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Our 2015 Annual Report
Dear Shareholder
I believe we will look back
on this year as a turning
point, strongly positioning
Contact for the future.
We have seen change,
delivered new initiatives
and in November 2015
we will proudly celebrate
20 years in business as
Contact. While some things
change, our focus remains
on the fundamental drivers
that set our company apart.
2015 has been a year of significant
activity. Our ownership has changed and
the Board will be refreshed as a result.
We have integrated Te Mihi geothermal
power station and our new customer
service and billing system into our
business, improving our performance
while remaining competitive. We played
an important role in the ongoing operation
of the Tiwai Aluminium Smelter and
–
ta–huhu
announced the closure of the O
power station. On top of this we made
great strides in improving our safety
performance and culture. All this, while
operating in one of the most competitive
retail electricity markets in the world.
CEO review
Contact 2015
1
1
Our underlying earnings2 after tax were
$161 million, $66 million (29 per cent) lower
than FY14 reflecting lower retail margins
reducing EBITDAF2 and increased
depreciation and interest costs following
the completion of our significant capital
programme. Free cash flow1 was
$363 million, up $64 million (21 per cent)
due to natural gas inventory movements
and favourable retail collections more than
offsetting the reduction in EBITDAF.
In May 2015, the Contact Board of Directors
announced a revised distribution policy to
pay an average ordinary dividend equivalent
to 100 per cent of underlying earnings after
tax. In line with this policy the Board resolved
that the final distribution to shareholders
for financial year 2015 (FY15) would be
15 cents per share which will be unimputed
following Contact’s imputation credit balance
being reduced to zero after the sale by Origin
Energy. With no near-term opportunities for
capital investment it was pleasing that total
dividends for the year were 76 cents per
share, including a 50 cents per share special
dividend in June 2015. The Board has also
announced its intention to conduct a share
buy-back programme commencing in the
first half of financial year 2016 (FY16).
Competing strongly in
an intense retail market
New Zealand’s retail electricity market
remains amongst the most competitive in the
world. While we were able to keep our volume
of electricity sold flat, the downward pressure
of discounting and the high market churn of
customers resulted in the earnings from our
customer business not being as strong as we
would have wanted.
Performance for the year
ended 30 June 2015
$133m
Profit for the year,
down 43 per cent
$363m
Free cash flow1,
up 21 per cent
76cps
Total shareholder
distributions,
up 192 per cent
1. Free cash flow is a non-generally accepted
2015 a year of transition
Much of this year’s efforts have been focused
on the successful integration of Te Mihi power
station and our new customer service and
billing system which were implemented at the
end of the 2014 financial year (FY14). While
both projects have created challenges, we
are now positioned with a diverse generation
portfolio that reduces cost and increases
flexibility, and have a retail system that can
support our business into the future.
Uncertainty about the continued operation
of the Tiwai Aluminium Smelter has hung over
the market for some time, and our contract
with Meridian to support their agreement with
Tiwai is important for the whole energy sector
as well as the communities of Southland.
In August 2015, we underwent another
change as Origin Energy sold its 53 per cent
shareholding in Contact. As a result of these
changes I was confirmed as a permanent
employee of Contact, and 3 members
of our Board resigned from their positions.
We have commenced the process of finding
suitable replacements for departing
directors, including Bruce Beeren, who
will retire at the next annual general meeting.
As part of this process we will appoint
a chairman from the new directors and
fill the remaining positions, taking into
consideration the existing directors’ skills
and also the changing nature of the energy
business and the way in which customers
want to interact with us.
2. EBITDAF and underlying earnings after tax are
accounting practice (non-GAAP) measure of
the cash generating performance of the business
and represents cash available to fund distributions
to shareholders and growth capital expenditure.
Free cash flow is equal to cash flows from operating
activities less stay in business capital expenditure
interest costs and transition costs included within
other significant items.
Intense competition in the market has
impacted on our earnings, however,
free cash flow improvements allowed
increased distributions for shareholders
Our profit for the year was $133 million;
$101 million (43 per cent) lower than the
prior corresponding period due to continued
margin pressure in the retail electricity
business, an unfavourable movement in
the fair value of financial instruments and
transition costs from the Retail Transformation
project and associated activities. This was
This report is printed on an environmentally responsible paper produced using Elemental Chlorine Free (ECF) pulp sourced from Sustainable
partially offset by a reduction in tax expense
& Legally Harvested Farmed Trees, and manufactured under the strict ISO14001 Environmental Management System. The inks used in printing
including a $16 million tax adjustment for
this report have been manufactured from vegetable oils derived from renewable resources, and are biodegradable and mineral oil free.
depreciation on powerhouses.
All liquid waste from the printing process has been collected, stored and subsequently disposed of through an accredited recycling company.
non-GAAP profit measures. EBITDAF is earnings
before net interest expense, tax, amