report · Contact Energy

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Full
steam
ahead

Annual Report
2014

Te Mihi geothermal power station
Investment decision – February 2011
Commissioned – May 2014
Ofﬁcially opened – August 2014

Contact 2014
Geothermal Resource

Geothermal Resource 3

Contact 2014

We are…
One of New Zealand’s largest listed companies but we
operate with the same genuine concern for our customers
and communities as the smallest. We are integral to our
customers’ lives – and our customers are integral to us.

This Annual Report is dated 5 September 2014 and is signed on behalf of the Board by:

Grant King
Chairman

Sue Sheldon
Director

Contents

04 Geothermal Resource
10 New Customer System
14 At a Glance
16 Our Business Model
18 Where We Operate 20 KPIs
22 Q&A 28 Our Board
30 Our Leadership Team
32 Case Studies 40 Our People

Governance

Remuneration Report

Statutory Disclosures

Financial Statements

Independent Auditor’s Report 87

Corporate Directory

OUR

56YEAR INVESTMENT

IN NEW ZEALAND’S
HOTTEST REGION

Geothermal Resource 5

Contact 2014

Another milestone
in the journey

Contact is a company committed to the development and use
of geothermal energy. Why? It’s renewable, it’s clean, it’s ﬁ nancially
secure, and it’s always available to power Kiwi homes and
businesses – today and into the future.

Our Taupō steamﬁ eld operation is large by international standards.
Besides the clear environmental beneﬁ ts, these sustainable assets
oﬀ er strong cash-ﬂ ows for investors over the long term.

In 2014, we celebrated the completion of our Wairākei Investment
Programme. This signiﬁ cant investment in our geothermal
resource included building the $623 million Te Mihi power station
and steamﬁ eld connections as well as developing the Wairākei
Bioreactor, drilling a number of new wells and expanding the
Wairākei steamﬁ eld.

This investment programme has dramatically grown the breadth
of expertise within our organisation. With Te Mihi, we have proven
our ability to develop and operate large, world-class geothermal
power stations. Our combined gross geothermal generation output
is now 431 megawatts (MW) and is globally signiﬁ cant in
geothermal terms.

Through the Wairākei Investment Programme we have further
increased the ﬂ exibility of our generation portfolio and lowered our
overall fuel costs for generation. We have improved the resilience
of our business, and for investors we have secured a strong,
sustainable ﬁ nancial future.

1. Te Mihi steam supply system

and cooling tower

2. Te Mihi turbine hall

production and
reinjection wells and over
100km of pipes within the
Taupō region are used
to source and transport
the steam and ﬂ uid
we use to produce
geothermal energy

Contact power
stations across the
Taupō region

400k

Kiwi homes can
be supplied with
electricity from
Contact’s geothermal
power stations

1/3

of Contact’s average
annual generation
will come from
geothermal energy

7th

largest geothermal
ﬁ eld by capacity
in the world

Contact 2014
Geothermal Resource

TE MIHI

WAIRAKEI

BIOREACTOR

TENON

POIHIPI

OHAAKI

WAIKATO
RIVER

TE HUKA

Taupo- geothermal
resource

The precious geothermal
resources of the Taupo
region are harnessed by
transporting steam and
ﬂ uid through a complex
network of around 90
production and reinjection
wells and over 100km
of connecting pipes that
lead to our 5 geothermal
power stations.

TE MIHI
POWER STATION

WAIRAKEI
POWER STATION

Commissioned: 2014
Gross Output: 166 MW

Commissioned: 1958
Gross Output: 132 MW

Located near the Wairākei power
station, Te Mihi is our newest
geothermal power station. With
its eﬃ cient double-turbine design,
Te Mihi can generate enough
electricity to power over 160,000
Kiwi homes – that’s the whole
of Wellington city.

Wairākei has been powering
New Zealand homes since a clean
load of laundry meant ‘boiling the
copper’. The second large-scale
geothermal power station ever
to be built in the world, Wairākei’s
current consents continue until
2026, when it will be 70 years old.

WAIRAKEI
BIOREACTOR

Commissioned 2012

The award-winning Wairākei
Bioreactor uses billions of naturally
occurring bacteria to treat cooling
water and reduce the amount of
hydrogen sulphide contained in the
water before it is returned to the
Waikato river. This process occurs
as the water makes a journey
through a network of 378 kilometres
of underground pipes. That’s
equivalent to the distance from
Christchurch to Dunedin.

KEY

Power station

Flash plant

Production well

Reinjection well

Cooling tower

Bioreactor

Computer controlled

Steam vent

POIHIPI ROAD
POWER STATION

Commissioned: 1997
Gross Output: 55 MW

As one of the most reliable units
in our geothermal ﬂ eet, Poihipi
Road provides secure and stable
geothermal energy.

OHAAKI
POWER STATION

TE HUKA
POWER STATION

Commissioned: 1989
Gross Output: 50 MW

Commissioned: 2010
Gross Output: 28 MW

Since acquiring Ohaaki we
have worked to operate the
station in a more sustainable
manner for the beneﬁ t of Contact
and our stakeholders. Ohaaki
is recognised by its distinctive
105 metre high cooling tower
– that’s almost on par with
Wellington’s tallest oﬃ ce building.

Te Huka is the ﬁ rst power station to
be built on the Tauhara geothermal
steamﬁ eld. Te Huka was opened
three weeks ahead of schedule
and was delivered under budget,
while producing a greater-than-
expected electricity generation
performance. The Tenon wood
products mill is a Contact
electricity customer. We also
supply them with process steam
directly from wells near Te Huka,
supporting the continued operation
of this signiﬁ cant local employer.

Geothermal Resource 7

Contact 2014

How steam is turned into power

Regardless of the weather,
it’s always hot underground

Generated from deep within the earth,
geothermal energy is New Zealand’s most
reliable source of clean, renewable energy.
Contact is fully committed to further developing
this resource in order to ensure a clean, secure
energy supply for Kiwis.

Potential well sites are
identiﬁ ed though geophysical
prospecting, and exploratory
wells are drilled.

Production wells are
drilled to bring steam and
water up to the surface.
The steam is separated from
the water and piped to the
power station.

Inside the power station,
the steam spins a turbine
which generates electricity
via electromagnetic induction.

This electricity is fed
into New Zealand’s national
power grid at 220,000 volts.

Through careful management,
separated geothermal water
is reinjected into areas under-
ground where it will help maintain
pressure while minimising the
cooling of the steamﬁ eld.

FUTURE TAUHARA
DEVELOPMENT

Contact has gained consents
for a 250 MW geothermal
development on the Tauhara
steamﬁ eld in Taupō. We believe
this is New Zealand’s most
attractive new generation
option. The development could
power homes and businesses
or provide direct industrial heat
or energy supply. The Tauhara
project will be progressed when
market conditions allow.

Contact 2014
Geothermal Resource

Local strength, world class

Te Mihi power station is our latest achievement – a brand new, state-of-the-art geothermal power station
that maximises generation efﬁ ciency and minimises the cost of each megawatt of electricity produced.

Te Mihi carries the pioneering legacy of our Wairākei plant into
a new era of eﬃ ciency and environmental responsibility.

Flexibility is at the heart of Te Mihi’s design. With two 83 MW steam
turbines, the plant has been designed to make the best use of
steam and maximise capacity. A vast network of pipes connects
Te Mihi to the Wairākei steamﬁ eld, increasing overall eﬃ ciency
and generation reliability.

During the decade long development and construction period
we have aimed to build a relationship with the local community
that is open and responsive.

The design, build and operation of Te Mihi has contributed
to an exponential growth of expertise within our company.
Earth scientists, chemists, operators, managers and engineers
of every kind have contributed to the development of Te Mihi
and are now a part of our highly skilled geothermal workforce.

We are incredibly pleased to welcome Te Mihi into Contact’s
geothermal family. This ﬂ exible, fully integrated power station
ensures that we can continue to eﬃ ciently meet the energy needs
of Kiwis into the future.

500

During the peak of
construction there were
up to 500 skilled
workers on site,
of whom, many
were locals.

Keeping it local

$60m

Around 20
New Zealand contracting
companies worked on
the project with at least
$60 million invested into
the local economy through
these subcontracts.

Contact has introduced
a geothermal schools
pilot programme at
6 local Taupō schools
to help children
learn more about
geothermal energy.

NON-CONDENSABLE GASES

STEAM TURBINES

Approximately 1 per cent of geothermal steam
is non-condensable gas (NCG), primarily
CO2 and some H2S (that uniquely geothermal
smell). We remove these to improve
plant eﬃ ciency.

Pressurised steam is expanded
through Te Mihi’s two 83 MW turbines into
a condenser. The steam turbines consume
173 kg of steam per second.

POTENTIAL POWER

LOCAL ENVIRONMENT

24/7

CONNECTED

With a total capacity of 166 MW,
Te Mihi has the potential to
power over 160,000 Kiwi homes.

Te Mihi has been designed to
ensure that geothermal water
used by the station is reinjected
into the steamﬁ eld, reducing its
impact on the local environment.

Two steam turbines, with the
ability to generate 83 MW each,
allow for maximum generation
capacity 24 hours a day, 7 days
a week.

Te Mihi is connected to a vast
array of wells, pipes and steam
separation plants to enable
steam from the geothermal ﬁ eld
to be moved to where
it’s needed most.

FLASH PLANT

ACID DOSING PLANT

A number of ﬂ ash plants separate steam
from the geothermal water.

Acid is added to geothermal ﬂ uid to lower
the pH to 5.5. This delays silica building up
and blocking pipes, enabling geothermal
water to be safely reinjected back into
the ground.

Geothermal Resource 9

Contact 2014

The power of
partnership
– signing the
Ohaaki Mitigation
Agreement

After 17 years of
discussion, Nga¯ti Tahu
and Contact are working
together as a result of
an agreement signed
in 2013.

The Ohaaki power station is
located on land belonging to
Ngāti Tahu. Since taking over
the power station lease in
1996 from ECNZ, we have
been working to resolve
issues around the impact of
geothermal power generation
on the Ngāti Tahu people,
their culture and their tāonga
(tribal resources).

In 2013, the Ohaaki
reconsenting process
presented a fresh opportunity
for us to come together and
develop solutions that were
mutually beneﬁ cial and met
the needs of current and future
generations of Ngāti Tahu.
Integral to this process is
fostering a relationship built
on open communication and
developing a deep appreciation
of the Ngāti Tahu people,
culture and aspirations.

One of the foundations
of the Ohaaki agreement
is the creation of a proactive
framework for engagement
based on institutionalising
our communications with
each other. Our agreement
with Ngāti Tahu is for 35 years,
matching the new Ohaaki
power station consent
granted by the Waikato
Regional Council.

Aroha Campbell, Trustee for
the Ngāti Tahu Tribal Trust,
shares her story on page 39.

New Customer System 11

Contact 2014

A single view of our customers’
relationships with us

A signiﬁ cant investment in the
future of Contact

Helping us to change the way
we do things

On 23 April 2014 we turned on our new customer billing and
service system. It marked a major milestone in a multi-year
programme to scope, build and introduce a new information
technology system that replaces 20 old systems and will enable
us to enhance the service we provide to our customers. It’s a
journey that began with reviewing around 260 existing customer
processes, looking for ways to improve them and then documenting
each of them, step by step. Next came the task of building and
setting up the SAP customer billing and service system to manage
all of the customer processes performed by the Contact team.
Extensive testing of the processes and new system followed, along
with in-depth training for our people. We have also temporarily added
103 customer service representatives to our Levin, Wellington and
Dunedin contact centres to enable this training of our existing
team to take place and to boost the number of people available to
help customers when the new system was switched on.

Our new customer billing and service system is a signiﬁ cant
investment in the future of Contact. It follows earlier phases where
we introduced SAP into our ﬁ nance processes in 2010 and the
generation parts of our business in 2011. We now have a single
and consistent system across these parts of our business, better
integrating and simplifying our information technology environment.

Through a range of research projects and conversations with
our existing customers, we have been working to gain a more
in-depth understanding of what Kiwis want and expect from a
modern energy provider. Our new customer billing and service
system provides us with a single view of a customer’s relationship
with us, details of the products and services we supply to them,
their preferences and our correspondence with them. Moving
forward it will enable us to more eﬀ ectively target products,
services and oﬀ ers to speciﬁ c customer segments that are
highly relevant to their needs.

new customer billing and
service system, replacing
20 old systems

260

400

processes mapped out
step by step within SAP, which
capture around 1,500 customer related
business procedures

people working at the height
of the project, in preparation for
switching on the new customer billing
and service system

REPLACING

SYSTEMS WITH ONE,
SO WE CAN FOCUS ON
WHAT REALLY MATTERS
– OUR CUSTOMERS

Contact 2014
New Customer System

Our new customer billing
and service system

Moving forward our new customer billing and service
Moving forward our new customer billing and service
system will enable us to more effectively target
system will enable us to more effectively target
products, services and offers to speciﬁ c customer
products, services and offers to speciﬁ c customer
segments that are highly relevant to their needs.
segments that are highly relevant to their needs.

New Customer System 13

Contact 2014

Working in a single system, rather than the 20 systems
it has replaced, gives our team faster access to all of the key
information about a customer’s relationship with us, further
improving the quality of service we will be able to provide over
the longer term. The core SAP system is the product of choice
for many medium and large European energy utilities. It’s also
used by several other large organisations across New Zealand.
It provides the capacity and ﬂ exibility for us to signiﬁ cantly grow
our customer base and diversify into new or related products
and services in the future.

During the implementation of the new system we have taken the
opportunity to reﬁ ne and further standardise our approach to data
collection, and the management and analysis of our processes.
For customers this enhances the regular quality checks we
undertake on bills before they are sent. For our business this
allows us to introduce more sophisticated reporting which can
be used to monitor both our performance and the evolving
preferences of our customers.

The programme has provided opportunities for many of
our team who work in our contact centres, retail processing
and operational teams to gain experience working on a major,
large-scale change project. During the height of the project
approximately 400 employees and consultants were working
full time on the project, with the majority based in Wellington.

Putting our customers ﬁ rst

While most of our customers won’t have noticed the changes that
we’ve made, there are a small number who have experienced delays
in receiving their bills or faced longer wait times when trying to get in
touch with our contact centre. We’ve been working hard to resolve
these issues, ensuring that no one is penalised by any delays on our
part. Support for aﬀ ected customers has included oﬀ ering extra
time to pay, the Smoothpay option which allows our customers to
smooth out their bills over the year, and ensuring that our customers
retain their prompt payment discounts.

Utilising local and international experts

Looking ahead

The programme team who have worked to deliver the new system
comprises a mix of experts from across Contact, New Zealand,
Europe, our major shareholder Origin Energy, as well as WIPRO,
an international consultancy who are SAP implementation
experts. This mix of resources has brought together the best
of international practice, experience, lessons learned from Origin’s
implementation, as well as detailed knowledge of our business
and the operation of the New Zealand energy market.

We thank our customers and industry stakeholders for their
patience while we have worked to get up to speed with the new
system. As an organisation we look forward to shifting our focus
in the coming months from implementation of the new system to
leveraging our investment, identifying further eﬃ ciencies in the
way we use our new system and exploring additional beneﬁ ts and
products that we can introduce to help our customers live more
comfortably with energy.

230

extra temporary customer service
representatives brought on to support
customers following the start up of the new
customer billing and service system

6,000

test scenarios successfully
completed to ensure the
new system worked

1.8m

customer bills sent out
in the ﬁ rst 4 months of using
the new system

Members of our team at the
Levin contact centre

Contact 2014
At a Glance

Contact 2014

At a Glance 15

Contact
at a glance

We keep the lights burning, the hot water ﬂ owing and the BBQs ﬁ red up for around
567,500 customers across the country. We are one of New Zealand’s largest electricity
generators and retailers. We supply electricity, natural gas and LPG to our customers
and our focus is on delivering great value, great products and great service.

Our electricity generation business is focused on meeting New Zealand’s
energy needs in a safe, reliable and efﬁ cient manner. We have built a more ﬂ exible
portfolio by investing in new power generation assets and gas storage in recent years
that enable us to respond efﬁ ciently to changing electricity market conditions.

Generation by type for the
year ended 30 June

Customers by energy type
as at 30 June

Generation type

Hydro (GWh)

Geothermal (GWh)

Thermal (GWh)

Total

2014

4,058

2,332

2,865

9,255

2013

3,561

2,249

4,069

9,879

Energy type

Electricity

Natural gas

LPG

Total

2014

2013

437,500

439,500

63,000

61,500

67,000

65,000

567,500

566,000

1,066

We employ 1,066 people
from Auckland to
Invercargill. This includes
977 permanent and 89
ﬁxed-term employees.

$697k

We invested $696,632
into community initiatives
during the year.

22%

We supply 22 per cent
of the New Zealand
electricity retail market.

1.2m

Our contact centres
took 1.2 million calls
during the year.

243k

Our contact centres
handled 243,344
emails during the year.

218k

We are New Zealand’s
largest online energy
company with 218,000
customers signed up
to receive Contact’s
online services.

$3.6b

Our net assets are
worth $3.6 billion.

70,000

Contact is one of
New Zealand’s largest listed
companies, with around
70,000 shareholders.

We own and operate
12 power stations across
New Zealand and we
generate around a quarter
of New Zealand’s electricity.

Contact 2014
Our Business Model

Our Business Model 17

Contact 2014

Our business
model

INSIGHT

SOURCE

GENERATE

WHOLESALE

DISTRIBUTE

First, we assess the future energy
needs of customers, as well as
the broader economic and local
energy market conditions.

We seek the most cost-eﬀ ective,
ﬂ exible and eﬃ cient generation
development options to meet
future customer needs or to
replace existing, less eﬃ cient
generation. There are long lead
times involved in investigating
opportunities and gaining
required resource consents.
Geothermal developments are
our priority – market conditions
dictate when we build new or
adapt older generation.

We purchase and source fuel for
electricity generation and invest
in the maintenance of our 12 power
stations. We buy gas and diesel
from producers; rain and snow-
melt ﬁ ll hydro storage lakes;
drilling extracts geothermal ﬂ uid
and steam. We also have the
ability to store and use gas from
our Ahuroa gas storage facility.
We vary the output and
combination of generation plants
used to meet energy demand
peaks and respond to the weather.

We sell the electricity generated
on the wholesale electricity
market and also purchase the
electricity needed for sales to
our customers. We buy and
sell wholesale contracts to
manage our risk.

Electricity is transported from
generators by Transpower and
then by local lines distribution
companies to customers. Gas
is sourced by producers and
transported by gas network
companies. Transmission and
network operation, maintenance
and enhancement costs are
passed through to customers
in their bills. Contact delivers
bottled LPG to customers via
our ﬂ eet of delivery trucks. We
also supply some LPG through
our pipeline, predominantly
in Christchurch.

SELL & SERVE

As a retailer we sell electricity,
gas and LPG products and
services to residential, small
business, commercial and
industrial customers to meet
their energy needs. We keep in
touch with customers, answer
queries and provide information
on usage through our contact
centre team, business account
managers, our website, email,
social media and post.

Contact 2014
Where We Operate

Where we
operate

Auckland

Ōtāhuhu

Ohaaki

Te Rapa

Ahuroa

Te Mihi

Whirinaki

Stratford

Te Huka

Wellington

Poihipi

Where We Operate 19

Contact 2014

Power stations

Oﬃ ces

Gas storage facility

LPG sales and distribution

LPG franchises

Clyde

Queenstown/
Wanaka

Christchurch

Dunedin

Roxburgh

Levin

Wairākei

Invercargill

Name

Output

Commissioned

Type

Location

North Island

Ahuroa

–

2011

Gas storage facility

Taranaki

Capacity
(MW)

2014
Generation
(GWh1)

2013
Generation
(GWh1)

Ability to store
and extract gas
as conditions
require

Can store up to 17 PJ2 of gas
– enough to run our Stratford
peakers for 12 months at
full capacity

Ohaaki

Geothermal

1989

Flash steam

Ōtāhuhu B

Thermal

1999

Combined-cycle turbine

Poihipi

Stratford

Geothermal

1996

Thermal

1998

2011

Flash steam

Combined-cycle turbine

Peaker, gas turbine

Waikato

Auckland

Waikato

Taranaki

400

377

200

269

1,699

433

691

273

330

1,683

416

1,709

447

Name

Output

Commissioned

Type

Te Huka

Geothermal 2010

Te Mihi

Geothermal 2014

Te Rapa

Thermal

1999

Binary cycle

Flash steam

Open-cycle turbine
cogeneration

Location

Taupō

Waikato

Wair¯akei

Geothermal

1958, 2005

Flash steam/Binary cycle

Taupō

Whirinaki

Thermal

2004

Diesel fuel, open-cycle turbine Hawke’s Bay

South Island

Clyde

Roxburgh

Hydro

1. Gigawatt hours.
2. Petajoules.

1992

1956–1962

Conventional

Otago

Capacity
(MW)

2014
Generation
(GWh1)

2013
Generation
(GWh1)

166

132

155

432

320

174

218

201

1,238

2,246

1,812

198

–

226

1,305

1,942

1,619

Contact 2014
Key Performance Indicators

Key Performance Indicators 21

Contact 2014

Keeping our
performance in check

Our key performance indicators (KPIs) enable interested stakeholders
to assess our performance more easily against a range of measures that
are integral to our business success. The measures highlight our 5-year
performance in key areas such as ﬁnance, operations, customers, our
people, safety and the environment. Our Board and Leadership Team use
the same measures to assess our performance against strategic priorities.

e
s
a
b
r
e
m
o
t
s
u
c
f
o
%

11
13
12
Financial year

11
12
Financial year

Contact
Market excluding Contact

M
E
C

d
e
g
a
g
n
e
s
e
e
y
o
p
m
e
f
o
%

13
12
11
Financial year

13
12
Financial year

PLANT
AVAILABILITY
Measures the reliability of our generation
plants. The availability factor calculates
the total availability of the generation
portfolio over a 39-month historical time
period. The time period selected removes
the eﬀ ect of seasonality and known
standard maintenance cycles to provide
a comparable measure of performance
across years.

2014
Plant availability has remained relatively
stable over the past year as systems
and processes were enhanced to
identify and plan preventive maintenance
requirements. Commissioning work
at Te Mihi and the outage at Ohaaki
following reconsenting impacted
geothermal availability.

LOYALTY &
CUSTOMER SWITCHING
Our performance relative to other
retailers is shown by comparing the
percentage of customers who switch
away from Contact each year, compared
with the industry (excluding Contact).
Around 30,000 residential electricity
customers change their supplier every
month in New Zealand.

2014
The number of customers switching
electricity provides in FY14 increased
by 10 per cent, driven by the continued
growth of smaller competitors, increased
innovation and targeted oﬀ ers from
existing retailers and several new retailers
entering the market. However, the number
of customers switching from Contact to
alternative electricity providers dropped
by 15 per cent during the same period.
Contact’s competitive pricing strategy has
seen loss rates improve when measured
against the market.

CUSTOMER
EXPERIENCE
We regularly, independently survey a
sample of customers who have contacted
us to determine how satisﬁ ed they are
with their experience. Customers are
asked to score their experience from
1 (poor) to 10 (excellent) across a range
of questions covering timeliness of
response, quality of communication
and issue resolution. The results feed
into an overall annual Customer
Experience Measure (CEM).

2014
The CEM has decreased slightly to 8.0
however customers still rated us close
to excellent. This 0.5 reduction can be
attributed to an increase in call waiting
times and delayed response to emails,
as a result of some small teething issues
from the implementation of our new
customer system. Our CEM relating
to our email customer service channel
decreased to 6.9.

EMPLOYEE
ENGAGEMENT
We aspire to develop and challenge
our people and be recognised as a great
place to work. Each year we conduct
an independent AON Hewitt survey
to assess our progress on employee
engagement and to identify areas for
development. Note: No survey was
conducted in 2010.

2014
Our overall engagement score
decreased to 52 per cent in 2014,
down from 56 per cent in 2013.
This result reﬂ ects the bedding in
of the organisational restructure
of the business and the large scale
customer billing and service system
implementations that have occurred
over the last 12 months. We are poised
and committed to improving and
increasing our levels of engagement
in the year ahead.

s
t
n
e
C

11
12
Financial year

s
t
n
e
C

11
13
12
Financial year

UNDERLYING EARNINGS
PER SHARE
Measures performance of the underlying
business and is calculated by dividing
underlying earnings after tax by the
weighted average number of shares
on issue during the year. Underlying
earnings after tax is calculated by
adjusting reported proﬁ t for the year
to remove any signiﬁ cant items that are
not related to the ongoing performance
of our business.1

2014
FY14 improvement primarily driven by
a reduction in the cost of energy arising
from increased hydro generation and the
receipt of $43 million of compensation
as a result of the delayed start-up of the
Te Mihi power station.

OPERATING
CASHFLOW PER SHARE
Measures cash available to fund
distributions to shareholders and growth
capital expenditure. Operating cash ﬂ ow
per share is calculated as operating cash
ﬂ ow divided by the weighted average
number of shares on issue over the year.

2014
Operating cash ﬂ ows decreased by
$23 million due to improved EBITDAF1
and lower stay-in-business capital
expenditure being oﬀ set by increased
gas injection into Ahuroa gas storage
and higher receivables as a result of
the delay in some retail billing as part
of the new SAP customer billing and
service system stabilisation.

GEARING
(NET DEBT RATIO)
Gearing is a measure of ﬁ nancial
leverage, demonstrating the degree
to which a ﬁ rm’s activities are funded
by owner’s funds versus creditor’s
funds. The gearing ratio is calculated
as net debt divided by net debt plus
shareholders’ equity adjusted for the
net eﬀ ect of fair value of ﬁ nancial
instruments after tax.

2014
Contact’s gearing ratio remained stable
at 28 per cent in FY14 with $773 million
of new funding raised in the past
14 months achieving objectives to
improve tenure and diversity.

10,000

h
W
G

8,000

6,000

4,000

2,000

11
12
Financial year

ELECTRICITY
SALES VOLUME
In an integrated business like Contact’s,
the energy volume sold to customers
is a key component in ensuring stable
earnings. Volume needs to be carefully
managed against the risks associated
with selling too much load and not being
able to cover demand during high
price periods.

2014
Electricity sales increased 1 per cent to
8,378 GWh with declines in mass market
sales due to warmer weather and home
energy eﬃ ciency measures being more
than oﬀ set by increased sales to
commercial and industrial customers.

1. EBITDAF and underlying earnings after tax are non-generally accepted accounting practice (non-GAAP) proﬁ t measures. EBITDAF is calculated as statutory proﬁ t for the
year before net interest expense, tax, depreciation, amortisation, change in fair value of ﬁ nancial instruments and other signiﬁ cant items. Underlying earnings after tax is
statutory proﬁ t excluding signiﬁ cant items that do not reﬂ ect the ongoing performance of the Group. The CEO monitors EBITDAF and underlying earnings after tax as key
indicators of Contact’s performance and believes they assist investors in understanding the performance of the core operations of the business. Reconciliations of EBITDAF
to underlying earnings after tax and from underlying earnings after tax to Group statutory proﬁ t is provided in Note 2 of Contact’s audited ﬁ nancial statements, on page 66.

s
e
e
y
o
p
m
e
f
o
%

12
11
Financial year

Female
Male

GENDER
DIVERSITY
We believe that the inclusion of a diverse
range of perspectives and ideas is a key
ingredient for the success for any
business. While acknowledging that true
diversity is achieved by a far broader set
of measures than gender representation
across an organisation alone, it is with
this indicator that we begin our diversity
KPI reporting.

2014
We continued our trend of increasing
female representation across Contact,
including at senior levels. We are working
to ensure that our focus extends to
diversity more broadly, to be reﬂ ective
of our stakeholders, customers and the
communities that we operate in. Our
aim is to develop broader diversity targets
and metrics in the year ahead.

R
F
R
T

R
F
O

3,500

3,000

2,500

2,000

1,500

1,000

500

12
11
Financial year

Financial year

O
C
s
e
n
n
o
t
n
o

i
l
l
i

2.5

2.0

1.5

1.0

0.5

12
Calendar year
LPG

Natural Gas
Geothermal

TOTAL RECORDABLE
INJURY FREQUENCY
RATE (TRIFR)
The health, safety and well-being of our
people remains our number one priority.
TRIFR is a key indicator of our employee
and contractor safety performance and
is calculated by taking the number of
incidents resulting in lost time, restricted
work or medical treatment, dividing
hours worked, and multiplying this by
one million.

2014
In FY14 we worked over four million
hours on Contact sites with 17 injuries –
two fractures were our most severe,
followed by sprains, strains and bruising.
Our TRIFR performance remained ﬂ at
from the prior year, at 4.0.

OBSERVATION
FREQUENCY RATE (OFR)
We strongly encourage our people to
observe their working environment, say
something when they identify safe or
unsafe situations and behaviour, and
record these Zero Harm conversations
on observation cards. Trends of quality
observations enable action to prevent
future harm. OFR is calculated by
dividing the number of observations
by hours worked, and multiplying this
by one million.

2014
We had over 7,000 safety conversations
during the year and exceeded our OFR
target (1,743 against a target of 1,700).
A reduction in OFR was expected as
we had less construction activity and
focussed our observations on quality.

GREENHOUSE
GAS OBLIGATIONS
The majority of our annual CO2
emissions for which we have obligations
under the Emissions Trading Scheme
(ETS), stem from our natural gas
generation operations. However, the mix
of natural gas, geothermal and hydro
generation we use each year is related
to weather conditions. During wet years
we rely more on our hydro generation,
while during dry years our use of natural
gas generation increases, along with
overall emissions.

2014
Greenhouse gas emissions from natural
gas, LPG and geothermal operations
remained relatively constant with 2012.
We expect natural gas greenhouse
emissions to trend down in 2014 on the
basis of reduced thermal operations
following the commissioning of Te Mihi
power station in May 2014.

22
22 Contact 2014

Contact 2014
Chairman and CEO’s Review

Chairman and CEO review

Chairman and CEO’s Review 23

Contact 2014

Q A&

Grant King, Chairman, and Dennis Barnes, CEO,
take us through their views on Contact’s key challenges
and achievements throughout the 2014 ﬁnancial year.

“ We’ve come to the end of a six year transformation
programme where we greatly increased the ﬂ exibility of
our generation portfolio with the addition of gas storage
and gas ﬁ red peaking power plant and increased our
renewable production through investments in geothermal
projects such as the recently completed Te Mihi. With
the implementation of our new customer service and
billing system we have laid the foundation to improve
the service we provide our customers. The skills and
expertise our people have developed during this period
of transformation will be valuable as we continue to drive
efﬁ ciencies and explore future opportunities for growth.”

GRANT KING
CHAIRMAN

Contact 2014
Chairman and CEO’s Review

Chairman and CEO’s Review 25

Contact 2014

“ Process efﬁciency, mass market segmentation, revised
pricing models and improved digital capabilities will
all provide opportunities to leverage the new customer
billing and service system to reduce cost to serve at
the same time as enhancing customer experience.”

HOW HAS CONTACT PERFORMED THIS YEAR FOR
ITS SHAREHOLDERS?

GRANT. Our ﬂ exible generation portfolio has enabled us to
respond to market conditions and substitute traditional thermal
generation with base load geothermal and hydro generation,
lowering our total cost of generation. Proﬁ t for the ﬁ nancial year
2014 (FY14) was $234 million, a $35 million increase (18 per cent)
on the ﬁ nancial year 2013 (FY13). Our earnings before net interest
expense, tax, depreciation, amortisation, change in fair value of
ﬁ nancial instruments and other signiﬁ cant items (EBITDAF1) for
FY14 were $587 million, $46 million higher (9 per cent) than the
prior year. Underlying earnings after tax1 (proﬁ t for the year adjusted
for signiﬁ cant items that do not reﬂ ect the ongoing performance
of the Group) were $227 million, up $25 million (12 per cent).

The increase in EBITDAF is primarily due to a reduction in the cost
of energy arising from increased hydro generation and the receipt
of $43 million of compensation as a result of the delayed start-up of
Te Mihi power station. This higher level of EBITDAF is expected to
be sustained in FY15 with a full year of Te Mihi operation.

Performance for the year ended 30 June 2014

WHAT WERE SOME OF THE HIGHLIGHTS OF THE YEAR?

DENNIS. There have been a number of success stories this year
for Contact, but I’ll touch on three. Firstly, our partnership with
Ngāti Tahu. After 17 years of discussion we reached an agreement
in 2013 and are working together on protecting their tāonga while
using leased land as part of our Ohaaki power station generation
activities, and also on how we can support their tribal aspirations.
Reaching agreement was a critical part in enabling us to reconsent
the Ohaaki power station for a further 35 years. Secondly,
commissioning the 166 MW Te Mihi geothermal power station in
May 2014 was a major milestone for us. It completed this stage of
geothermal growth, and demonstrates our geothermal expertise.
Finally, continued focus on customer service and competitively
priced products also saw a 1 per cent increase in retail sales,
during a period when we implemented our new customer billing
and service system.

$234m

Proﬁt for the year,
up 18 per cent

$587m

EBITDAF1, up 9 per cent

26cps

Total shareholder distributions,
up 4 per cent

DENNIS BARNES
CHIEF EXECUTIVE OFFICER

Contact 2014
Chairman and CEO’s Review

Chairman and CEO’s Review 27

Contact 2014

4.0

Total recordable injury
frequency rate for the year,
no change from FY13

$773m

In new funding raised
in the past 14 months

$623m

Cost of building our
new Te Mihi power
station and connections
to the steamﬁeld

WHAT’S BEEN HAPPENING IN THE MARKET DURING
FY14 AND HOW HAS CONTACT RESPONDED?

DENNIS. We are continuing to adapt to the reality of no energy
demand growth and increasing competition and innovation in the
retail market. During FY14 the number of customers switching
electricity providers increased by 10 per cent; however, we
continued to hold market share in one of the most competitive
retail electricity markets in the world, with our range of product
and payment options remaining popular with home and business
customers. Retail margins remain under pressure, with price
increases only recovering network cost increases. The Statistics
New Zealand Survey of Domestic Electricity Prices shows the
annual increase in the energy component of tariﬀ s, which energy
retailers have control over, was only 0.3 per cent in the past year.

We saw the completion of the partial privatisation of Genesis,
Meridian and Mighty River Power, which while increasing scrutiny
on the sector has also increased the competition we face for
both institutional and private investor capital. The Single Buyer
electricity market model proposed by the Labour Party and the
Greens has impacted on both ours and our competitors’ share
prices throughout the year, and is something that would
signiﬁ cantly change the workings of the New Zealand energy
market if implemented. We believe that consumers are seeing
clear evidence that the current market model is working with
high levels of competition. It is important that a stable regulatory
environment is maintained in order for participants like Contact
to continue to make signiﬁ cant, long term investment decisions
with conﬁ dence, to ensure the ongoing reliable and secure supply
of energy for New Zealanders.

We have positioned ourselves strongly with the right assets, the
right systems and a strong pipeline of new products for the future,
which will continue to ensure that we can serve our customers well.

THE YEAR HAS SEEN THE COMPLETION OF
CONTACT’S 5-YEAR INVESTMENT IN GENERATION
FLEXIBILITY. HOW HAS AND WILL THAT BENEFIT
CONTACT IN YEARS TO COME?

DENNIS. The addition of Te Mihi to our generation ﬂ eet
and the related steamﬁ eld work improve the eﬃ ciency of our
use of consented volumes of geothermal ﬂ uid from the iconic
Wairākei ﬁ eld. It has also reduced our generation costs, which,
combined with lower future gas take-or-pay constraints and
having New Zealand’s only gas storage facility, means our thermal
power stations will only operate when we can achieve an economic
return. These factors help to make our earnings more predictable.

WHAT IS CONTACT’S NEXT MOVE IN
GEOTHERMAL GENERATION?

GRANT. In the short term we are focused on integrating
Te Mihi into our Wairākei operations and also believe there are
opportunities to increase production from our existing renewable
assets. The existing consents at Wairākei expire in 2026 and are
likely to require further plant retirements at the currently 56 year
old Wairākei power station. This process and ensuring we
make the right decisions will take a considerable amount
of time and expertise.

In addition, if market conditions or the retirement of existing power
stations mean replacements are required, we hold consents to
develop up to 250 MW of geothermal generation at Tauhara, which
we believe is New Zealand’s most attractive new generation
development opportunity. Through our work at Te Mihi we have
further grown our team’s expertise in the development and careful
management of geothermal resources. These are skills that we will
continue to focus on retaining and using to develop new opportunities.

Dennis Barnes and Whaimutu Dewes at the
celebration of the Ngāti Tahu partnership

2. Te Mihi power station

IT SEEMS THAT YOUR SAFETY PERFORMANCE HAS
NOT IMPROVED IN FY14. WHAT ARE YOU DOING TO
MAKE FURTHER IMPROVEMENTS?

DENNIS. Our safety performance as measured by Total
Recordable Injury Frequency Rate (TRIFR) was ﬂ at for FY14 at
4.0, with 17 injuries occurring across four million hours worked on
Contact sites. Our focus for FY15 is on continuing to evolve our
positive safety culture and helping our team to get comfortable
with having safety coaching conversations with other employees
and contractors. We are continuing our work with Tana Umaga
as safety spokesperson having launched a new safety coach
initiative with our employees during August. We are once again
targeting a 20 per cent improvement in our safety performance
in the new ﬁ nancial year.

WHAT’S CONTACT’S FOCUS FOR CUSTOMERS?

DENNIS. Our customers tell us that we need to be more simple,
more transparent and connected to their needs. With intense retail
competition we need to ﬁ nd ways to reduce our costs to acquire
and serve customers and I believe our new customer billing and
service system will provide us with an advantage. Process eﬃ ciency,
mass market segmentation, revised pricing models and improved
digital capabilities will all provide opportunities to leverage the new
customer billing and service system to reduce cost to serve at the
same time as enhancing the customer experience. We will have a
new customer website live soon, which will improve the ease with
which customers can interact with us online. Following on from the
introduction of our new brand last year, we’ll also be taking a
diﬀ erent approach to how we communicate with potential new
customers. You’ll see and hear more about this within the next year.

WAS THE CAPITAL REFINANCING PROGRAMME
COMPLETED AS PLANNED DURING FY14?

GRANT. Yes, the Board is very pleased with the successful
raising of $773 million in new funding in the past 14 months, which
reﬁ nances Contact’s $705 million of 2014 maturities and the
redemption of the $200 million capital bond in November 2013.
Our reﬁ nancing programme aimed to increase the term and
maintain the diversity of our funding sources. I am pleased that
through the utilisation of bank debt and the issuance of United
States Private Placement notes and domestic retail and wholesale
bonds we have been able to achieve this objective.

WHAT ARE CONTACT’S PRIORITIES FOR
THE YEAR AHEAD?

DENNIS. We have three main areas of focus. Firstly, leveraging
our existing asset base through integrating Te Mihi into our
generation portfolio and increasing the amount of energy we
produce from renewable sources.

Secondly, reducing our cost to serve customers by: realising the
beneﬁ ts of the implementation of our new customer billing and
service system, by ensuring that our thermal generation capacity
provides security and attracts a fair return, and by leading the
industry to be more eﬃ cient.

And ﬁ nally we’ll continue fuel substitution, through balancing
thermal generation availability with the requirement to ensure
that we maintain renewable energy options for the future.

Contact 2014
Our Board

Contact 2014

Our Board 29

Our
Board

Grant King
Chairman and
Non-Executive Director

Term of oﬃce
Appointed director
1 October 2004, last re-elected
2011 annual meeting.

Board committees
Chairman of the Nominations
Committee and member of the
Risk Committee.

Grant King was appointed to
the Board when Origin Energy
became Contact’s majority
shareholder in 2004. He is the
managing director of Origin
Energy, a position to which he
was appointed to at the time of
its demerger from Boral Limited
in February 2000, and was
managing director of Boral
Energy from 1994. Prior to joining
Boral, he was general manager of
AGL Gas Companies. Grant is a
councillor of the Australian
Petroleum Production and
Exploration Association, a
director of the Business Council
of Australia, and chairman of the
Business Council of Australia
Infrastructure and Sustainability
Growth Committee. Grant has a
civil engineering degree from the
University of New South Wales
and a Master of Management
from the University
of Wollongong.

Phillip Pryke
Deputy Chairman
and Independent
Non-Executive Director

Term of oﬃce
Appointed director
8 November 1995, last re-elected
2012 annual meeting.

Board committees
Chairman of the Remuneration
Committee and member of the
Health, Safety and Environment
Committee, Nominations
Committee and Risk Committee.

Phil Pryke has been involved with
Contact since its establishment
in 1995 and was the chairman of
the Board until October 2004.
Phil is a director of Co-Investor
Group, Tru-Test Corporation
Limited, and Goodman (NZ)
Limited. His previous roles include
vice president, global sales and
client solutions – Asia Paciﬁ c at
Electronic Data Systems (EDS),
chief executive of Nextgen
Networks and chief executive
oﬃ cer of Lucent Technologies
Australia Pty Limited. Phil has
management and governance
experience in a diverse range of
industries including the energy,
ﬁ shing, ﬁ nancial services, health,
and technology industries. He
holds a Bachelor of Economics
from the University of Sydney.

David Baldwin
Non-Executive
Director

Bruce Beeren
Non-Executive
Director

Term of oﬃce
Appointed director
16 March 2009, last elected
2011 annual meeting.

Term of oﬃce
Appointed director
1 October 2004, last re-elected
2012 annual meeting.

Board committees
Chairman of the Health, Safety
and Environment Committee and
member of the Risk Committee.

Board committees
Member of the Board Audit
Committee, Remuneration
Committee and Risk Committee.

David Baldwin was appointed to
the Board in 2009 in his role as
managing director of Contact.
David has been with Origin since
May 2006 and is currently
responsible for Origin’s interest
in Australia Paciﬁ c LNG, including
operatorship of the upstream
and pipeline components of the
joint venture. Before joining
Origin, David held senior roles
with MidAmerican Energy
Holdings Company in Asia
and the United States, and
with Shell in New Zealand
and the Netherlands. David
holds a Master of Business
Administration from Victoria
University and a Bachelor of
Engineering (Chemical) from
Canterbury University.

With over 35 years’ experience
in the energy industry, Bruce’s
previous roles include chief
executive oﬃ cer of VENCorp,
the Victorian gas system
operator, and several senior
management positions at
Origin Energy and AGL, including
chief ﬁ nancial oﬃ cer. He is a
director of Origin Energy Limited,
Equipsuper Pty Limited,
The Hunger Project Australia Pty
Limited and Veda Group Limited.
He is also a former director of
ConnectEast Group, Coal &
Allied Industries Limited,
Envestra Limited and Veda
Advantage Limited. Bruce
has degrees in science and
commerce and a Master of
Business Administration from the
University of New South Wales.
He is a fellow of CPA Australia
and the Australian Institute of
Company Directors.

Whaimutu Dewes
Independent
Non-Executive Director

Karen Moses
Non-Executive
Director

Sue Sheldon CNZM
Independent
Non-Executive Director

Term of oﬃce
Appointed director
22 February 2010, last re-elected
2013 annual meeting.

Term of oﬃce
Appointed director
1 October 2004, last re-elected
2013 annual meeting.

Term of oﬃce
Appointed director
16 March 2009, last re-elected
2011 annual meeting.

Board committees
Member of the Board Audit
Committee, the Health, Safety
and Environment Committee and
the Risk Committee.

Whaimutu Dewes is of
Ngāti Porou and Ngāti Rangitihi
descent and lives in Rotorua.
He is the chairman of Aotearoa
Fisheries Limited and Housing
New Zealand and is a non-
executive director on the
Treasury Board. His former
directorships include Television
New Zealand Limited and the
AMP New Zealand Advisory
Board, and he was deputy
chairman of Sealord Group
between 1992 and 2008.
Whaimutu has also held senior
management roles at Fletcher
Challenge and the Department
of Māori Aﬀ airs. Whaimutu has
a Master’s degree in Public
Administration and degrees
in arts and law.

Board committees
Chairman of the Risk
Committee and member of
the Remuneration Committee.

Karen Moses is the executive
director, ﬁ nance and strategy
at Origin Energy Limited. Prior
to this role, Karen was Origin
Energy’s chief operating oﬃ cer,
and has also held development
and trading roles with Exxon
Group. Karen is a director of SAS
Trustee Corporation and Sydney
Dance Company. She is a former
director of Energia Andina S.A.,
Australian Energy Market
Operator Limited, Energy and
Water Ombudsman (Victoria)
Limited, Australian Energy
Market Operator (Transitional)
Limited and VENCorp. Karen
holds a Bachelor of Economics
and a Diploma of Education from
the University of Sydney.

Board committees
Chairman of the Board Audit
Committee, member of the
Nominations Committee and
Risk Committee.

Sue Sheldon is a professional
company director. She is the
chairman of Chorus Limited,
Freightways Limited and
Paymark Limited. She is a former
deputy chairman of the Reserve
Bank of New Zealand and
Christchurch International
Airport Limited, a former director
of Smiths City Group Limited and
former chairman of the board of
trustees of the National Provident
Fund. Prior to moving into a
professional director role,
Sue practised as a chartered
accountant. She is a former
president of the New Zealand
Institute of Chartered
Accountants and was made a
Companion of the New Zealand
Order of Merit in the Queen’s
Birthday Honours List in 2007
for services to business.

Contact 2014
Our Leadership Team

Our Leadership Team 31

Contact 2014

Our Leadership
Team

1.
Dennis Barnes
Chief Executive
Ofﬁcer

2.
Graham Cockroft
Chief Financial
Ofﬁcer

3.
Peter Kane
General Manager
– Operations

This year I look forward
to the challenge of
delivering cost-eﬀ ective
and reliable production
from our expanded and
versatile portfolio.
As always, safety is of
paramount importance
at Contact and growth
in the asset base brings
increased complexity
and more demanding
hazard management.

FY14 has been a
watershed year for
Contact. We completed
two major projects,
improved the way we
run our business and
signiﬁ cantly improved
our funding position. The
industry has seen some
change as well with the
completion of the high
voltage transmission
system upgrades and
the partial privatisation
of our major competitors.
All this provides a good
foundation for Contact
to continue to deliver on
its promises.

Our drive for eﬃ ciency
continued through the
divestment of more
non-core assets and good
progress with our new
approach to procurement.
We raised $773 million in
the debt markets to repay
maturing debt and
strengthen our balance
sheet, and we continued
to improve our ﬁ nancial
and performance reporting
to all stakeholders.
These achievements
were acknowledged by
the New Zealand ﬁ nance
industry when Contact
received awards for
‘Excellence in Treasury’
and ‘Market Leaders Best
Corporate Communicator’
at the 2014 INFINZ awards.

4.
Annika Streeﬂand
General Manager
– People and Culture

In this last year we have
recruited 853 people from
the communities in which
we work in – from one end
of the country to the other.
Many have come in on
ﬁ xed terms of about a year
to work with our new SAP
customer billing and
service system and have
therefore acquired many
new skills – the training
support has been intensive.
We are transforming and
have restructured to be
more agile and ﬁ nd ways
of lowering the cost to our
customers. Our strategy
underpinning how we work
is embedded in our new
behaviours of Stay safe
mate, Here to help, Smash
complexity, Own it and
Play nicely.

5.
Paul Ridley-Smith
General Counsel

I lead the legal, regulatory
and government relations
functions at Contact.
Because electricity and
gas are essential for all of
us, whether for business
or at home, and a
signiﬁ cant part of the
household budget we are
always under scrutiny
to make sure that prices
are as low as possible.
I welcome that and believe
that competition, not
more government and
regulatory intervention,
is the surest way to get
long term lower prices.
Improvements can be
made to reduce costs,
improve competition
and deliver simpler, lower
prices. Some of these
Contact can do itself and
some need the help of
Government, regulators
and other industry
participants. Good
challenges for 2015.

7.
James Kilty
General Manager
– Sales and Customer
Experience, Trading,
Development and
Geothermal Resources

During the year we
continued our switch
to lower cost fuel with
reduced gas commitments
and the completion of
Te Mihi. The reconsenting
of Ohaaki and the extension
of our relationship with
Fonterra at Te Rapa have
secured the future of
those assets.

6.
Nicholas Robinson
General Manager
– Customer Insight,
Marketing and
Communications

In such a competitive
market it was another year
of working hard to retain
our loyal customers and
attract new customers to
Contact with competitive
oﬀ ers and service. I’m
proud of how the team
has done this while also
completing what has
probably been the largest
systems change to
be completed in the
New Zealand electricity
sector. The coming year
will be about delivering the
beneﬁ ts of our new system
to our customers through
new and enhanced
products and services and
I’m excited about what’s in
the pipeline.

8.
Mark Corbitt
General Manager
– Information and
Communication
Technology

Last year we successfully
met the challenge of
maintaining technology
stability and service
availability through the
period of high-volume
change in introducing new
infrastructure and the new
SAP customer billing and
service system. In the year
ahead we’ll continue to
keep service availability
high and simplify our
technology to reduce
our costs. We’re looking
forward to introducing
new desktop capability to
our people and increasing
our customer self-service
through extending our
digital and mobile
capabilities.

9.
Tania Palmer
General Manager
– Health, Safety and
Environment (HSE)

During the past year,
we’ve worked on what
New Zealand’s new health
and safety legislation
means for our business
and taken a good hard look
at our leadership eﬀ orts
and culture around safety
(thanks to some excellent
feedback from our people).
So that we can continue to
improve our safety
defences as we journey
towards our goal of Zero
Harm, this year we will
simplify and reduce written
safety procedures and
instructions to ease the
burden on our frontline
workers; support our
leaders to be pragmatic,
fair and more consistent
when safety breaches
occur; and improve
communication and
feedback with our people.

Contact 2014
Case study name/colour

Home Sweet Home 33

Contact 2014

HOME SWEET

Home

HOT SHOWERS AND FLUFFY TOWELS KEEP
THIS BUSY FAMILY OF FOUR HAPPY AT HOME

MERO
ROKX

Teacher and mum of two,
Orini (9) and Te Uranga o te Ra (2)

Mero and the kids baking

2. Te Uranga o te Ra at play

CONTACT ENERGY IS
WELCOMED INTO THE
HOMES OF 567,500 KIWIS,
WHERE ENERGY IS
AVAILABLE 24/7 AND A
RANGE OF CONVENIENT
BILLING OPTIONS HELP
TO KEEP FAMILIES HAPPY,
HEALTHY AND WARM.

Our home is in Brooklyn, about 10 minutes’
drive from central Wellington. I love its
location. I can go to the beach or walk in to
town. We’re in the valley but we get heaps
of sun in the summertime. I live here with
my partner, Taniera, our 9 year old
daughter, Orini, and our 2 year old son,
Te Uranga o te Ra. We’ve lived in our home
for going on 8 years now, since my
daughter was a baby.

We signed up to Contact when we ﬁ rst
moved in, on my Mum’s recommendation.
Contact has been good – otherwise
I would’ve been long gone! They’ve always
oﬀ ered a lot of support. If I’ve ever been
late with our bill they’ve called me so
I could explain the situation. They’ve
always found ways to get it sorted without
charging me any extra fees. I feel like
they really listen and take our situation
into consideration.

In our family we see energy as precious, but
also a necessity. So we prioritise the things
we really want versus those we can make
do without. For example, we really love our
heat pump, so we have it on a lot. That’s
probably at the top of our priority list. The
next one down is our hot water. We enjoy
good hot showers and our kids enjoy their
bubble baths. We also use a clothes dryer
in the winter because we’re so busy. Both
of us are working and our children are at
day-care and school, with sports and other
activities going on. So being able to use the
dryer allows us to attend to our children
and enjoy our time with them.

I suppose in those areas we do use a lot
of energy, but we cut down on other things.
For instance, we only use cold water in our

washing machine, all devices are switched
oﬀ completely before we go to bed, and we
use cloth nappies, which I dry on the line.
We try to balance things out. We just really
like the fact that we can come home, and
turn on the heat pump and not worry. We
are very grateful for what we have, and we
are conscious of the impact that the level
of our comfort has on the planet. But if we
were sitting in a cold house we just wouldn’t
be able to function. Having heat and feeling
comfortable is our foundation for living.

Our energy use does ﬂ uctuate with the
seasons. I think our power bill in winter
can be up to $400 a month but then in
summer it’s only about $100 a month. But
everything’s smooth and I don’t ever recall
feeling stressed about the power bill. I have
it set up so I always pay $150 per fortnight.
If at the end of the month I haven’t quite
paid the whole bill oﬀ , someone from
Contact calls to tell me what’s owing.
In summer I overpay so we’re basically
covered for the bigger winter bills.

We’ve had that system since the very start
and it’s worked for almost 8 years now.
We have a regular income so I like having
a regular payment. It’s the way I deal with
everyday things. I don’t have to think about
it and I’m less stressed out because of that.

My experience with Contact has been
really good. I feel like I’ve been well looked
after. Any issue has been resolved easily
with a lot of understanding on their part.
I’ve had so many power companies come
to our door and try to convince me to
change. But I’m just so happy with Contact.
I’ve never had to call them with a problem.
Never. The last time I called them was to
give them my Fly Buys number.

I don’t think a home is a home without
energy. None of us would be able to
function. I love that if I’ve been at work late
and everyone else has gotten home before
me, I just walk in the door and I’m overcome
with warmth and the smell of the crockpot.
It really heightens my sense of family.

Contact 2014
Case study name/colour

Otago Regional Council 35

Contact 2014

A QUESTION OF

Balance

FRASER MCRAE SHARES SOME THOUGHTS
ON CONTACT’S INVOLVEMENT WITH WATER USE
AND MANAGEMENT IN THE OTAGO REGION

The relationship between the Otago
Regional Council and Contact is a very
positive one. They understand the need
for balance. They’re good to work with and
they’re very supportive of what we do.

I actually use Contact as my power company
at home. Although whether it’s their energy
that comes out of the plugs in the walls,
I’d never know! I’d like to say I chose them
because of my dealings with them, but to
be honest my wife made that decision.
I spend a lot of my workday negotiating,
but I would never argue with her.

Roxburgh power station

2. Clyde power station

FRASER
MCRAE

Career veteran; Director of Policy,
Planning and Resource Management
at the Otago Regional Council

WITH THREE MAJOR
HYDROELECTRIC DAMS
AND TWO POWER STATIONS
IN OTAGO, CONTACT HAS
A SIGNIFICANT IMPACT ON
THE REGION’S ENVIRONMENT
AND COMMUNITY – AN IMPACT
THAT WE WORK HARD TO
ENSURE IS POSITIVE FOR ALL.

I started my career way back in 1974.
About 8 years ago I took up the position
of Director of Policy, Planning and Resource
Management at the Otago Regional
Council. In the case of Contact, our work is
around the management of water and their
operations at Roxburgh, Clyde and Hāwea,
which are all consented by us.

The size of those structures is suﬃ cient
to aﬀ ect the ﬂ ow of the entire Clutha
catchment. There’s a big balancing act that
goes on between the river being a source
of water for enjoyment, a source of water
for power, and a source of water for the
towns and farms along it. We’re constantly
talking with each other around how that
balance is working.

From our point of view, Contact’s use
of water is interesting because essentially
they’re not consumptive users of water.
A farmer who’s irrigating takes the water,
spreads it out on the land and the water’s
gone. But Contact takes the water in a
penstock, throws it down a concrete slope
and through a turbine and then spits it back
into the river again. As much water that
goes in at the top comes out at the bottom.
So they’re not consuming that water.

But if they dam the river, that water is not
available for people downstream to use
for a period of time.

Now for the community that’s often a very
good thing. For instance, in ﬂ ood events I
have seen from ’78 right up to the recent one
in July 2013, Contact was able to ﬁ ll Hāwea
up so that water didn’t come down the river.
That reduced the river ﬂ ooding all the way
down to Balclutha. So Contact actually
manages the river to reduce ﬂ ood eﬀ ects
as best they can. I think that’s something
the community doesn’t necessarily realise.

Contact is very conscientious about their
impact on the local community. When they
constructed the Clyde dam they provided
access to the lake with boat ramps, rowing
club buildings, and picnic areas, and they
continue to maintain them to a very high
standard. They certainly haven’t shied away
from that sort of community involvement.

They’re also a big employer in the local
community. Not just their own staﬀ , but
all the contractors and trickle down
employment. Everybody needs groceries
and a haircut. There are a lot of businesses
that have customers, thanks to Contact.

Contact is also very cognisant of their impact
on the environment. They’re part of the
Sustainable Business Council’s ‘Ecosystem
Services Review’. It looks at the things
we get from nature that we don’t normally
recognise as assets but in fact play a huge
role in our economy. From Contact’s point
of view that’s the supply of water.

Earlier this year I went through an exercise
with Contact looking at their use of
‘Ecosystem Services’. It was all around
the signiﬁ cance of water. Despite the wide
variety of people in the room there was a
strong sense that we were all interested in
the same thing – maintaining good ﬂ ow in
the Clutha River. It became clear that even
though our diﬀ erent interests, roles and
functions bring about a lot of discussion
and sometimes arguments, we’re not
competing. We all want the same thing.
Contact is the only organisation I know
that’s done an exercise like that.

36
36 Contact 2014
36 Contact 2014
Contact 2014
Case Study Name/Colour
Customers
Case study name/colour

Contact 2014

Cassels & Sons 37

GOOD THINGS

Brewing

ALASDAIR CASSELS, FOUNDER OF THE BREWERY,
SHARES A FEW WORDS ABOUT GOOD FOOD, DRAUGHT
BEER AND THE JOYS OF COOKIN’ WITH RETICULATED GAS

ALASDAIR
CASSELS

Major shareholder of
Cassels & Sons and
proud owner of The Tannery

1. The original Cassels & Sons

wood ﬁ red kettle

2. Zak Cassels serving

at the bar

BUILT ON THE SITE OF
AN OLD TANNERY IN
CHRISTCHURCH’S
INDUSTRIAL EAST SIDE,
THE BREWERY IS PART
OF A LARGER SITE THAT
HAS BEEN TRANSFORMED
INTO A BOUTIQUE RETAIL
EMPORIUM WITH OVER
60 STORES.

The Brewery happened just after
the earthquake. I had to get something
going because the place was wrecked.
So we built a pretty unique business
based on a wood ﬁ red kettle. We brew
our beer with wood and we’ve got a wood
ﬁ red pizzeria.

We were up and running a few months after
the earthquake and it became very, very
popular. It really put this side of town on
the map. It made me believe that I could
get going with the rest of the project, which
was The Tannery itself – a 20,000 square
metre site that we had to put back together
after the earthquake.

Early on in the piece Scott Kotoul, our
account manager from Contact, came and
saw us. Friendly, helpful Scott. That was our
ﬁ rst contact with Contact. He came in and
started to try and develop a business
relationship with us.

To start with we had problems with
electrical reticulation, and he sorted that
out pretty early on. Then he said he could
get reticulated gas for us, which we said
yes to pretty quickly. The process of
getting connected to the gas network was
actually quite expensive because they
had to run a line all the way down Cumnor
Terrace. I’d estimate it cost about $50,000.
But Contact spent the money, realising
I suppose that in the course of time we
would use enough gas to pay it oﬀ .

The reason we were so keen on gas is
that it’s cheaper per kilowatt hour than
electricity. And it’s a convenient form of
heating. Now there are probably four or

ﬁ ve businesses that run oﬀ that gas line,
including our big brewery down the back of
the Tannery site. But beyond that, it’s better
for some types of cooking. Like if you’re
frying a steak, gas is the way to go because
it’s nice and hot. Even the Aga oven in our
restaurant is run on reticulated gas.

When we got going with the rest of
the Tannery site, we talked to Scott about
a bulk supply of electricity and Contact
gave us some quite good pricing. The
original electricity supply was scattered
around. There were power cables running
in all directions. We had probably 50
diﬀ erent power meters and all sorts of
suppliers. Contact was able to come in and
simplify it. Now it’s cleaned up to just one
main power cable and one supplier. That
makes it a lot easier to talk price and sort
through any issues.

I’d deﬁ nitely recommend Contact to
other small businesses around. For us,
our dealing with Contact was really our
relationship with Scott. He’s the one who
gave us ideas about how to get power and
reticulated gas inside the property. He’s
just a really good guy. If we ever needed
anything he’d come out straightaway. Even
if we ran out of bottled gas at home he’d
drop a new one oﬀ . He’s been really, really
helpful. He still pops around probably once
a month. After work we always oﬀ er him a
beer. I can’t remember which one he likes,
but I know he drinks it!

Overall, I’d say that Contact’s advice made
a big diﬀ erence to us. We chose a diﬀ erent
boiler in our brewery because of the gas
reticulation. We could’ve had a diesel boiler
but we chose gas because it’s cheaper and
it burns cleaner.

I think there’s always a place in
New Zealand culture for good food,
draught beer and a friendly atmosphere,
and that’s what we’ve got. We couldn’t have
that without power and gas. And then
there’s the Tannery too, which is totally
unique. Every day I get someone saying
to me how good it is. They come up to me
and say, ‘thanks a lot’. I get a kick out of it.

38
38

Contact 2014
Contact 2014
Case Study Name/Colour
Case study name/colour

Ngati Tahu Tribal Trust 39

Contact 2014

WORKING

Together

A LONGSTANDING TRUSTEE AND DESCENDANT
OF NGĀTI TAHU, AROHA CAMPBELL HAS WORKED FOR
OVER TWO DECADES TO RESOLVE LAND ISSUES AROUND
THE OHAAKI POWER STATION

this is a great example of three Māori
organisations that are so closely linked by
the land and the marae yet didn’t talk to
each other. The reconsenting brought us
together and made us stronger. Now we
talk a lot and there are no surprises. When
we go to our hui, we go as a group.

This year, the landowner collective and
Contact jointly entered the Deloitte Energy
Excellence Awards in the Environmental
category. We were one of three ﬁ nalists
selected. It really shows the willingness
of both sides to work together. That’s a
great achievement in itself.

The process in the past 18 months has
certainly changed my opinion of Contact.
I’m impressed with their culture and I can
see that they’re listening. Their relationship
with Ngāti Tahu is one of best interest for all.
They’ve realised that what’s best for them
has to be good for us – and vice versa.

1. Leo Rika and James Kilty hongi

at Ohaaki Marae

2. Ngāti Tahu whānau cooking

in the wharekai

AROHA
CAMPBELL

Trustee for the Ngāti Tahu
Tribal Trust since 1990

COMMUNICATION,
RESPECT AND COLLECTIVE
NEGOTIATION HAVE RESULTED
IN THE SIGNING OF THE OHAAKI
MITIGATION AGREEMENT,
A ROBUST AND MUTUALLY
BENEFICIAL FRAMEWORK FOR
LAND USE ISSUES SURROUNDING
THE OHAAKI POWER STATION.

I’m one of three trustees on the Ngāti
Tahu Tribal Trust. We’re an ahu whenua
trust that looks after the land on six
blocks around the Ohaaki power station.

I’ve been a trustee since the early 1990s,
after the power station was commissioned.
At that time we were disappointed with
the lack of understanding on the part
of the company about their eﬀ ects on
the whenua. Over the years, the power
station has caused subsidence of up to
3.7 metres. Previous science said that our
marae would deﬁ nitely end up underwater,
which would mean relocation. The marae
is our iwi marae, named after our oldest
ancestor, Tahu Matua. It is the institution
of Ngāti Tahu, so the idea of relocation
caused a rift. We had whānau who didn’t
want to move, and we had those who did.

Contact acquired the power station in
1996 and we’ve been working steadily
with them for 17 years trying to resolve
the issues. The real turning point was the
reconsenting process, which got underway
18 months ago. We knew Contact would
need our support to get consent.

One complication was that there are in fact
three separate Ngāti Tahu entities in and
around Ohaaki Marae – the Ngāti Tahu

Tribal Trust, the Marae Reservation Trust
and A1 Section 30. These are Māori land
trusts that manage the land on behalf of
the collective landowners from Ngāti Tahu.
Owing to historical diﬀ erences we were
working in silos, not speaking to one
another. But 18 months ago the three
organisations got together to negotiate
with Contact. It was the ﬁ rst time we agreed
to work through the reconsenting process
as one landowner collective, and this has
worked out extremely well.

One positive aspect is that although the
power station originally had an installed
capability of just over 100 MW it has only
been producing around 45 MW for the last
few years. We have decided in light of the
most recent science we have, that we may
not have to relocate our marae after all.
But if we do, Contact Energy has provided
a 9 hectare block of land that we can swap
out for it. So we have options – A, we can try
to protect the marae or B, we can relocate.
A small working group was established with
a speciﬁ c task of protecting the marae in
its current location. The initial surveying
was completed on time and reported back
to the hui-ā-iwi on the 23rd of August 2014.

Another positive aspect was having
Contact come around the table to identify
our culturally signiﬁ cant sites. We now have
cultural monitoring so if there is any land
disturbance or artefacts found, there are
proper protocols in place. We never had
that before. We have also formalised and
conﬁ rmed free electricity, gas and water
for our marae. That’s huge given that
neither the Marae Reservation nor the
Committee have an income.

The key to future-prooﬁ ng this agreement
is the structure that’s been put in place.
There is a management group, a
geothermal group and a leadership group.
Each group keeps an eye on diﬀ erent
aspects of the agreement and both
Ngāti Tahu and Contact are involved
right up to a chair or CEO level.

Personally, I’m thrilled that we got to
this point. For the landowner collective,

WE HAVE

1,066

EMPLOYEES KEEPING
THE LIGHTS ON EVERY DAY,
HERE ARE THEIR STORIES

Contact 2014

Our People 41

I’m lucky enough to work alongside not only talented
professionals who are top of their ﬁ eld, but also some
of the funniest, most approachable and genuinely kind
people. They make coming into work a privilege rather
than just a job.

Working at Contact is dynamic in the truest sense of the
word. It’s an industry that’s always changing, challenging and
thought provoking. I work with all fuels, from gas that keeps
the hot water ﬂ owing, to LPG bottles for summer barbecues,
so I see the impact on New Zealanders. That’s rewarding.

STEPHANIE WINDERS
Generation Assistant
Clyde
Employee of 9 months

PRAKASHAN SRITHARAN
Commercial Analyst, Fuels and Trading
Wellington
Employee of 2 years 6 months

Contact 2014
Our People

I enjoy that my current role gives me the
I enjoy that my current role gives me the
autonomy to make decisions in conjunction
autonomy to make decisions in conjunction
with my shift partner. I am responsible for
with my shift partner. I am responsible for
those decisions and the actions that I take,
those decisions and the actions that I take,
and that motivates me to do my best.
and that motivates me to do my best.

ALLEN MORRISON (MORRY)
Generation Controller
Ōtāhuhu
Employee of 20 years

When a customer calls, I really enjoy being able to
ﬁ x or explain any issue they might be having. It feels
great when I know I’ve given them peace of mind and
complete conﬁ dence not only in myself, but in Contact
as a whole.

My role is to ‘make the plant work’. I really enjoy the
challenge of problem solving and ﬁ nding creative solutions
to issues that arise. Contact is a workplace where people get
a lot of encouragement, support and opportunities to strive.

JAIMEE BURR
Customer Service Representative
Levin
Employee of 4 months

STEFAN YUILE
Production Engineer
Te Rapa
Employee of 2 years

Contact 2014
Our People

Governance,
Remuneration
Report & Statutory
Disclosures

My proudest moment has been working with Nga¯ti Tahu
to address the mamae (grievance) created by the Ohaaki
Power Station. Our team gained a much deeper
understanding of the people, their ta¯onga (tribal resources)
and their special status as tangata whenua (people of the
land) and kaitiaki (guardians).

My greatest achievement at Contact has been my
contribution towards getting Te Mihi completed and
producing power. The guests at the opening were extremely
impressed, and I felt really proud of the work I do and the
people I work with.

TINA POROU
Head of Communications and Sustainability
Wellington
Employee of 2 years

Ngāti Porou, Ngāti Tuwharetoa,
Ngāti Kahungunu, Ngai Tāmanuhiri

DOUG OBERHOLZER
System Technician – Geothermal
Taupō
Employee of 7 years

46 Governance
52 Remuneration Report
55 Statutory Disclosures

46 Contact Energy Limited

Governance

Contact Energy Limited

Governance 47

Governance

Responsible corporate conduct is integral to the way we do business. Our actions
are governed by our purpose, behaviours, commitments and principles, which are
reinforced at all levels within the company. At Contact, we are committed to doing
things the right way, which means making business decisions and acting in a way that
is ethical and is in compliance with the applicable legislation.

The Board of Directors (the Board) is responsible for and committed to maintaining the highest standards of corporate governance,
ensuring transparency and accountability to investors and stakeholders.

Compliance
Contact seeks to follow best practice recommendations for listed companies to the extent that is appropriate for the size and nature
of Contact’s operations.

Contact believes that it complies in all material respects with the NZX Corporate Governance Best Practice Code (NZX Code).

Contact’s approach to governance is reported against the nine fundamental principles of good governance as set out in the
Financial Markets Authority ‘Corporate Governance in New Zealand Principles and Guidelines’.

Contact’s constitution, and the Board and committee charters, codes and policies referred to in this section, are available to view
at www.contactenergy.co.nz.

Principle 1 – Ethical standards

Directors observe and foster high ethical standards.

Contact expects its directors, oﬃ cers, employees and contractors to act legally, ethically and with integrity in a manner consistent
with Contact’s purpose, behaviours, principles, commitments and policies.

Code of Conduct

The Code of Conduct sets out the ethical and behavioural standards expected of Contact’s directors, oﬃ cers, employees and
contractors. Contact has established internal procedures to monitor compliance with the Code of Conduct. The reporting
serious concerns directive supports the reporting and investigation of breaches of the Code of Conduct and serious wrongdoing
within or by Contact.

Securities trading policy

Directors and employees who are likely to have knowledge of, or access to, inside information can only buy or sell Contact securities
during permitted periods and with the written consent of the General Counsel. They must not use their position of conﬁ dential knowledge
of the company or its business to engage in securities trading for personal beneﬁ t or to provide beneﬁ t to any third party. Short-term
trading in Contact securities while in possession of unpublished, price-sensitive information is strictly prohibited. Compliance with this
policy is monitored with regular checks across our share register.

Principle 2 – Board composition and performance

There is a balance of independence, skills, knowledge, experience and perspective among directors that allows the
Board to work eﬀ ectively.

Board size and composition

The Board encourages strong individual thinking and rigorous discussion and analysis when making decisions. The current Board
comprises directors with a mix of qualiﬁ cations and skills, who hold substantial and diverse business, governance and energy-industry
experience appropriate to Contact’s existing operations and strategic direction.

Contact’s Board comprises a balance of independent directors and Origin Energy-associated directors. The Board consists of seven
directors, three of whom are independent directors, with at least two being resident in New Zealand.

The Chairman of Contact’s Board, Grant King, is not an independent director and does not hold a casting vote. The Board regularly
assesses its performance to ensure that constructive working relationships are maintained. Qualiﬁ cations and experience of individual
directors are detailed on pages 28 and 29.

Director independence

The NZSX Listing Rules and the company’s constitution require Contact to have a minimum of two independent directors.
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 being a substantial security holder of the company by
virtue of which the director is likely to derive, in the current ﬁ nancial year of the company, a substantial portion of his or her annual
revenue from the company (excluding dividends and other distributions payable to all shareholders).

The Board has determined that, for the purposes of NZSX Listing Rule 3.3.2, Phillip Pryke, Whaimutu Dewes and Sue Sheldon are each
independent directors. Grant King, David Baldwin, Bruce Beeren and Karen Moses are not considered to be independent directors by
virtue of being directors/employees of, and hence associated persons of, substantial security holder Origin Energy.

Board role and responsibility

The Board charter regulates Board procedures and describes its role and responsibilities. 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 its shareholders.

The Board meets regularly on a standing agenda and otherwise as required. The chairman and the Chief Executive Oﬃ cer (CEO)
establish the agenda for each Board meeting. Each month, as a standing item, the CEO 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 a
detailed ﬁ nancial report. In addition, the Board receives regular brieﬁ ngs on key strategic and operational issues from management,
either as part of the regularly scheduled Board meetings or in separate dedicated sessions.

Delegation

The Board has delegated certain aspects of its powers to committees of the Board, and the day-to-day management of the company
to the CEO. The CEO in turn delegates authority to his direct reports and senior management. These authorisation levels are subject
to internal and external audit review.

Avoiding conﬂ icts of interest

The Board is conscious of its obligations to ensure that directors avoid conﬂ icts of interest between their duty to Contact and their
own interests. Contact maintains an interest register in which relevant transactions and matters involving the directors are recorded.
See the ‘Statutory Disclosures’ section (pages 55 to 58) of this Annual Report for details of directors’ interest.

Induction and Board access to information and advice

New directors appointed to the Board receive induction training. This training primarily involves written and oral presentations by the
CEO and Leadership Team on the key strategic and operational business issues facing Contact.

Directors have unrestricted access to company information and brieﬁ ngs from senior management. Site visits provide directors with
a better understanding of the company and industry issues.

Directors and Board committees have the right, in connection with their duties and responsibilities, to seek independent professional
advice at the company’s expense, with the approval of the chairman.

48 Contact Energy Limited

Governance

Contact Energy Limited

Governance 49

Nomination and appointment of directors

Health, Safety and Environment Committee

Procedures for the appointment and removal of directors are governed by the company’s constitution. The Nomination Committee
identiﬁ es and nominates candidates to ﬁ ll director vacancies for the approval of the Board.

Recently appointed directors must stand for election at the next annual meeting. All directors are subject to re-election by rotation
at least once every three years. Directors who retire each year are those who have been longest in oﬃ ce since their last election or,
where there are more than one of equal term, by agreement.

Evaluation of Board performance

Contact’s Board follows a practice of reviewing the performance of the Board 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 2013, Contact undertook a formal assessment of the Board and the Board Audit Committee, and

•

in August 2014, the Board reviewed the performance of Grant King and Sue Sheldon, being those directors required to retire
and stand for re-election at the 2014 annual meeting.

The Board recommends that shareholders vote in favour of the re-election of Grant King and Sue Sheldon.

Principle 3 – Board committees

The Board uses committees where this enhances eﬀ ectiveness in key areas while retaining Board responsibility.

Committees established by the Board review and analyse policies and strategies, usually developed by management. They examine
proposals and make recommendations to the full Board. They do not take action or make decisions unless speciﬁ cally mandated by
their charter or by prior Board authority to do so.

The Board appoints the chairman of each committee. Members are chosen for skills, experience and other qualities they bring
to the relevant committees. Each committee operates under a charter agreed by the Board.

Standing Board committees are:
• Board Audit Committee
• Health, Safety and Environment Committee
• Nominations Committee
• Remuneration Committee
• Risk Committee

In addition, the Board establishes special committees to deal on its behalf with speciﬁ c issues from time to time. An Independent
Directors Committee (IDC) meets to evaluate and approve various related party transactions with Origin Energy. At 30 June 2014,
the members of the IDC were:
• Phillip Pryke (chairman)

• Whaimutu Dewes

• Sue Sheldon

Board Audit Committee

Membership is restricted to non-executive directors, with at least three members, and the majority must be independent. The chairman
must also be independent and must not be the chairman of the Board. All must have appropriate ﬁ nancial experience and at least one
member must have an accounting or ﬁ nancial background. At 30 June 2014, the members of the Board Audit Committee were:
• Sue Sheldon (chairman)

• Whaimutu Dewes

• Bruce Beeren

Sue Sheldon is a Fellow Chartered Accountant and a former President of the New Zealand Institute of Chartered Accountants.
Bruce Beeren is a Fellow of CPA Australia and the Australian Institute of Company Directors. Sue Sheldon and Whaimutu Dewes
are both independent directors.

The Board Audit Committee meets a minimum of four times each year. The Board Audit Committee’s role is to assist the Board to fulﬁ l
its responsibilities in relation to the oversight of the:
• quality and integrity of external ﬁ nancial reporting
•
• adequacy of the internal control system for ﬁ nancial reporting integrity.

independence and performance of the external auditor

The CEO and the Chief Financial Oﬃ cer (CFO) attend each Board Audit Committee meeting at the invitation of the Committee. At each
meeting, and at any other time the Board Audit Committee requires, it holds private sessions with the Head of Risk and Assurance,
Contact’s external auditors, the CEO and the CFO.

Membership shall comprise at least three members, and the majority must be independent. At 30 June 2014, the members of the
Health, Safety and Environment Committee were:
• Phillip Pryke
• David Baldwin (chairman)

• Whaimutu Dewes

The Health, Safety and Environment Committee meet a minimum of three times each year. The Health, Safety and Environment
Committee’s role is to assist the Board to fulﬁ l its responsibilities in relation to health, safety and environment 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 Contact operates. The Health, Safety and Environment Committee monitors Contact’s compliance with
the health, safety and environment policy, reviewing and recommending to the Board targets for health, safety and environment
performance, assessing performance against those targets, and reviewing health, safety and environment-related incidents and
considering appropriate actions to minimise the risk of recurrence.

Nominations Committee

Membership shall comprise a minimum of three members, and the majority must be independent. At 30 June 2014, the members
of the Nominations Committee were:
• Grant King (chairman)

• Sue Sheldon

• Phillip Pryke

The Nominations Committee meets as required but must meet at least once a year. The Nominations Committee’s role is to ensure that
the Board comprises individuals who are best able to discharge the responsibilities of directors. The Committee also attends to other
matters put to it, including directors’ performance assessments and appointments, with recommendations to the Board.

Remuneration Committee

Membership is restricted to non-executive directors, with no fewer than three members. At 30 June 2014, the members of the
Remuneration Committee were:
• Phillip Pryke (chairman)

• Bruce Beeren

• Karen Moses

The Remuneration Committee meets at least twice a year and more frequently if required. The Remuneration Committee’s role is to
provide advice and make recommendations to the Board on remuneration policy for employees, remuneration for the CEO and senior
management, performance-based components of remuneration, and remuneration for non-executive directors.

Risk Committee

Membership shall comprise of at least three members. At 30 June 2014, all directors were members of the Risk Committee,
and Karen Moses was chairman. No additional fees are being paid for this membership except to the chairman.

The Risk Committee meets at least three times a year, with additional meetings called as deemed necessary. The role of the Risk
Committee is to assist the Board to fulﬁ l its responsibilities in relation to the identiﬁ cation and control of signiﬁ cant risks to Contact.
The Risk Committee receives and reviews reports on the risk management framework, risk capacity, tolerance and exposure limits,
the enterprise-wide risk proﬁ le, signiﬁ cant risks, and selected risk management processes and functions.

Board and committee meetings

The Board normally meets at least 10 times a year or whenever necessary to deal with speciﬁ c matters. The table below shows the
directors’ attendance at the Board and committee meetings during the year ended 30 June 2014.

Board

Board Audit
Committee

Health, Safety
and Environment
Committee

Nominations
Committee

Remuneration
Committee

Risk Committee

Independent
Directors
Committee

9
9
9
10
10
10
10

5
5
4*
5

4
5

1
0

2
3
2
3
3
3
3

Number of meetings

Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon

* Attended as an observer.

50 Contact Energy Limited

Governance

Contact Energy Limited

Governance 51

Principle 4 – Reporting and disclosure

The Board demands integrity both in ﬁ nancial reporting and in the timeliness and balance of disclosures on entity aﬀ airs.

The Board has overall responsibility for reporting company results. The directors are committed to preparing ﬁ nancial statements that
present a balanced and clear assessment of Contact’s ﬁ nancial performance and position. To assist with this task, the Board Audit
Committee monitors the eﬀ ectiveness of the company’s internal ﬁ nancial controls.

Financial reporting

The Board Audit Committee oversees the quality and the integrity of external ﬁ nancial reporting including the accuracy, completeness
and timeliness of ﬁ nancial statements. It reviews half-year and annual ﬁ nancial statements, and makes recommendations to the Board
concerning accounting policies, areas of judgement, compliance with accounting standards, stock exchange legal requirements and the
results of the external audit.

Management accountability for the integrity of Contact’s ﬁ nancial reporting is reinforced by certiﬁ cation from the CEO and the CFO.
The CEO and CFO provided the Board with written conﬁ rmation that Contact’s ﬁ nancial report presents a true and fair view, in all
material respects, of Contact’s ﬁ nancial position at, and ﬁ nancial performance for the year ended, 30 June 2014, and that operational
results are in accordance with relevant accounting standards.

Timely and balanced disclosure

Contact is committed to promoting investor conﬁ dence by providing timely, accurate, complete and equal access to information in
accordance with the NZSX Listing Rules. To achieve and maintain high standards of disclosures, Contact has adopted a continuous
disclosure policy, which is designed to ensure compliance with NZX continuous disclosure requirements. This policy sets guidelines
and outlines responsibilities to safeguard employees against inadvertent breaches of continuous disclosure obligations.

The General Counsel has responsibility for overseeing and co-ordinating disclosure to the market.

Principle 5 – Remuneration

The remuneration of directors and executives is transparent, fair and reasonable.

Contact’s remuneration structure is designed to attract, retain and motivate high calibre directors and senior executives who are able
to enhance the company’s performance. The ‘Remuneration Report’ on pages 52 to 54 outlines in detail the remuneration framework
of Contact.

Principle 6 – Risk management

The Board regularly veriﬁ es that the entity has appropriate processes that identify and manage potential and relevant risks.

The Board has primary responsibility for ensuring Contact has an appropriate risk management framework. The Risk Committee
assesses the systems and procedures that are in place to ensure that all signiﬁ cant risks and issues are reported to the Board.

Contact has an Enterprise Risk Management system, which is aligned to the International Standard ISO 31000, Risk Management –
Principles and Guidelines. The implementation and operation of this system demonstrate that Contact is committed to the eﬀ ective
management of risk, which is central to the continued growth and proﬁ tability of the company.

The Enterprise Risk Management team and business unit risk specialists 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.

The Head of Risk and Assurance is accountable for monitoring the company’s key risks. Regular reporting on risks and their mitigation
is provided to the Board.

Assurance

Contact has an independent in-house Business Assurance function that provides objective assurance of the eﬀ ectiveness of the
internal control framework.

Business Assurance 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. Business Assurance adopts a risk-based assurance
approach driven from the company’s Enterprise Risk Management system. Business Assurance also assists external audits by making
available ﬁ ndings from the internal assurance programme for the external auditors to consider when providing their opinion on the
ﬁ nancial statements. Led by the Head of Risk and Assurance, Business Assurance has the autonomy to report signiﬁ cant issues directly
to the CEO, CFO and the Board Audit Committee or, if considered necessary, the chairman of the Board.

The Risk Committee oversees the assurance programme and provides Business Assurance with the mandate to perform the agreed
assurance programme. Business Assurance has unrestricted access to all other departments, records and systems of Contact,
and to the external auditor and other third parties as it deems necessary.

Principle 7 – Auditors

The Board ensures the quality and independence of the external audit process.

The independence of the external auditor is of particular importance to shareholders and the Board.

The Board Audit Committee is responsible for considering and making recommendations to the Board regarding any issues relating
to the appointment or termination of the external auditor.

The external auditors are prohibited from undertaking any work that compromises, or is seen to compromise, independence and objectivity.

The Board Audit Committee requires the external auditor to conﬁ rm on a six-monthly basis that it has:
•
• complied with the provisions of all applicable laws and relevant professional guidance in respect of independence, integrity

remained independent of Contact at all times

and objectivity, and

• adopted a best practice approach in relation to matters of ﬁ nancial independence and business relationships.

The CFO 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 auditor, ensuring the provision of timely and accurate information and full
access to company records.

Principle 8 – Shareholder relations

The Board fosters constructive relationships with shareholders that encourage them to engage with the company.

Contact values its dialogue with institutional and private investors and is committed to giving all shareholders comprehensive,
timely and equal access to information about its activities.

information provided to analysts and media during regular brieﬁ ngs

Contact currently keeps shareholders informed through:
• periodic and continuous disclosure to NZX
•
• half-year and annual reports
•
•

the annual meeting and any other meetings called to obtain approval for Board actions as appropriate
the company’s website.

The Board encourages full participation of investors to ensure a high level of accountability and identiﬁ cation with Contact’s strategies
and goals. Contact’s external auditor also attends the annual meeting, and is available to answer questions relating to the conduct of the
external audit and the preparation and content of the auditor’s report.

Principle 9 – Stakeholder interests

The Board respects the interests of stakeholders within the context of the company’s ownership type and its
fundamental purpose.

Contact is committed to making, selling and using energy responsibly and sustainably. The company manages its business in
a way that balances its economic, environmental and social responsibilities. Contact’s approach to social responsibility is based
on sharing and listening.

Diversity

Contact encourages a working environment in which diversity is recognised
and where equal employment opportunities are oﬀ ered to all potential and
existing employees on the basis of relevant merit. While Contact has not
adopted a formal diversity policy, the company’s intent is embedded in its
principles, commitments and behaviours.

The gender representation on Contact’s Board and Leadership Team at
30 June 2014 is outlined opposite, alongside comparable ﬁ gures for the
past year.

10
9
8
7
6
5
4
3
2
1
0

%
2
2

%
8
7

%
2
2

%
8
7

%
9
2

%
1
7

%
9
2

%
1
7

FY13 FY14
Board of Directors

FY13 FY14
Leadership Team

Female

Male

52 Contact Energy Limited

Remuneration Report

Contact Energy Limited

Remuneration Report 53

Remuneration
Report

Directors’ remuneration
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 FY14 among directors of $1,219,000 as detailed below.

Details of the total remuneration and the value of other beneﬁ ts received by each Contact director for FY14 are as follows:

Directors

Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon

Total

Position

Board fees

Committee fees

Special fees

Total remuneration

Chairman
Deputy Chairman
Director
Director
Director
Director
Director

$223,000
$139,500
$122,500
$122,500
$122,500
$122,500
$122,500

$975,000

$0
$40,000
$22,500
$42,000
$42,000
$23,000
$62,000

$231,500

$0
$0
$0
$0
$0
$0
$12,5001

$12,500

$223,000
$179,500
$145,000
$164,500
$164,500
$145,500
$197,000

$1,219,000

1. Sue Sheldon received special fees in relation to due diligence undertaken for Contact’s retail bond issue.

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, and the costs of certain IT equipment.

Chief Executive Oﬃ cer remuneration
Employment arrangements

Dennis Barnes is seconded to the role of Chief Executive Oﬃ cer (CEO) by his employer, Origin Energy Limited.

During the term of his secondment, remuneration paid by Contact to Dennis Barnes is processed by Contact reimbursing Origin
Energy for the cost of this remuneration. An exception exists for share options and performance share rights awarded under Contact’s
Long-Term Incentive (LTI) Scheme and deferred share rights awarded under Contact’s Short-Term Incentive (STI), which are provided
directly by Contact.

Remuneration

Remuneration paid by Contact to the CEO 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 package paid includes a ﬁ xed remuneration component comprising cash salary and other employment
beneﬁ ts, and at-risk/variable remuneration comprising short-term incentives (cash and deferred share rights) and long-term incentives
(share options and performance share rights).

Approximately two-thirds of the CEO’s potential annual remuneration is at-risk/variable remuneration and one-third is paid as ﬁ xed
remuneration. The amount of short-term incentive paid and the level of long-term incentive allocated to the CEO is dependent on the
degree to which Contact’s ﬁ nancial, health, safety and environment (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.

The following tables detail the nature and amount of the remuneration paid to Dennis Barnes during FY14.

Year ended 30 June 2014
Year ended 30 June 2013

Cash remuneration paid

Fixed remuneration
$

Variable remuneration1
$

Total cash remuneration paid
$

897,750
936,544

538,5662
646,380

1,463,316
1,582,924

1. Short-term incentive remuneration relates to payment for the ﬁ nancial year noted, 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.

2. The short-term incentive has been changed in FY14, with a portion now paid as deferred share rights. These deferred shares which have a value of $269,283 will be awarded

in October 2014 and are in addition to the amount shown under variable remuneration.

Equity rights issued (options and performance share rights)

Number of options
issued during year

Number of performance
share rights issued
during year

Value of equity rights
issued and amortising
during year1
$

Value of equity rights
issued in past years and
amortising during year
$

Total equity rights
vested during year
$

Year ended 30 June 2014
Year ended 30 June 2013

590,626
715,117

106,876
97,620

$168,329
$153,750

$479,753
$314,003

–
–

1. 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 by or to Dennis Barnes is
subject to the achievement of speciﬁ ed exercise hurdles as described on page 85. The value of the long-term incentive disclosed above is the portion of the fair value of options and
performance share rights allocated to the relevant reporting period. None of the options or performance share rights allocated to Dennis Barnes vested FY13 and FY14.

Movements during FY14 in the number of options over ordinary shares and performance share rights held in Contact are set out in the
following table.

Options
Performance share rights

Held at
1 July 2013

Granted as
compensation

1,311,824
227,603

590,626
106,876

Exercised

–
–

Held at
30 June 2014

1,902,450
334,479

Vested
during year

–
–

Vested and
exercisable at
30 June 2014

–
–

Employee remuneration
There are three components to employee remuneration – ﬁ xed remuneration, at-risk/variable remuneration and other beneﬁ ts.

The determination of ﬁ xed remuneration is based on responsibilities, individual performance and experience, and available market
remuneration data. At-risk/variable remuneration for eligible permanent employees 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.

We also oﬀ er a range of beneﬁ ts to our people as a way of thanking them for being part of Contact’s success. All permanent and ﬁ xed
term employees are oﬀ ered discounts for home energy, including electricity, natural gas and LPG. Complimentary health insurance is
available to all eligible permanent employees. An Employee Share Ownership Plan, ‘Contact Share’, is available to eligible permanent
employees (details of Contact Share can be found on page 85). Additional employee beneﬁ ts and oﬀ ers from local retailers and service
providers are also oﬀ ered from time to time.

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 STI comprises cash payments and from FY14 onwards for some more
senior level roles deferred share rights which will be awarded in October 2014. These awards are based on performance measured
against key performance indicators (KPIs). KPIs generally comprise company, business unit and individual targets. These targets are
designed to create goals that will support an achievement and performance-oriented culture. The STI programme is designed to
diﬀ erentiate and reward exceptional and good performance.

The Board reserves the right to adjust STI awards if company targets are not met.

Long-Term Incentive (LTI) Scheme

LTIs are awarded to key talent to align participants’ interests with that of Contact’s shareholders, and encourage and reward longer-term
decision making.

During FY14, the Board allocated LTI awards that are, by value, 50 per cent share options and 50 per cent performance share rights
(options with an exercise price of zero).

At 30 June 2014 there were 97 participants in Contact’s LTI Scheme.

54 Contact Energy Limited

Remuneration Report

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. The Board also
issues performance share rights and deferred share rights to
participants to acquire ordinary shares in Contact at zero cost.

The options and performance share rights will only become
exercisable to the extent that exercise hurdles determined by the
Board are satisﬁ ed. The exercise 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. The exercise
hurdle will be measured on three annual test dates, the ﬁ rst being
three years from the eﬀ ective grant date.

For the options and performance share rights issued in FY14,
participants’ vesting entitlements will be:
• 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 performance share rights/share options
exercisable increases proportionately on a straight-line sliding
scale from the 50th up to the 75th percentile), if Contact’s TSR
is ranked between the 50th percentile and the 75th percentile
of those companies that are in the NZX50 at the grant date
and remain listed at the relevant test date
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.

•

These vesting entitlements will be calculated on three test dates,
being 1 October 2016, 1 October 2017 and 1 October 2018.

The deferred share rights will only become exercisable if the
participant remains in ongoing employment at a nominated date.

For further details of the Options and Performance Share Rights
including the number granted, lapsed and on issue at the end of
the reporting period, see note 19 to the ﬁ nancial statements.

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 and performance
share rights allocated to the relevant reporting period) during
FY14 of at least $100,000 in brackets of $10,000. At 30 June
2014, no Contact subsidiary had any employees.

The remuneration ﬁ gures analysed include all monetary payments
actually paid during the course of FY14. The ﬁ gures do not include
amounts paid post 30 June 2014 that related to the year ended
30 June 2014.

The value of remuneration beneﬁ ts analysed includes ﬁ xed
remuneration, short-term incentive (including the short-term
incentive relating to FY13 and paid in FY14, as well as short-term

incentive for FY14 paid prior to 30 June 2014 for employees made
redundant during the year), long-term variable remuneration,
Contact Share 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 year ended 30 June 2014. The
remuneration (and any other beneﬁ ts) of the CEO, Dennis Barnes,
is disclosed in the CEO remuneration section on pages 52 and 53.

y
Statutory
Disclosures

Contact Energy Limited

Statutory Disclosures 55

Remuneration band

$100,001 – $110,000
$110,001 – $120,000
$120,001 – $130,000
$130,001 – $140,000
$140,001 – $150,000
$150,001 – $160,000
$160,001 – $170,000
$170,001 – $180,000
$180,001 – $190,000
$190,001 – $200,000
$200,001 – $210,000
$210,001 – $220,000
$220,001 – $230,000
$230,001 – $240,000
$240,001 – $250,000
$250,001 – $260,000
$260,001 – $270,000
$270,001 – $280,000
$280,001 – $290,000
$290,001 – $300,000
$300,001 – $310,000
$310,001 – $320,000
$320,001 – $330,000
$330,001 – $340,000
$340,001 – $350,000
$350,001 – $360,000
$360,001 – $370,000
$420,001 – $430,000
$430,001 – $440,000
$440,001 – $450,000
$470,001 – $480,000
$490,001 – $500,000
$540,001 – $550,000
$560,001 – $570,000
$630,001 – $640,000
$720,001 – $730,000
$730,001 – $740,000
$740,001 – $750,000
$850,001 – $860,000
$1,000,001 – $1,010,000

Grand total

Number of employees

56
35
61
54
39
30
21
16
17
7
10
10
8
6
5
1
3
6
2
1
3
6
3
1
3
2
3
1
3
1
1
1
2
1
1
1
1
1
1
1

425

Disclosures of interests by directors
The following are particulars of general disclosures of interest by directors holding oﬃ ce as at 30 June 2014, pursuant to
section 140(2) of the Companies Act 1993. 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
Business Council of Australia
Australian Petroleum Production and Exploration Association

Managing director/shareholder/employee
Director
Councillor

Phillip Pryke
Co-Investor Capital Partners Pty Limited
Frog Hollow Limited
GMT Bond Issuer Limited
GMT Wholesale Bond Issuer Limited
Goodman Funds Management Limited
Goodman Limited
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

Bruce Beeren
Origin Energy Limited
Equipsuper Pty Limited
The Hunger Project Australia Pty Limited
Veda Group Limited

Whaimutu Dewes
Aotearoa Fisheries Limited
Housing New Zealand Board
Iwi Rakau Limited
Kura Limited
Ngati Porou Fisheries Limited
Ngati Porou Forests Limited
Ngati Porou Holding Company Limited
Ngati Porou Seafoods Limited
Ngati Porou Whanui Forests Limited
Pupuri Taonga Limited
Rakaikura Limited
Real Fresh Limited
Whainiho Developments Limited
The Treasury Board

Director/shareholder
Director/shareholder
Director
Director
Director
Director
Director
Director
Director/shareholder
Director/shareholder
Director
Director

Employee/shareholder

Director/shareholder and former employee/executive director
Director
Director
Director

Chairman
Chairman
Director
Chairman
Director
Director
Chairman
Director
Director
Director
Director
Director
Managing director/shareholder
Director

56 Contact Energy Limited

Statutory Disclosures

Contact Energy Limited

Statutory Disclosures 57

Karen Moses
Origin Energy Limited and Group companies
SAS Trustee Corporation Board
Sydney Dance Company
University of New South Wales, Australian School of Business Advisory Council

Director/shareholder/employee
Director
Director
Committee member

Sue Sheldon
Chorus Limited
Christchurch City Council
FibreTech New Zealand Limited
Freightways Limited
Paymark Limited
Sue Sheldon Advisory Limited

Chairman
Independent Chair of Audit and Risk Management Committee
Chairman
Chairman
Chairman
Director

There were no speciﬁ c disclosures made during the year of any interests in transactions entered by Contact or any of its subsidiaries.

Subsidiary company directors
The following people held oﬃ ce as directors of subsidiary companies at 30 June 2014. No director of any of Contact’s subsidiaries
received additional remuneration or beneﬁ ts in respect of their directorships.

Company

Contact Aria Limited

Contact Wind Limited

Rockgas Limited

Directors

Dennis Barnes
Paul-Ridley Smith

Dennis Barnes
Graham Cockroft
Alistair Yates

Dennis Barnes
Graham Cockroft
Peter Kane

Information used by directors
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.

Stock exchange listings
Contact’s ordinary shares are listed and quoted on the New Zealand Stock Market (NZSX) under the company code ‘CEN’. Contact’s
retail bonds are listed and quoted on the New Zealand Debt Market (NZDX) under the company code ‘CEN020’ (2014 series).

Indemnity and insurance
In accordance with section 162 of the Companies Act 1993 and the constitution of the company, Contact has continued to indemnify
and insure its directors and oﬃ cers, including directors of subsidiaries, against potential liability or costs incurred in any proceeding,
except to the extent prohibited by law.

Directors’ security participation
Directors are requested to hold a minimum of 20,000 shares within 3 years of appointment or within 3 years of the commencement
of fees being paid.

Securities of the company in which each director has a relevant interest at 30 June 2014

Directors

Grant King
Phillip Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon

Number of ordinary shares

Number of options (including PSRs)1

33,886
88,401
1,000
35,901
20,011
21,038
21,803

N/A
N/A
876,0062
N/A
N/A
N/A
N/A

1. Performance share rights.
2. David Baldwin participated in the LTI Scheme during his secondment to Contact. David Baldwin retains these securities subject to exercise hurdles and vesting.

Securities dealings of directors

During the year, the directors disclosed in respect of section 148(2) of the Companies Act 1993 that they acquired or disposed
of a relevant interest in ordinary shares as follows:

Director

David Baldwin

Date of transaction

Consideration
per share

Number of ordinary shares
acquired (disposed of)

Nature of relevant interest

02/12/13
02/12/13
26/05/14

Nil
Nil
$5.50

(220,652)
(31,449)
1,000

Lapse of options under LTI Scheme
Lapse of PSRs under LTI Scheme
On-market purchase of shares

Shareholder statistics
Twenty largest shareholders at 18 August 2014

Origin Energy Paciﬁ c Holdings Limited
JP Morgan Chase Bank – NZCSD1
HSBC Nominees (New Zealand) Limited – NZCSD1
Accident Compensation Corporation – NZCSD1
Citibank Nominees (NZ) Limited – NZCSD1
Cogent Nominees Limited – NZCSD1
National Nominees New Zealand Limited – NZCSD1
HSBC Nominees (New Zealand) Limited – NZCSD1
Tea Custodians Limited – NZCSD1
New Zealand Superannuation Fund Nominees Limited – NZCSD1
FNZ Custodians Limited
Custodial Services Limited
Origin Energy Universal Holdings Limited
Premier Nominees Limited – NZCSD1
Private Nominees Limited – NZCSD1
Masfen Securities Limited
Guardian Nominees Limited A/c Westpac NZ Shares 2002 Wholesale Trust – NZCSD1
Custodial Services Limited
Forsyth Barr Custodians Limited
BNP Paribas Nominees NZ Limited – NZCSD1

Total for top 20

Number of ordinary shares

% of ordinary shares

383,508,980
29,524,371
27,341,241
21,450,741
16,842,980
14,887,841
12,398,411
11,891,341
10,589,555
9,638,424
7,825,140
5,900,136
4,767,920
4,711,310
4,683,995
3,099,331
2,729,138
2,267,141
1,854,926
1,735,927

577,648,849

52.30
4.03
3.73
2.93
2.30
2.03
1.69
1.62
1.44
1.31
1.07
0.80
0.65
0.64
0.64
0.42
0.37
0.31
0.25
0.24

78.77

1. New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to members. As at 18 August 2014,

total holding in NZCSD were 174,862,491 or 23.85% of shares on issue.

Distribution of ordinary shares and shareholders at 18 August 2014

Size of holding

1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over

Total

Number of shareholders

% of shareholders

Number of ordinary shares

% of ordinary shares

32,137
32,890
2,998
1,451
71
54

69,601

46.17
47.26
4.31
2.08
0.10
0.08

100.00

21,222,536
56,001,400
20,567,008
26,093,421
5,046,902
604,377,495

733,308,762

2.89
7.64
2.80
3.56
0.69
82.42

100.00

58 Contact Energy Limited

Statutory Disclosures

Substantial security holders
According to notices given under the Securities Markets Act 1988, the following persons were substantial security holders of the
company as at 18 August 2014:

Substantial security holder

Origin Energy New Zealand Limited and its subsidiaries

Number of ordinary shares in
which relevant interest is held

Date of notice

389,314,921

11 August 2011

The total number of voting securities of Contact at 18 August 2014 was 733,308,762 fully paid ordinary shares.

Bondholder statistics
Retail ﬁ xed rate bonds (CEN020) at 18 August 2014

Size of holding

1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over

Total

Number of bondholders

% of bondholders

218
559
1,537
233
132

2,679

8.14
20.86
57.37
8.70
4.93

100.00

Number of bonds

1,088,334
5,372,000
43,777,500
19,929,000
151,833,166

222,000,000

% of bonds

0.49
2.42
19.72
8.98
68.39

100.00

Auditor fees
KPMG has continued to act as auditors of the company. The amount payable by Contact and its subsidiaries to KPMG as audit fees
in respect of FY14 was $675,840. KPMG also provided services in relation to tax compliance ($11,330).

Donations
In accordance with section 211(1)(h) of the Companies Act 1993, Contact records that it donated $16,189 in FY14. 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. No political contributions were made during the year.

NZX waivers
Details of all waivers granted and published by NZX within or relied upon by Contact during FY14 are available on the company’s
website www.contactenergy.co.nz.

Exercise of NZX disciplinary powers
NZX did not exercise any of its powers under Listing Rule 5.4.2 in relation to Contact during FY14.

Credit rating at 18 August 2014
Contact Energy Limited had a Standard & Poor’s long-term credit rating of BBB/stable and short term rating of A-2.

The $222 million unsubordinated, unsecured ﬁ xed rate bonds issued in March 2014 are rated BBB by Standard & Poor’s.

Financial
Statements

For the year ended 30 June 2014

60 Income Statement
61 Statement of Comprehensive Income
62 Statement of Changes in Equity
63 Statement of Financial Position
64 Statement of Cash Flows

65 Notes to the Financial Statements

1. Basis of accounting

2. Segment reporting

3. Components of proﬁ t

4. Earnings per share

5. Share capital and distributions

6. Inventories

7. Property, plant and equipment

and intangible assets

8. Goodwill

9. Borrowings

10. Financial instruments

11. Financial risk management

12. Note to the Statement of Cash Flows

13. Receivables and prepayments

14. Payables and accruals

15. Provisions

16. Taxation

17. Operating leases

18. Related parties

19. Share-based compensation

20. Contingent liabilities

21. Subsequent events

87 Independent Auditor’s Report

60 Contact Energy Limited

Financial Statements

Income
Statement

For the year ended 30 June 2014

Revenue and other income
Operating expenses
Other signiﬁ cant items
Depreciation and amortisation
Change in fair value of ﬁ nancial instruments
Net interest expense
Proﬁ t before tax
Tax expense

Proﬁ t for the year

Basic and diluted earnings per share (cents)

Group
2014
$m

2,446
(1,859)
1
(190)
7
(77)
328
(94)

234

32.0

Group
2013
$m

2,526
(1,985)
(28)
(195)
11
(66)
263
(64)

199

27.2

Note

3
3
3
7
10
3

Parent
2014
$m

2,344
(1,775)
1
(186)
7
(77)
314
(90)

224

Parent
2013
$m

2,361
(1,846)
(21)
(190)
11
(66)
249
(66)

183

The accompanying notes form an integral part of these ﬁ nancial statements.

Contact Energy Limited

Financial Statements 61

Statement of
Comprehensive Income

For the year ended 30 June 2014

Note

Group
2014
$m

234

(12)
3

(9)

225

Group
2013
$m

199

16
(4)

211

Parent
2014
$m

224

(12)
3

(9)

215

Parent
2013
$m

183

16
(4)

195

Proﬁ t for the year

Other comprehensive income – items that may be
subsequently reclassiﬁ ed to the Income Statement:
Change in cash ﬂ ow hedge reserve before tax
Deferred tax relating to cash ﬂ ow hedges

Other comprehensive income after tax

Total comprehensive income for the year

The accompanying notes form an integral part of these ﬁ nancial statements.

62 Contact Energy Limited

Financial Statements

Statement of
Changes in Equity

For the year ended 30 June 2014

Group

Balance at 1 July 2012
Proﬁ t for the year after tax
Other comprehensive income after tax
Share options and performance share rights lapsed
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based compensation reserve
Distributions paid

Total transactions with owners recorded directly in equity

Balance at 30 June 2013

Balance at 1 July 2013
Proﬁ t for the year after tax
Other comprehensive income after tax
Share options and performance share rights lapsed
Transactions with owners recorded directly in equity:
Change in share-based compensation reserve
Distributions paid

Total transactions with owners recorded directly in equity

Balance at 30 June 2014

Parent

Balance at 1 July 2012
Proﬁ t for the year after tax
Other comprehensive income after tax
Share options and performance share rights lapsed
Eﬀ ect of Empower Limited Amalgamation
Transactions with owners recorded directly in equity:
Change in share capital
Change in share-based compensation reserve
Distributions paid

Total transactions with owners recorded directly in equity

Balance at 30 June 2013

Total transactions with owners recorded directly in equity

Note

5
19
5

19
5

Note

5
19
5

19
5

Share
capital
$m

1,534
–
–
–

71
–
–

1,605

1,605
–
–
–

–
–

–

Retained
earnings
$m

1,884
199
–
1

–
–
(167)

(167)

1,917

1,917
234
–
1

–
(184)

(184)

1,605

1,968

Share
capital
$m

1,534
–
–
–
–

71
–
–

1,605

1,605
–
–
–

–
–

–

Retained
earnings
$m

1,789
183
–
1
54

–
–
(167)

(167)

1,860

1,860
224
–
1

–
(184)

(184)

Balance at 30 June 2014

1,605

1,901

The accompanying notes form an integral part of these ﬁ nancial statements.

Cash ﬂ ow
hedge
reserve
$m

Share-based
compensation
reserve
$m

Total
shareholders’
equity
$m

(8)
–
12
–

–
–
–

–

4
–
(9)
–

–
–

–

(5)

8
–
–
(1)

–
4
–

11
–
–
(1)

4
–

3,418
199
12
–

71
4
(167)

(92)

3,537

3,537
234
(9)
–

4
(184)

(180)

3,582

Cash ﬂ ow
hedge
reserve
$m

Share-based
compensation
reserve
$m

Total
shareholders’
equity
$m

(8)
–
12
–
–

–
–
–

–

4
–
(9)
–

–
–

–

(5)

8
–
–
(1)
–

–
4
–

11
–
–
(1)

4
–

3,323
183
12
–
54

71
4
(167)

(92)

3,480

3,480
224
(9)
–

4
(184)

(180)

3,515

Contact Energy Limited

Financial Statements 63

Statement of
Financial Position

At 30 June 2014

Group
2014
$m

12
292
54
17
8
2

385

114
5,180
310
182
–
1
11

5,798

6,183

277
237
83
8
19

624

1,057
79
47
768
26

1,977

2,601

3,582

1,605
1,968
(5)
14

3,582

Group
2013
$m

80
343
45
18
8
6

500

92
5,168
242
182
–
2
11

5,697

6,197

319
671
60
6
15

1,071

699
87
58
735
10

1,589

2,660

3,537

1,605
1,917
4
11

3,537

Parent
2014
$m

11
279
50
17
8
2

367

114
5,111
310
179
69
1
8

5,792

6,159

322
237
83
8
19

669

1,057
79
45
768
26

1,975

2,644

3,515

1,605
1,901
(5)
14

3,515

Parent
2013
$m

78
332
41
18
8
6

483

92
5,100
242
179
69
2
8

5,692

6,175

356
671
60
5
15

1,107

699
87
56
736
10

1,588

2,695

3,480

1,605
1,860
4
11

3,480

Note

12
13
6
7
10
7

6
7
7
8

14
9
10
15

9
10
15
16

Current assets
Cash and cash equivalents
Receivables and prepayments
Inventories
Intangible assets
Derivative ﬁ nancial instruments
Assets held for sale

Total current assets

Non-current assets
Inventories
Property, plant and equipment
Intangible assets
Goodwill
Investment in subsidiaries
Derivative ﬁ nancial instruments
Other non-current assets

Total non-current assets

Total assets

Current liabilities
Payables and accruals
Borrowings
Derivative ﬁ nancial instruments
Provisions
Tax payable

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

Equity
Share capital
Retained earnings
Cash ﬂ ow hedge reserve
Share-based compensation reserve

Shareholders’ equity

The accompanying notes form an integral part of these ﬁ nancial statements.

Authorised on behalf of the Contact Energy Limited Board of Directors on 15 August 2014:

Grant King
Chairman

Sue Sheldon
Director

64 Contact Energy Limited

Financial Statements

Statement of
Cash Flows

For the year ended 30 June 2014

Cash ﬂ ows from operating activities
Receipts from customers
Payments to suppliers and employees
Liquidated damages received
Tax paid
Dividends received

Net cash ﬂ ow from operating activities

Cash ﬂ ows from investing activities
Purchase of property, plant and equipment
Purchase of computer software assets
Proceeds from sale of property, plant and equipment
Interest received

Net cash ﬂ ow from investing activities

Cash ﬂ ows from ﬁ nancing activities
Proceeds from borrowings
Proceeds from gas sale and repurchase arrangement
Repayment of borrowings
Interest paid
Financing costs
Distributions paid to shareholders

Net cash ﬂ ow from ﬁ nancing activities

Net cash ﬂ ow
Add: cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Note

Group
2014
$m

2,385
(1,930)
43
(53)
1

446

(151)
(60)
73
6

(132)

670
14
(766)
(113)
(3)
(184)

(382)

(68)
80

Group
2013
$m

2,573
(2,058)
–
(46)
–

469

(288)
(43)
55
2

(274)

387
27
(335)
(103)
(1)
(96)

(121)

74
6

Parent
2014
$m

2,286
(1,834)
43
(53)
–

442

(146)
(60)
73
6

(127)

670
14
(766)
(113)
(3)
(184)

(382)

(67)
78

Parent
2013
$m

2,437
(1,928)
–
(46)
–

463

(282)
(43)
55
2

(268)

387
27
(335)
(103)
(1)
(96)

(121)

74
4

The accompanying notes form an integral part of these ﬁ nancial statements.

Notes to the Financial Statements 65

Contact Energy Limited

Notes to the
Financial Statements

For the year ended 30 June 2014

1. BASIS OF ACCOUNTING

Reporting entity

Contact Energy Limited is registered in New Zealand under the Companies Act 1993 and is an issuer for the purposes of the Financial
Reporting Act 1993 and Financial Markets Conduct Act 2014. Contact Energy Limited is listed on the NZX with its ordinary shares
quoted on the NZSX and one series of bonds quoted on the NZDX.

The ﬁ nancial statements presented are for Contact Energy Limited (the Parent) and its subsidiaries, controlled entities and joint
arrangements (together referred to as Contact or the Group) at, and for the year ended, 30 June 2014.

Basis of preparation

The ﬁ nancial statements are:
• prepared in accordance with the Financial Reporting Act 1993, which requires compliance with New Zealand generally accepted

•

accounting practice (NZ GAAP).
in compliance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), other applicable ﬁ nancial
reporting standards as appropriate for proﬁ t-oriented entities, and with International Financial Reporting Standards (IFRS).
• presented in New Zealand dollars, which is Contact’s functional currency, with references to ‘$’ and ‘NZ$’ being to New Zealand

dollars, unless otherwise stated.
rounded to the nearest million ($m), unless otherwise stated.

•

The measurement basis adopted in the preparation of these ﬁ nancial statements is historical cost, except for ﬁ nancial instruments
measured at fair value, assets held for sale measured at fair value less costs to sell and generation plant and equipment acquired
before 1 October 2004 measured at deemed historical cost.

Accounting estimates and judgements

Application of Contact’s accounting policies requires the use of estimates and judgements. The estimates are based on historical
experience and other factors that are believed to be reasonable. Actual results may diﬀ er from these estimates. The areas of signiﬁ cant
estimation and judgements are as follows:
• unbilled retail revenue for unread electricity and gas meters (notes 3 and 13)
•

liquidated damages and other claims in respect of the delayed commissioning of the Te Mihi Geothermal Power Station
(notes 3 and 20)
inventory gas classiﬁ cation between current and non-current and estimation of net realisable value (note 6)

•
• useful lives of property, plant and equipment and intangible assets (note 7)
• annual impairment testing of cash-generating units (notes 7 and 8)
•
•

fair value measurement of ﬁ nancial instruments (note 10)
future expenditure for restoration and environmental rehabilitation provisions (note 15).

Accounting policies and standards

No changes to accounting policies have been made during the year, and policies have been consistently applied to all years presented
in these ﬁ nancial statements. Certain comparative amounts have been reclassiﬁ ed to conform to the current year’s presentation.

Contact has chosen not to early adopt NZ IFRS 9 Financial Instruments (eﬀ ective for the year ending 30 June 2018), which was issued
during the year. The standard may have a material eﬀ ect on the ﬁ nancial statements in future years. The impact of adopting the standard
has not yet been assessed.

Notes to the Financial Statements

66 Contact Energy Limited
For the year ended 30 June 2014

2. SEGMENT REPORTING

3. COMPONENTS OF PROFIT

The operating segments and performance measures below are presented on a basis consistent with the information provided to the
Chief Executive Oﬃ cer (CEO) as the chief operating decision maker for Contact. The segments are:
•

Integrated Energy: a generator of electricity and a purchaser and retailer of electricity and natural gas to residential, commercial
and industrial customers throughout New Zealand.

• Other: a combination of other products and services oﬀ ered by Contact. These include the sale of LPG to residential, commercial
and industrial customers throughout New Zealand, and the provision of meter services to other retailers and internally to the
Integrated Energy business.

Segment results

Earnings before net interest expense, tax, depreciation, amortisation, change in fair value of ﬁ nancial instruments and other signiﬁ cant
items (EBITDAF) is the segment performance measure reported to the CEO. The CEO also receives a consolidated performance
measure (underlying earnings after tax) which is statutory proﬁ t excluding signiﬁ cant items that do not reﬂ ect the ongoing performance
of the Group.

Note

Integrated
Energy
2014
$m

2,321
(1,535)
(235)

551

Other
2014
$m

164
(110)
(18)

Inter-
segment
2014
$m

(39)
39
–

–

Group

Revenue and other income
Cost of sales
Operating expenses

EBITDAF

Depreciation and amortisation
Net interest expense
Tax on underlying earnings

Underlying earnings after tax

Underlying earnings per share (cents)

Integrated
Energy
2013
$m

2,385
(1,653)
(230)

502

Other
2013
$m

174
(113)
(22)

Inter-
segment
2013
$m

(33)
33
–

–

Total
2014
$m

2,446
(1,606)
(253)

587

(190)
(77)
(93)

227

31.0

Total
2013
$m

2,526
(1,733)
(252)

541

(195)
(66)
(78)

202

27.7

The inter-segment charge for electricity and gas meters aims to have the Integrated Energy segment pay the Other segment an
equivalent cost for Contact-owned meters as it would for third party owned meters.

Reconciliation of underlying earnings after tax to Group statutory proﬁ t

The table below reconciles underlying earnings after tax, as reported to the CEO, to the Group statutory proﬁ t ﬁ gure prepared in
accordance with NZ GAAP.

Group

Underlying earnings after tax
Change in fair value of ﬁ nancial instruments
Other signiﬁ cant items
Tax on items excluded from underlying earnings

Proﬁ t for the year

Note

10
3

2014
$m

227
7
1
(1)

234

2013
$m

202
11
(28)
14

199

Retail electricity
Wholesale electricity
LPG
Gas
Steam

Total revenue

Liquidated damages
Other income

Total revenue and other income

Electricity purchases
Electricity transmission, distribution and levies
Gas purchases, transmission and levies
LPG purchases
Meter costs
Emission costs
Labour costs
Other

Total operating expenses

Transition costs
Gain on restructure of gas storage operations
Clutha land sales
Asset impairments
Gas meter assets sale
New Plymouth power station sale and provision release
Restructuring costs

Total other signiﬁ cant items

Interest expense
Unwind of discount on provisions
Interest expense capitalised
Interest income

Net interest expense

Revenue and other income

Contact Energy Limited

Notes to the Financial Statements 67
For the year ended 30 June 2014

Group
2014
$m

1,534
641
116
83
20

2,394

43
9

Group
2013
$m

1,532
742
119
92
19

2,504

–
22

Parent
2014
$m

1,534
641
–
83
20

2,278

43
23

Parent
2013
$m

1,471
742
–
92
19

2,324

–
37

2,446

2,526

2,344

2,361

(624)
(596)
(278)
(77)
(32)
1
(100)
(153)

(678)
(576)
(362)
(87)
(26)
(4)
(105)
(147)

(624)
(596)
(278)
–
(32)
1
(99)
(147)

(657)
(555)
(362)
–
(24)
(3)
(102)
(143)

(1,859)

(1,985)

(1,775)

(1,846)

(11)
7
7
(2)
–
–
–

(116)
(4)
37
6

(77)

(4)
–
13
(72)
26
17
(8)

(28)

(107)
(5)
44
2

(66)

(11)
7
7
(2)
–
–
–

(116)
(4)
37
6

(77)

(4)
–
13
(65)
26
17
(8)

(21)

(107)
(5)
44
2

(66)

Retail electricity, natural gas and LPG revenue include an estimate of sales for unread electricity and gas meters at the end of the
reporting period – refer to note 13.

Liquidated damages were received during the year as a result of the delayed commissioning of the Te Mihi Geothermal Power Station.

Operating expenses

Labour costs include contributions to KiwiSaver of $3 million for the Group and Parent (2013: Group $3 million, Parent $2 million).
Other operating expenses include fees payable to Contact’s auditors (KPMG) of $675,840 for review of the interim and audit of the
year end ﬁ nancial statements, which includes $117,439 for transitional audit procedures on the SAP customer billing and service system
(2013: $570,520). KPMG also provided services in relation to tax compliance of $11,330 (2013: nil).

Other signiﬁ cant items

Transactions are classiﬁ ed as other signiﬁ cant items when they meet certain criteria approved by Contact’s Board of Directors
(the Board). Other signiﬁ cant items are determined in accordance with the principles of consistency, relevance and clarity.
Transactions considered for classiﬁ cation as other signiﬁ cant items include impairment or reversal of impairment of assets; business
integration, restructure, acquisition and disposal costs; and transactions or events outside of Contact’s ongoing operations that have
a signiﬁ cant impact on reported proﬁ t.

Notes to the Financial Statements

68 Contact Energy Limited
For the year ended 30 June 2014

Contact Energy Limited

Notes to the Financial Statements 69
For the year ended 30 June 2014

3. COMPONENTS OF PROFIT – CONTINUED

INVENTORIES

Other signiﬁ cant items include:
•

transition costs incurred on the Retail Transformation project and associated activities in the Retail business and are comprised
primarily of temporary staﬃ ng and associated infrastructure costs

• a gain on sale of priority processing rights through the Waihapa production station as a result of the restructure of gas

storage operations

• gains arising from a phased programme of land sales in relation to a Clutha River hydro generation development. This development

will not proceed in the foreseeable future

• asset impairments related to land held for sale and in 2013 also included impairments for wind generation development and other

minor projects.

Net interest expense

Interest expense and income are recognised using the eﬀ ective interest rate method. Net interest expense incurred on the construction
or acquisition of qualifying assets is capitalised, ceasing once those assets are operating as intended or asset construction is temporarily
suspended. The weighted average interest rate used for capitalisation is 6.5 per cent per annum (2013: 6.9 per cent).

4. EARNINGS PER SHARE

Group
Basic and diluted earnings per share (cents)
Underlying earnings per share (cents)
Weighted average number of shares on issue over the year – basic
Weighted average number of shares on issue over the year – diluted

2014

2013

32.0
31.0

27.2
27.7
733,305,814 730,014,741
733,377,089 730,014,741

Basic and diluted earnings per share are calculated by dividing proﬁ t after tax by the weighted average number of shares on issue
over the year. While the diluted number of shares includes exercisable performance share rights and share options (refer note 19),
there is no diﬀ erence in the basic and diluted earnings per share due to the small number of dilutive shares. Underlying earnings
per share is calculated by dividing underlying earnings after tax by the weighted average number of shares on issue over the year.

5. SHARE CAPITAL AND DISTRIBUTIONS

All shares have no par value and are fully paid. Shareholders are entitled to receive distributions as declared and are entitled to one vote
per share at meetings of the Parent.

Group and Parent

Balance at the beginning of the year
Share capital issued
Share capital repurchased and cancelled

Balance at the end of the year

Authorised and issued share capital comprises:
Ordinary shares
Restricted shares – Contact Share

Note

2014
Number

733,301,821
6,941
–

733,308,762

2014
$m

2013
Number

1,605 718,670,307
17,728,186
(3,096,672)

–
–

1,605 733,301,821

733,151,706
157,056

733,308,762

1,605 733,301,821
–

–

1,605 733,301,821

2013
$m

1,534
86
(15)

1,605

1,605
–

1,605

All distributions were paid in cash except the 2012 ﬁ nal distribution which was made pursuant to the Parent’s Proﬁ t Distribution Plan
where shareholders received distributions in the form of non-taxable bonus shares and had the option to have the shares, or a portion
of them, bought back by the Parent for cash ($15 million).

Group and Parent
2012 ﬁ nal distribution
2013 interim distribution

Distributions paid during the year ended 30 June 2013

2013 ﬁ nal distribution
2014 interim distribution

Distributions paid during the year ended 30 June 2014

2014 ﬁ nal distribution – declared after year end

Note

Cents per share

12.0
11.0

14.0
11.0

15.0

86
81

167

103
81

184

Inventories are stated at the lower of cost and net realisable value. Any writedown to net realisable value is recognised in the Income
Statement. The cost of inventory is determined on a weighted average basis. Net realisable value is determined as follows:
•

Inventory gas: based on a calculation that uses forecast gas requirements to operate thermal plants and forward wholesale
electricity prices.

• Consumables, spare parts and diesel fuel: the estimated recoverable amount based on their intended use.
• LPG: the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Inventory gas

Consumables and spare parts

LPG

Diesel fuel

Current

Non-current

Group
2014
$m

152

168

114

Group
2013
$m

124

137

Parent
2014
$m

152

–

164

114

Parent
2013
$m

124

–

133

The estimation of the split of inventory gas held in the Ahuroa gas storage facility between current and non-current is on the basis
of expected future usage and past actual usage. Contact expects to utilise 20 per cent of inventory gas held in storage within 1 year
of the end of the reporting period (2013: 20 per cent).

7. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Property, plant and equipment and intangible assets are carried at cost less accumulated depreciation or amortisation and
accumulated impairment losses. Generation plant and equipment acquired before 1 October 2004 is recognised at deemed historical
cost less accumulated depreciation and accumulated impairment losses. Deemed historical cost is the fair value of those assets at
1 October 2004, which was the date of Contact’s transition to NZ IFRS and the date on which Origin Energy Limited (Origin) acquired a
controlling interest in Contact.

Cost

The cost of assets is the value of the consideration given to acquire the assets and the value of other directly attributable costs incurred
in bringing the assets to the location and condition necessary for their intended use.

The cost of assets constructed by Contact includes the cost of all materials and services used in construction, labour costs speciﬁ cally
associated with construction, resource management consent costs and directly attributable variable and ﬁ xed overheads. Net revenue
attributable to assets that is earned in the period until the assets are operating in the manner intended by management is deducted from
the cost of the assets.

The costs of self-constructed assets are recognised as capital work in progress until the assets are operating in the manner intended
by management at which time they are transferred to property, plant and equipment or intangible assets.

Subsequent expenditure is capitalised when it relates to asset replacements and improvements, or when laws, regulations or resource
consent conditions require it for continued operation of the asset. All other subsequent expenditure is expensed as incurred.

Exploration expenditure in relation to geothermal ﬁ elds is accounted for on an area of interest basis. Under this method, costs incurred
in the exploration phase on an area of interest, within a geothermal ﬁ eld, are expensed as incurred. Costs associated with the preparation
of resource consent applications and drilling geothermal exploration wells are capitalised as part of capital work in progress and
subsequently expensed only if the entire area of interest is unsuccessful.

Depreciation and amortisation

Except for certain generation plant and equipment assets, depreciation and amortisation are recognised on a straight-line basis to
allocate the cost of the assets, less any estimated residual values, over their expected remaining useful lives. Generation plant and
equipment assets where the assets’ future economic beneﬁ ts are expected to be consumed on a usage basis are depreciated on
an equivalent operating hours basis.

Contact Energy Limited

Notes to the Financial Statements 71
For the year ended 30 June 2014

Generation plant
and equipment
(including land
and buildings)
$m

Other land
and buildings
$m

Other plant
and equipment
$m

Capital work
in progress
$m

5,113
78
157
(6)
(42)

5,300

5,300
112
565
(3)
(8)

5,966

(912)
(162)
(3)
40

(1,037)

(1,037)
(161)
(2)
9

(1,191)

4,263

4,775

52
–
–
–
(29)

23
–
1
(1)
(1)

(15)
(3)
–
9

(9)

(9)
(1)
–
–

(10)

163
5
2
–
(79)

91
1
–
–
–

(102)
(10)
–
46

(66)

(66)
(9)
–
1

(74)

815
180
(159)
–
(5)

831

831
74
(566)
–
–

339

–
–
(36)
3

(33)

(33)
–
–
–

(33)

798

306

Total
$m

6,143
263
–
(6)
(155)

6,245

6,245
187
–
(4)
(9)

6,419

(1,029)
(175)
(39)
98

(1,145)

(1,145)
(171)
(2)
10

(1,308)

5,100

5,111

Parent

Cost
Balance at 1 July 2012
Additions
Transfers from capital work in progress
Transfer to assets held for sale
Disposals

Balance at 30 June 2013

Balance at 1 July 2013
Additions
Transfers from capital work in progress
Transfer to assets held for sale
Disposals

Balance at 30 June 2014

Depreciation and impairment losses
Balance at 1 July 2012
Depreciation charge
Impairment
Disposals

Balance at 30 June 2013

Balance at 1 July 2013
Depreciation charge
Impairment
Disposals

Balance at 30 June 2014

Carrying amount

At 30 June 2013

At 30 June 2014

Notes to the Financial Statements

70 Contact Energy Limited
For the year ended 30 June 2014

7. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS – CONTINUED

Asset useful lives and residual values are reviewed annually and adjusted if appropriate. The range of annual depreciation and
amortisation rates for each class of asset is as follows:

Asset class

Generation plant and equipment (including buildings)

Generation plant and equipment on an equivalent operating hours basis
Other buildings
Other plant and equipment
Gas storage rights
Computer software
Land
Capital work in progress
Gas storage – cushion gas
Carbon emission units

Assets held for sale

Rate

1–33%
23,500–100,000 equivalent operating hours
2–33%
2–33%
3%
6–33%
Not depreciated
Not depreciated or amortised
Not depreciated
Not amortised

Assets classiﬁ ed as held for sale are either being actively marketed for sale following Board approval to dispose of the assets or
are subject to conditional sales agreements. These assets are expected to be sold within 1 year of the end of the reporting period.

Gas storage – cushion gas

Contact has 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 operational gas.
Cushion gas of $52 million (2013: $52 million) is included in generation plant and equipment.

Reconciliation of the carrying amount of property, plant and equipment

Group

Cost
Balance at 1 July 2012
Additions
Transfers from capital work in progress
Transfer to assets held for sale
Disposals

Balance at 30 June 2013

Balance at 1 July 2013
Additions
Transfers from capital work in progress
Transfer to assets held for sale
Disposals

Balance at 30 June 2014

Depreciation and impairment losses
Balance at 1 July 2012
Depreciation charge
Impairment
Disposals

Balance at 30 June 2013

Balance at 1 July 2013
Depreciation charge
Impairment
Disposals

Balance at 30 June 2014

Carrying amount

At 30 June 2013

At 30 June 2014

Generation plant
and equipment
(including land
and buildings)
$m

Other land
and buildings
$m

Other plant
and equipment
$m

Capital work
in progress
$m

5,113
78
157
(6)
(42)

5,300

5,300
112
565
(3)
(8)

5,966

(912)
(162)
(3)
40

(1,037)

(1,037)
(161)
(2)
9

(1,191)

4,263

4,775

56
–
1
–
(29)

28
–
1
(1)
(1)

(16)
(3)
–
9

(10)

(10)
(1)
–
–

(11)

301
6
3
–
(79)

231

231
2
1
–
(1)

233

(178)
(15)
–
47

(146)

(146)
(13)
–
1

(158)

851
183
(161)
–
(5)

868

868
79
(567)
–
–

380

–
–
(69)
3

(66)

(66)
–
–
–

(66)

802

314

Total
$m

6,321
267
–
(6)
(155)

6,427

6,427
193
–
(4)
(10)

6,606

(1,106)
(180)
(72)
99

(1,259)

(1,259)
(175)
(2)
10

(1,426)

5,168

5,180

Contact Energy Limited

Notes to the Financial Statements 73
For the year ended 30 June 2014

Capital commitments

At 30 June 2014, Contact had $6 million (2013: $51 million) committed under contractual arrangements, with substantially all payments
due within 1 year of the end of the reporting period.

Restrictions

Under the Treaty of Waitangi Act 1975, the Waitangi Tribunal has the power to recommend, in appropriate circumstances, that some
of the land and interests in land purchased from the Electricity Corporation of New Zealand and now owned by Contact be resumed
by the Crown in order that it be returned to the Māori claimants. In the event that the Waitangi 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.

8. GOODWILL

Goodwill represents the excess of the consideration transferred over the fair value of Contact’s share of the net identiﬁ able assets
of an acquired subsidiary. Goodwill is carried at cost less accumulated impairment losses.

For the purpose of annual impairment testing, goodwill is allocated to the cash-generating unit to which it relates. Each cash-generating
unit represents the lowest level of assets that generate cash inﬂ ows largely independent of each other. Goodwill is allocated to the
following cash-generating units:

Retail
LPG

Group
2014
$m

179
3

182

Group
2013
$m

179
3

182

Parent
2014
$m

179
–

179

Parent
2013
$m

179
–

179

The impairment tests for the Retail and LPG cash-generating units are based on value in use discounted cash ﬂ ow valuations. Cash ﬂ ow
projections are based on a 5-year ﬁ nancial forecast for the underlying business and are extrapolated using an average annual growth
rate of 1 per cent to 3 per cent and discounted using post-tax discount rates of 8 per cent to 10 per cent. No impairment losses were
recognised for goodwill during the year (2013: nil).

Key assumptions in the value in use calculations for the Retail and LPG cash-generating units are as follows:

Assumption

Method of determination

Customer numbers and customer churn

Review of actual customer numbers and historical data regarding movements in customer numbers.
The historical analysis is considered against expected market trends and competition for customers.

Gross margin per customer

Review of actual gross margin per customer and consideration of expected market movements
and impacts.

Operating costs

Review of actual operating costs and consideration of expected market movements and impacts.

Notes to the Financial Statements

72 Contact Energy Limited
For the year ended 30 June 2014

7. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS – CONTINUED

Reconciliation of the carrying amount of intangible assets

Group

Cost
Balance at 1 July 2012
Additions
Disposals

Balance at 30 June 2013

Balance at 1 July 2013
Additions
Disposals

Balance at 30 June 2014

Amortisation
Balance at 1 July 2012
Amortisation charge

Balance at 30 June 2013

Balance at 1 July 2013
Amortisation charge
Disposals

Balance at 30 June 2014

Carrying amount

At 30 June 2013

At 30 June 2014

Current
Non-current

Gas storage
rights
$m

Computer
software and
capital work
in progress
$m

Carbon
emission
units
$m

35
–
–

(1)
(1)

(2)

(2)
(1)
–

(3)

–
32

195
69
–

264

264
79
(2)

341

(41)
(14)

(55)

(55)
(14)
2

(67)

209

274

–
274

17
16
(15)

18
4
(1)

–
–

–

–
–
–

–

17
4

Total
$m

247
85
(15)

317

317
83
(3)

397

(42)
(15)

(57)

(57)
(15)
2

(70)

260

327

17
310

The Group includes $3 million of fully depreciated assets not included in the Parent. The carrying amount of computer software and
capital work in progress includes $265 million (2013: $200 million) in relation to Contact’s integrated SAP system. This has a remaining
useful life of 15 years.

Carbon emission units

Carbon emission units are surrendered on a ﬁ rst-in ﬁ rst-out basis by type of unit. Units are classiﬁ ed as current assets when they are
expected to be surrendered to satisfy Contact’s carbon emission obligation at the end of the reporting period, or the obligation expected
to be incurred within 1 year of the end of the reporting period.

Impairment

The carrying amounts of non-ﬁ nancial assets including property, plant and equipment and intangible assets are reviewed at the end
of each reporting period for any indicators of impairment. If any indication exists, the asset’s recoverable amount or the recoverable
amount of its cash-generating unit is estimated. An impairment loss is recognised whenever the carrying amount of an asset, or its
cash-generating unit, exceeds its estimated recoverable amount.

The recoverable amount is the greater of an asset’s value in use and fair value less costs to sell. In assessing the recoverable amount,
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.

An impairment loss is recognised in respect of geothermal exploration expenditure when the area of interest to which it relates is
no longer considered prospective for economically recoverable geothermal reserves or when the decision to abandon the area of
interest is made.

The recoverable amounts for all impairments recognised (refer to note 3) are the assets’ fair value less costs to sell based on the best
information available at the end of the reporting periods.

Notes to the Financial Statements

74 Contact Energy Limited
For the year ended 30 June 2014

Contact Energy Limited

Notes to the Financial Statements 75
For the year ended 30 June 2014

9. BORROWINGS

Finance leases

Borrowings are initially recognised at fair value less directly attributable transaction costs and subsequently measured at amortised cost
using the eﬀ ective interest rate method. Debt designated in hedge relationships (as discussed in note 10) is adjusted for the change in
fair value of the hedged risk.

Contact has leased assets in respect of connections to the national grid and computer hardware. The leased assets are included in the
carrying values of property, plant and equipment in note 7, with grid connection assets categorised in generation plant and equipment
and computer hardware in other plant and equipment.

Group and Parent

Finance lease liabilities

Commercial paper

Bank facilities

USPP notes – US$87 million

Retail bonds – CEN010

USPP notes – US$103 million

Wholesale bonds

USPP notes – US$40 million

USPP notes – US$25 million

Wholesale bonds

Retail bonds – CEN020

Wholesale bonds

USPP notes – US$56 million

USPP notes – US$22 million

USPP notes – US$51 million

USPP notes – US$58 million

Export credit agency facility

USPP notes – US$23 million

USPP notes – US$30 million

Capital bonds – CENFA

Total borrowings at face value

Unamortised discount

Total borrowings at amortised cost

Fair value adjustment on hedged borrowings

Carrying value of borrowings

Current

Non-current

Maturity

Various

< 3 months

Various

Mar 2014

May 2014

Mar 2015

Apr 2017

Mar 2018

Apr 2018

May 2018

May 2019

May 2020

Dec 2020

Dec 2023

Dec 2025

Dec 2027

Dec 2028

Feb 2042

Coupon

Various

Floating

5.3%

8.0%

5.3%

7.9%

5.6%

7.1%

4.8%

5.8%

5.3%

3.5%

4.2%

4.1%

4.3%

Floating

4.4%

4.5%

8.0%

2014
$m

223

–

183

100

222

–

1,428

(9)

1,419

(125)

1,294

237

1,057

2013
$m

–

155

550

183

100

–

200

1,495

(11)

1,484

(114)

1,370

671

699

The carrying value of borrowings approximates its fair value in all cases except for the capital bonds and the retail and wholesale bonds
not in hedge relationships. The fair value of borrowings is $1,341 million (2013: $1,414 million), with fair value measurement categorised as
level 2 of the fair value hierarchy as described in note 10.

Capital bonds

Contact redeemed the capital bonds at par plus accrued interest in November 2013 after changes to Standard & Poor’s criteria for
credit rating purposes meant that the bonds no longer qualiﬁ ed for full equity content.

Bank facilities

Group and Parent

Maturity

Less than 1 year

Between 1 and 2 years

Between 2 and 3 years

More than 3 years

2014
Facility
$m

–

350

175

600

2014
Drawn
$m

–

123

223

2013
Facility
$m

–

260

190

450

2013
Drawn
$m

–

Bank facilities support a $250 million commercial paper programme which had $60 million issued at 30 June 2014
(2013: $250 million programme was unutilised).

Security

All borrowings rank equally. Contact’s borrowings are unsecured except for ﬁ nance leases, which are secured over the leased assets.
Under Contact’s Deed of Negative Pledge and Guarantee and United States Private Placement (USPP) agreements, Contact is
restricted from granting any security interest over its assets, subject to certain permitted exceptions. Contact complied with all
borrowings covenants during the year.

10. FINANCIAL INSTRUMENTS

Financial instruments carried at amortised cost

Loans and receivables and ﬁ nancial liabilities are initially recognised at fair value less transaction costs and subsequently carried
at amortised cost. Purchases and sales of ﬁ nancial assets in the ordinary course of business are recognised on trade date.

Cash and cash equivalents

Receivables

Payables and accruals

Borrowings

Group
2014
$m

289

(273)

Group
2013
$m

340

(315)

Parent
2014
$m

276

(319)

Parent
2013
$m

329

(352)

(1,419)

(1,484)

(1,419)

(1,484)

Fair value measurement of ﬁ nancial instruments

Contact uses discounted cash ﬂ ow valuations to estimate the fair value of all derivatives (and of borrowings for disclosure purposes).
Two key variables used in these fair value measurements are forward prices (for the relevant underlying interest rates, foreign exchange
rates or wholesale electricity prices) and discount rates. Eﬀ ective 1 July 2013, the discount rate is adjusted for Contact’s own credit risk
for ﬁ nancial liabilities and for counterparty credit risk for ﬁ nancial assets. The sources of key valuation inputs are as follows:

Valuation input

Source

Interest rate forward prices

Published market swap rates

Foreign exchange forward prices

Published market foreign exchange rates

Forward wholesale electricity price

Market (ASX) quoted prices where available otherwise Contact's best estimate based on analysis
of expected demand and cost of new supply

Discount rates

Fair value hierarchy

Published market rates as applicable to the remaining life of the instrument adjusted for credit risk
with credit spreads derived from published market data

Financial instruments recognised at fair value are categorised according to the fair value hierarchy to show the extent of judgement
used in determining their fair value. Where unadjusted quoted prices are used to determine fair value the instruments are categorised
as level 1. When fair value is derived from inputs other than quoted prices, but they are observable either directly (i.e. from prices) or
indirectly (i.e. derived from prices), the instruments are categorised as level 2. The fair value of level 3 instruments is derived from inputs
that are not based on observable market data.

At 30 June 2014, all ﬁ nancial instruments measured at fair value were categorised as level 2, except for $1 million of electricity
price derivatives categorised as level 3 ﬁ nancial instruments (2013: $1 million). Contact had no level 1 ﬁ nancial instruments at
30 June 2014 (2013: nil).

Notes to the Financial Statements

76 Contact Energy Limited
For the year ended 30 June 2014

10. FINANCIAL INSTRUMENTS – CONTINUED

Derivative ﬁ nancial instruments carried at fair value

The following table classiﬁ es derivative ﬁ nancial instruments by type and balance sheet classiﬁ cation:

Group and Parent

Fair value hedges

Cross-currency interest rate swaps

Interest rate derivatives

Cash ﬂ ow hedges

Cross-currency interest rate swaps – margin

Foreign exchange derivatives

Electricity price derivatives

Derivatives not designated in hedge relationships

Interest rate derivatives

Electricity price derivatives

Current

Non-current

Gross fair values

2014
Asset
$m

2014
Liability
$m

2013
Asset
$m

–

(120)

(5)

(10)

(1)

(2)

(22)

(2)

(162)

(83)

(79)

–

2013
Liability
$m

(111)

(2)

(1)

(30)

–

(147)

(60)

(87)

Contact enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements.
Under these ISDAs Contact currently has a legally enforceable right to set oﬀ the recognised amounts and intends to settle on a net
basis or to realise the asset and settle the liability simultaneously. All instruments in the table above have been oﬀ set in the
Statement of Financial Position. The gross fair value before oﬀ setting is shown in the table below:

Group and Parent

Cross-currency interest rate swaps

Cross-currency interest rate swaps – margin

Foreign exchange derivatives

Interest rate derivatives

Electricity price derivatives

Fair value hedges

2014
Asset
$m

–

2014
Liability
$m

(120)

(10)

(1)

(30)

(4)

(165)

2013
Asset
$m

–

2013
Liability
$m

(111)

(2)

(1)

(39)

(4)

(157)

The USPP notes, $100 million of wholesale bonds and $111 million of retail bonds are each designated in fair value hedge relationships.
Contact entered into cross-currency interest rate swaps to swap the USD principal and ﬁ xed coupon obligations related to the USPP
notes to NZD ﬂ oating rate exposure and entered into interest rate swaps to convert the ﬁ xed coupons on the domestic bonds to
ﬂ oating rates.

Cash ﬂ ow hedges

The margin component of the cross-currency interest rate swaps is designated as a cash ﬂ ow hedge of the margin component of the
USPP notes. Foreign currency risk associated with future foreign currency cash ﬂ ows is hedged using forward exchange derivatives.
Contact uses electricity price derivatives to manage electricity price risk associated with its spot market exposure. The period over
which the cash ﬂ ow hedges are expected to impact proﬁ t matches the period that the cash ﬂ ows are expected to occur:
• cross-currency interest rate swaps over a period of 9 months to 15 years (2013: 2 months to 15 years).
•
foreign exchange derivatives over a period of 1 month to 1 year (2013: 1 month to 2 years).
• electricity price derivatives over a period of 1 month to 3 years (2013: 1 month to 4 years).

Derivatives not designated in hedge relationships

Contact enters into interest rate derivatives to convert ﬁ xed coupons to ﬂ oating (and vice-versa) to manage interest rate risk in
accordance with the treasury risk management policy and purchases a minimum amount of electricity futures as part of a requirement
to participate in the ASX futures electricity market.

Contact Energy Limited

Notes to the Financial Statements 77
For the year ended 30 June 2014

Change in fair value of ﬁ nancial instruments

The eﬀ ective portion of changes in the fair value of derivatives designated as cash ﬂ ow hedges is recognised in the cash ﬂ ow hedge
reserve. The gain or loss relating to any ineﬀ ective portion is recognised immediately in the Income Statement. Amounts recognised in
the cash ﬂ ow hedge reserve are subsequently reclassiﬁ ed to the Income Statement or Statement of Financial Position according to the
nature of the hedged item.

Changes in the fair value of derivatives designated as fair value hedges are recorded in the Income Statement together with any changes
in the fair value of the underlying hedged borrowings. Changes in fair value of derivatives not designated in a hedge relationship are
recognised in the Income Statement.

The change in the fair value of derivatives and the fair value adjustments to borrowings is provided below:

Group and Parent

Favourable/(unfavourable)

Cross-currency interest rate swaps

Interest rate derivatives

Fair value adjustment to borrowings

Fair value hedges

Cross-currency interest rate swaps – margin

Foreign exchange derivatives

Electricity price derivatives

Tax on change in fair value

Cash ﬂ ow hedges

Interest rate derivatives

Electricity price derivatives

Derivatives not designated in hedge relationships

Total fair value movement

Cash ﬂ ow hedge reserve movement

Group and Parent

Balance at the beginning of the year

Eﬀ ective portion of cash ﬂ ow hedges recognised

Transferred to revenue

Transferred to change in fair value of ﬁ nancial instruments (ineﬀ ectiveness)

Transferred to property, plant and equipment

Transferred to deferred tax

Balance at the end of the year

2014
Income
statement
$m

2014
Cash ﬂ ow
hedge reserve
$m

2013
Income
statement
$m

2013
Cash ﬂ ow
hedge reserve
$m

(9)

(2)

–

(8)

–

(4)

(9)

–

(9)

(3)

(16)

–

(1)

–

(1)

–

2014
$m

(4)

(7)

–

(5)

–

(4)

–

2013
$m

(8)

(1)

Notes to the Financial Statements

78 Contact Energy Limited
For the year ended 30 June 2014

11. FINANCIAL RISK MANAGEMENT

Contact’s overall ﬁ nancial risk management system mitigates the exposure to capital, liquidity, market and credit risks by ensuring that
material risks are identiﬁ ed, that the ﬁ nancial impact is well understood and reported, that appropriate tools and limits are in place to
manage exposures, and that collective and individual responsibilities are assigned and well understood.

The overall ﬁ nancial risk management system is supported by written policies covering each risk, and the use of derivative ﬁ nancial
instruments and non-derivative ﬁ nancial instruments. These policies provide a framework for identifying, monitoring and managing
ﬁ nancial risks.

Capital risk

Contact’s capital includes share capital, reserves, retained earnings and net debt. 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, beneﬁ ts for other
stakeholders and to maintain an optimal capital structure. Contact manages its capital structure to ensure it can continue to attract
capital from investors and lenders on reasonable terms.

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 grade credit rating and seeks to retain
a gearing ratio suitable to the nature of Contact’s business. Contact’s gearing ratio is calculated as follows:

Group

Face value of borrowings

Cash and cash equivalents

Net debt

Shareholders’ equity

Remove net eﬀ ect of fair value of ﬁ nancial instruments after tax

Adjusted equity

Total capital funding

Gearing ratio

Liquidity risk

2014
$m

(1,428)

(1,416)

(3,582)

(21)

(3,603)

(5,019)

28.2%

2013
$m

(1,495)

(1,415)

(3,537)

(17)

(3,554)

(4,969)

28.5%

Contact’s liquidity risk arises from its need to ensure that it has access to suﬃ cient committed ﬁ nancing to meet its committed
expenditure and debt repayment obligations, normal periodic ﬂ uctuations and unexpected funding requirements.

Prudent liquidity risk management requires Contact to maintain suﬃ cient liquidity, which can comprise cash, marketable securities and/
or the availability of funding through undrawn committed credit facilities. To reduce reﬁ nancing risk, Contact maintains a diverse portfolio
of funding, debt maturities are spread over a number of years and any new ﬁ nancing or reﬁ nancing requirements are addressed with an
appropriate lead time. Liquidity risk is monitored by continually forecasting cash ﬂ ows against the level of funding facilities and ensuring
an adequate liquidity buﬀ er is maintained, based on a ﬁ nancial risk capacity analysis.

Contact’s exposure to liquidity risk is based on the contractual cash ﬂ ows and maturities of ﬁ nancial liabilities, including derivatives.
The tables below summarise net cash ﬂ ows for instruments that are settled net and gross cash ﬂ ows for derivatives that have
simultaneous gross cash settlement. The amounts presented are contracted, undiscounted cash ﬂ ows and therefore do not reconcile
to the Statement of Financial Position.

Group 2014

Payables and accruals
Borrowings
Finance lease liabilities
Electricity price derivatives – net settled
Interest rate derivatives – net settled
Foreign exchange derivatives – inﬂ ow
Foreign exchange derivatives – outﬂ ow
Cross-currency interest rate swaps – inﬂ ow
Cross-currency interest rate swaps – outﬂ ow

Group 2013

Payables and accruals
Borrowings1
Finance lease liabilities
Electricity price derivatives – net settled
Interest rate derivatives – net settled
Foreign exchange derivatives – inﬂ ow

Foreign exchange derivatives – outﬂ ow

Cross-currency interest rate swaps – inﬂ ow

Cross-currency interest rate swaps – outﬂ ow

Contact Energy Limited

Notes to the Financial Statements 79
For the year ended 30 June 2014

Total
contractual
cash ﬂ ows
$m

Less than
1 year
$m

1-2 years
$m

2-5 years
$m

More than
5 years
$m

(273)
(1,564)
(27)
4
(33)
10
(10)
607
(848)

(2,134)

(273)
(288)
(2)
4
(7)
10
(10)
140
(216)

(642)

–
(229)
(2)
–
(5)
–
–
16
(27)

(247)

–
(582)
(4)
–
(13)
–
–
116
(189)

(672)

Total
contractual
cash ﬂ ows
$m

Less than
1 year
$m

1-2 years
$m

2-5 years
$m

(315)
(2,118)
(1)
8
(34)

(35)

1,113

(1,333)

(2,681)

(315)
(467)
(1)
7
(8)

(29)

438

(482)

(828)

–
(192)
–
1
(9)

(6)

156

(213)

(258)

–
(386)
–
–
(15)

–

136

(192)

(457)

–
(465)
(19)
–
(8)
–
–
335
(416)

(573)

More than
5 years
$m

–
(1,073)
–
–
(2)

–

383

(446)

(1,138)

In 2013 borrowings included inﬂ ows of $301 million in relation to USPP forward start contracts due to be received within 1 year.

The liquidity analysis provided above is the same for the Parent except for payables and accruals. The carrying amount of payables and
accruals in the Parent is $319 million (2013: $352 million), which is equal to the contractual cash ﬂ ow and is payable in less than 1 year.

Market risk

Foreign currency risk

Contact is exposed to foreign currency risk arising from future commercial transactions, such as the purchase of capital equipment and
payments for maintenance denominated in currencies other than the New Zealand dollar (primarily Australian dollar, United States dollar,
Japanese yen and Euro), and future interest and principal payments on the USPP notes.

Contact uses forward foreign exchange derivatives to manage foreign exchange risk arising from committed future commercial
transactions, with the contracts intended to hedge 100 per cent of known material foreign currency exposures. The exposure
is measured as the New Zealand dollar equivalent of the notional principal amount of foreign exchange derivatives, which at
30 June 2014 was $10 million (2013: $36 million).

Cross-currency interest rate swaps are used to manage foreign exchange risk arising from future interest and principal payments
relating to the USPP notes. The exposure is measured as the New Zealand dollar equivalent of the notional principal amount of
outstanding cross-currency interest rate swaps, which was $599 million at 30 June 2014 (2013: $759 million).

Price risk

Contact is exposed to commodity price risk arising from forecast sales and purchases of electricity from the electricity market.
Contact uses electricity price derivatives that eﬀ ectively ﬁ x the price at which it will buy or sell electricity to support the natural hedge
provided by the integrated generation and retail business to mitigate its electricity price risk.

The aggregate notional volume of the outstanding ﬁ xed volume electricity price derivatives at 30 June 2014 was 2,159 gigawatt hours (GWh)
(2013: 1,463 GWh).

Notes to the Financial Statements

80 Contact Energy Limited
For the year ended 30 June 2014

11. FINANCIAL RISK MANAGEMENT – CONTINUED

Interest rate risk

Contact is exposed to interest rate risk as a result of ﬂ oating rate term borrowings either directly, or indirectly through the use of
derivatives. Floating rate New Zealand dollar exposures are mitigated by use of New Zealand dollar interest rate derivatives within
policy limits set by the Board.

At 30 June 2014, Contact had $209 million (2013: $366 million) of notional debt on a ﬂ oating rate basis and $1,192 million
(2013: $1,128 million) on a ﬁ xed rate basis.

Sensitivity analysis

The table below summarised the impact on the cash ﬂ ow hedge reserve and post-tax proﬁ t of possible changes in wholesale electricity
forward prices, foreign exchange rates and interest rates as a result of changes in the fair value of recognised derivatives.

The analysis assumes that all variables were held constant except for the relevant market risk factor.

Group and Parent
Favourable/(unfavourable)

Impact on cash ﬂ ow hedge reserve:

Electricity forward prices

Foreign exchange rates

Impact on post-tax proﬁ t:

Interest rates

Credit risk

2014
$m

+10%

(5)

(1)

2014
$m

–10%

2013
$m

+10%

(5)

(2)

2013
$m

–10%

+100bps

–25bps

+100bps

–25bps

(4)

(1)

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 and cash equivalents, trade and other receivables
and derivative ﬁ nancial instruments.

The carrying amount of ﬁ nancial assets of the Group is $310 million (2013: $430 million) and represents 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 minimises its exposure to credit risk of receivables through the adoption of counterparty credit limits, a policy of only dealing
with creditworthy counterparties and obtaining suﬃ cient collateral, where appropriate.

Derivative counterparties and cash transactions are limited to high-credit-quality ﬁ nancial institutions and other organisations in the
relevant industry. Contact’s exposures and the credit ratings of its counterparties are continually monitored, and the aggregate value
of transactions is spread amongst approved counterparties.

In relation to trade receivables, 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 trade receivables is limited due 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. Contact, as a participant in the electricity market, has issued letters of credit to
Energy Clearing House Limited under the electricity market’s security requirements applicable to all market participants. These letters
of credit are issued as part of normal trading conditions and ensure that there is no signiﬁ cant credit exposure to any one market
participant, should another participant default.

Contact Energy Limited

Notes to the Financial Statements 81
For the year ended 30 June 2014

12. NOTE TO THE STATEMENT OF CASH FLOWS

Cash includes cash on hand, at bank, short-term deposits and restricted cash, net of outstanding bank overdrafts. Contact trades on
the ASX using a broker who holds collateral on deposit for margin calls. At 30 June 2014, this collateral was $6 million (2013: $3 million).

The table below provides a reconciliation of proﬁ t for the year to cash ﬂ ows from operating activities.

Proﬁ t for the year

Adjustments to reconcile proﬁ t to net cash ﬂ ow from operating activities

Depreciation and amortisation

Change in fair value of ﬁ nancial instruments

Asset impairments

Gain on sale of property, plant and equipment

Net interest expense

Bad debt expense

Movement in provisions

Movement in deferred tax

Share-based compensation

Other

Changes in assets and liabilities, net of non-cash, investing and ﬁ nancing activities
Receivables and prepayments

Inventories

Payables and accruals

Tax payable/receivable

Other

Net cash ﬂ ow from operating activities

13. RECEIVABLES AND PREPAYMENTS

Trade receivables
Unbilled receivables
Provision for impairment

Net trade receivables

Prepayments
Other receivables
Advance to subsidiaries

Total receivables and prepayments

Note

Group
2014
$m

234

Group
2013
$m

199

Parent
2014
$m

224

Parent
2013
$m

183

190

195

186

190

(7)

(6)

–

(2)

(25)

(31)

(40)

(7)

446

Group
2014
$m

168
131
(12)

287

3
2
–

292

(11)

(50)

(6)

–

(7)

(74)

(13)

(1)

469

Group
2013
$m

165
113
(7)

271

3
69
–

343

(7)

(6)

–

(2)

(23)

(31)

(7)

442

Parent
2014
$m

150
130
(12)

268

3
2
6

279

(11)

(50)

(6)

–

(8)

(87)

(13)

(1)

463

Parent
2013
$m

147
113
(6)

254

3
69
6

332

Unbilled receivables represent Contact’s best estimate of retail sales for unread electricity and gas meters at the end of the reporting
period. This involves estimating consumption for each unread meter based on the consumption history of the customer’s meter.

Contact recognises a provision for impairment when there is objective evidence that Contact will not be able to collect amounts due
according to the original terms of the receivable. Receivables which are known to be uncollectable are written oﬀ . 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 losses. Bad debts net of recoveries of $15 million for Group and Parent (2013: Group $12 million, Parent $15 million) were
recognised during the year.

The ageing analysis of net trade receivables not impaired is, as follows:

Not past due

0-30 days past due

30-90 days past due

Over 90 days past due

Group
2014
$m

246

287

Group
2013
$m

243

271

Parent
2014
$m

228

268

Parent
2013
$m

228

254

Notes to the Financial Statements

82 Contact Energy Limited
For the year ended 30 June 2014

14. PAYABLES AND ACCRUALS

Trade payables and accruals
Employee beneﬁ ts
Interest payable
Advances from subsidiaries

15. PROVISIONS

Balance at 1 July 2013

Created

Utilised

Released

Unwind of discount

Balance at 30 June 2014

Current

Non-current

Note

Group
2014
$m

243
26
8
–

277

Group
2013
$m

281
26
12
–

319

Parent
2014
$m

232
26
8
56

322

Group
Restoration/
environmental
rehabilitation
$m

–

(1)

–

Group
Other
$m

(3)

(11)

–

Parent
Restoration/
environmental
rehabilitation
$m

–

Group
Total
$m

(4)

(11)

Parent
Other
$m

(3)

(11)

–

Parent
2013
$m

269
26
12
49

356

Parent
Total
$m

(3)

(11)

The restoration and environmental rehabilitation provision includes estimates of future expenditure for the abandonment and
restoration of areas from which natural resources are extracted, removal of asbestos from generation properties and the expected
cost of environmental rehabilitation of commercial sites. Cash outﬂ ows are typically expected to coincide with the end of the useful
lives of the assets, with the exception of asbestos removal costs, which are expected to be incurred within the next 5 years.

16. TAXATION

Tax expense comprises current and deferred tax. Income tax is recognised in the Income Statement except when it relates to
items recognised directly in the Statement of Comprehensive Income, in which case the income tax is recognised in the
Statement of Comprehensive Income.

Deferred tax is recognised in respect of temporary diﬀ erences between the carrying amounts of assets and liabilities for ﬁ nancial
reporting purposes and the amounts used for taxation purposes. The amount of deferred tax is based on the expected manner of
realisation 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. Tax expense is determined as follows:

Proﬁ t before tax

Tax thereon at 28%

Plus/(less) tax eﬀ ect of adjustments:

Clutha asset impairment and land sales

Gas meter assets sale

Decommissioned New Plymouth power station sale

Asset impairments

Prior period adjustments

Other diﬀ erences

Tax expense

Comprising:

Current tax

Deferred tax

Group
2014
$m

328

(1)

–

Group
2013
$m

263

(4)

(7)

(6)

(2)

Parent
2014
$m

314

(1)

–

Parent
2013
$m

249

(4)

(7)

(6)

(2)

Contact Energy Limited

Notes to the Financial Statements 83
For the year ended 30 June 2014

Deferred tax assets and liabilities are oﬀ set on the face of the Statement of Financial Position and presented as a net deferred tax
liability. The movement in deferred tax asset and liabilities is provided below:

Group

Property, plant
and equipment
$m

Inventories
$m

Employee
beneﬁ ts
$m

Provisions
$m

Derivative
ﬁ nancial
instruments
$m

Balance at 1 July 2012
Recognised in the Income Statement
Recognised in other comprehensive income

Balance at 30 June 2013

Balance at 1 July 2013
Recognised in the Income Statement
Recognised in other comprehensive income

Balance at 30 June 2014

(738)
(19)
–

(757)

(757)
(34)
–

(791)

3
(3)
–

–

–
–
–

–

6
–
–

6
(1)
–

14
(2)
–

12
2
–

13
(3)
(4)

6
(2)
3

Parent

Property, plant
and equipment
$m

Inventories
$m

Employee
beneﬁ ts
$m

Provisions
$m

Derivative
ﬁ nancial
instruments
$m

Balance at 1 July 2012
Recognised in the Income Statement
Recognised in other comprehensive income

Balance at 30 June 2013

Balance at 1 July 2013
Recognised in the Income Statement
Recognised in other comprehensive income

Balance at 30 June 2014

(732)
(25)
–

(757)

(757)
(33)
–

(790)

3
(3)
–

–

–
–
–

–

6
–
–

6
(1)
–

13
(2)
–

11
2
–

13
(3)
(4)

6
(2)
3

Other
$m

2
(4)
–

(2)

(2)
(1)
–

(3)

Other
$m

2
(4)
–

(2)

(2)
(1)
–

(3)

Total
$m

(700)
(31)
(4)

(735)

(735)
(36)
3

(768)

Total
$m

(695)
(37)
(4)

(736)

(736)
(35)
3

(768)

Imputation credits available for use in subsequent reporting periods are 226 million (2013: 238 million). These are available to
shareholders through the consolidated imputation group.

17. OPERATING LEASES

Operating leases relate to the rental of buildings, plant and equipment and vehicles and are on normal commercial terms and conditions
and are stated exclusive of Goods and Services Tax.

Less than 1 year
Between 1 and 5 years
More than 5 years

Total operating lease commitments

Group
2014
$m

6
15
9

Group
2013
$m

6
15
12

Parent
2014
$m

4
12
5

Parent
2013
$m

5
12
8

Included in the Income Statement are rental expenses of $7 million (2013: $7 million) for the Group and $5 million (2013: $5 million)
for the Parent.

Notes to the Financial Statements

84 Contact Energy Limited
For the year ended 30 June 2014

18. RELATED PARTIES

Ultimate parent entity

The ultimate parent entity of Contact is Origin, an Australian incorporated company. At 30 June 2014, Origin Energy Paciﬁ c Holdings
Limited is the majority shareholder in the Parent, owning 52.3 per cent (2013: 52.3 per cent) of the shares of the Parent. Further
shares amounting to 0.8 per cent (2013: 0.8 per cent) of the Parent’s shares are held by Origin Energy Universal Holdings Limited and
Origin Energy New Zealand Limited. All three companies are ultimately wholly owned by Origin.

Group related parties

Contact’s related parties include subsidiaries of Origin, key management personnel and Rockgas Timaru Limited which is
a joint arrangement.

Contact entered into the following material transactions with related parties during the year:

Group
Received/(paid)

Origin and its subsidiaries

Purchase of LPG

SAP infrastructure and data services costs

Ahuroa gas storage facility development and operation expenses

Sale of electricity

Sale of gas processing rights and associated assets

Joint arrangement of the Group

Sale of LPG

Key management personnel

Directors’ fees

CEO seconded from Origin1

Leadership team (excluding CEO)

Salary, other short-term beneﬁ ts and share-based compensation1

Termination beneﬁ ts

Balances payable at end of the year

Origin and its subsidiaries

Key management personnel

2014
$m

(33)

(6)

(2)

(1)

(2)

(7)

–

(3)

(1)

2013
$m

(42)

(6)

(8)

–

(1)

(2)

(7)

(1)

(5)

(2)

1. Contact recognised an expense of $2 million (30 June 2013: $2 million) in respect of options and performance share rights granted to the Leadership team and the CEO,

which has been included in the amounts disclosed.

Members of the Leadership team purchase electricity and gas from the Group for domestic purposes on normal commercial terms
and conditions with staﬀ discount.

Contact paid a cash distribution of $43 million to its Origin shareholders on 27 March 2014 and $55 million on 16 September 2013
(2013: $43 million on 26 March 2013; 9,367,110 ordinary shares under the Proﬁ t Distribution Plan on 21 September 2012).

Contact and Origin have a Master Services Agreement for the provision of professional, consulting and/or administrative services.
During the year, six members of staﬀ , including the CEO, were seconded from Origin to Contact (2013: ﬁ ve), and one staﬀ member was
seconded from Contact to Origin (2013: one). These secondments are undertaken on a cost recovery basis.

Parent related parties

The Parent’s related parties are the same as those of the Group with the addition of the following subsidiaries, all of which have a
30 June balance date, are 100% owned, and are incorporated in New Zealand:

Name of entity

Contact Aria Limited
Contact Wind Limited
Rockgas Limited

Principal activity

Investment holding company
Wind generation development
LPG retailer

In addition to the Group related party transactions, the Parent charged its subsidiaries $17 million (2013: $18 million) for management
services. The Parent also pays operating expenses on behalf of its subsidiaries, which are on-charged directly to those subsidiaries.
Advances to/from subsidiaries are included in notes 13 and 14, respectively. Advances to subsidiaries are stated net of provisions for
impairment of $31 million (2013: $31 million), are repayable on demand and are interest free.

Contact Energy Limited

Notes to the Financial Statements 85
For the year ended 30 June 2014

During the year Contact launched an employee share ownership plan (Contact Share) administered by Contact Energy Trust Company
Limited (CETCL). CETCL is controlled by the Parent for accounting purposes. The sole shareholder of CETCL is a nominee company
and the directors of CETCL are appointed by the Parent. The Parent has indemniﬁ ed CETCL for all expenses and reimburses it for share
purchases. All CETCL transactions are included in the Parent’s results. Transactions and balances between the Parent and CETCL are
eliminated on aggregation in the Parent’s results. For further details about Contact Share refer to note 19.

19. SHARE-BASED COMPENSATION

Share Option Scheme

Contact provides a long-term incentive award to certain eligible employees, which is comprised of share options and performance
share rights (PSRs). The share options and PSRs are unlisted, cannot be traded and do not entitle the employee to distribution or voting
rights. On exercise, the PSRs convert to ordinary shares at no cost to the employee. Share options convert on payment of the agreed
exercise price.

Performance hurdles are measured on three annual test dates, the ﬁ rst of which is 3 years after grant date. The share options and PSRs
will only be exercisable to the extent that Contact’s total shareholder return (TSR) is in the upper half of the TSR of companies in the
NZX50 index over the relevant period from grant date. If they became exercisable, share options and PSRs must be exercised within
2 years and 2 months of the ﬁ rst test date. The share options and PSRs may also be exercised if a change of control of the Parent occurs;
the Parent’s shares cease to be listed on the NZX or in other circumstances where early exercise is considered appropriate by the Board.

The share options and PSRs will lapse if the performance hurdles are not met, if they are not exercised by the lapse date or
if an employee ceases to be employed by Contact, other than on redundancy or at the Board’s discretion. The Share Option
Scheme continues on redundancy but the number of share options and PSRs the employee is entitled to will be recalculated
on a proportionate basis.

Contact Share

Contact Share is an employee share ownership plan that enables eligible employees to acquire a certain number of Contact’s
ordinary shares for a consideration amount (determined by Contact). The shares are acquired on market and legally held by CETCL
for a restrictive period of 3 years during which time the employee is entitled to receive dividends and direct the exercise of voting rights
that attach to shares held on their behalf. The shares cannot be traded during this period.

At the end of the restrictive period (or if the employee leaves Contact due to redundancy, death, accident, sickness or retirement at
normal retiring age) the shares are transferred to the employee. If the employee leaves Contact during the restrictive period the shares
transfer to an unallocated pool. Shares in the unallocated pool can be used by CETCL for future allocations under Contact Share.

Share scheme movements

Group and Parent

Balance at 1 July 2012

Granted

Lapsed

Balance at 30 June 2013

Balance at 1 July 2013

Granted

Exercised

Lapsed

Balance at 30 June 2014

Exercisable at 30 June 2014

Share Option Scheme

Share options
Number

8,779,062

4,852,273

(1,275,310)

12,356,025

3,385,967

–

(989,937)

14,752,055

188,663

Share options
Weighted average
exercise price ($)

5.85

5.22

6.20

5.57

5.33

–

7.05

5.41

5.53

PSRs
Number

1,827,196

662,408

(232,538)

2,257,066

Contact Share
Restricted
shares
Number

–

612,729

158,208

(6,941)

(137,938)

(1,152)

–

2,724,916

157,056

37,652

–

Share options had a weighted average remaining contractual life of 2 years and 9 months (2013: 3 years and 1 month) and PSRs 2 years
and 5 months (2013: 3 years).

Contact Energy Limited
Notes to the Financial Statements

86
For the year ended 30 June 2014

19. SHARE-BASED COMPENSATION – CONTINUED

Fair value

The fair value of employee services received in exchange for the grant of the share options, PSRs and Contact Share restricted shares
is recognised as an expense, with a corresponding increase in equity over the vesting period. The fair value of the services received is
based on the fair value of the share options, PSRs and Contact Share restricted shares granted.

The amount recognised as an expense is adjusted to reflect the number of share options, PSRs and Contact Share restricted shares that
are expected to become exercisable or vest. The total expense recognised under the Share Option Scheme and Contact Share for
the year was $4 million (2013: $4 million).

The fair values of share options and PSRs granted during the year were $0.57 (2013: $0.43) and $3.15 (2013: $3.15) respectively. The fair
value of Contact Share restricted shares granted during the year was $5.19. These fair values were based on the following assumptions:

Group and Parent
Risk-free interest rate

Expected dividend yield

Expected share price volatility

2014

19%

2013

18%

Volatility is based on the 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 PSRs issued during the year.

20. CONTINGENT LIABILITIES

Contact has contingent liabilities in respect of claims and warranties arising in the ordinary course of business and as a result of the
gas meter assets sale in June 2013. Contact’s net exposure to the warranties provided under the gas meter assets sale is $2 million
and expires on 30 June 2015. It is not anticipated that any material liabilities will arise from these claims and warranties.

Settlement negotiations in respect of the delayed commissioning of the Te Mihi Geothermal Power Station are ongoing.

21. SUBSEQUENT EVENTS

On 15 August 2014 the Board declared a final distribution of 15.0 cents per share to be paid on 15 September 2014.

Independent Auditor’s Report 87

Contact Energy Limited

Independent
Auditor’s Report

To the shareholders of Contact Energy Limited

Report on the company and Group financial statements

We have audited the accompanying financial statements of Contact Energy Limited (‘the company’) and the Group, comprising
the company and its subsidiaries, on pages 60 to 86. The financial statements comprise the statements of financial position as at
30 June 2014, the income statements and statements of comprehensive income, changes in equity and cash flows for the year then
ended, and a summary of significant 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 financial statements in accordance with generally accepted
accounting practice and International Financial Reporting Standards in New Zealand 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 financial 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 financial 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 financial
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 financial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement
of the financial 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 financial 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 effectiveness 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 financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Our firm has also provided other services to the company and Group in relation to tax compliance. Subject to certain restrictions,
partners and employees of our firm 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 auditor of the company
and Group. The firm has no other relationship with, or interest in, the company and Group.

Opinion

In our opinion the financial statements on pages 60 to 86:
• comply with generally accepted accounting practice in New Zealand;
• comply with International Financial Reporting Standards;
• give a true and fair view of the financial position of the company and the Group as at 30 June 2014 and of the financial performance

and cash flows of the company and the Group for the year then ended.

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.

15 August 2014
Wellington

Contact Energy Limited
Corporate Directory

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

Graham Cockroft
Chief Financial Oﬃ cer

Mark Corbitt
General Manager – Information and Communication Technology

Peter Kane
General Manager – Operations

James Kilty
General Manager – Sales and Customer Experience,
Trading, Development and Geothermal Resources

Tania Palmer
General Manager – Health, Safety and Environment

Paul Ridley-Smith
General Counsel

Nicholas Robinson
General Manager – Customer Insight, Marketing and Communications

Annika Streeﬂ and
General Manager – People and Culture

Registered oﬃ ce
Contact Energy Limited
Harbour City Tower
29 Brandon Street
Wellington 6011
New Zealand

Phone: +64 4 499 4001
Fax: +64 4 499 4003
www.contactenergy.co.nz
www.facebook.com/contactenergy
www.twitter.com/contactenergy
www.linkedin.com/company/contact-energy-ltd

Postal address
PO Box 10742
The Terrace
Wellington 6143
New Zealand

Auditor
KPMG
PO Box 996
Wellington 6140
New Zealand

Share Registrar
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
New Zealand

Website: www.linkmarketservices.co.nz

Shareholder/bondholder enquiries
To view your investment portfolio, supply your email address, change
your details, or update your payment instructions relating to Contact,
please contact our registry, Link Market Services Limited, by either:

Email: contactenergy@linkmarketservices.co.nz
Mail: Link Market Services, PO Box 91976, Auckland 1142, New Zealand
Fax: +64 9 375 5990, or
Phone: + 64 9 375 5998

Please provide your CSN/Holder number on any correspondence
with our registry.

Direct crediting of dividends/interest payments
To minimise the risk of fraud and misplacement of dividend/interest
payment cheques, shareholders/bondholders are strongly recommended
to have all payments made by way of direct credit to their nominated bank
account in New Zealand.

Electronic shareholder communication
We encourage investors to elect to receive investor communications
electronically as it keeps costs down, delivery of our communication
to you is faster and it is better for the environment. Please visit the Link
Market Services website www.linkmarketservices.co.nz or contact them
directly to update your information.

Investor relations enquiries
Fraser Gardiner
Head of Investor Relations and Strategy

Email: investor.centre@contactenergy.co.nz
Phone: +64 4 499 4001

Stock exchange listings
NZSX trading code: CEN
NZDX trading code: CEN020

Company number
660760

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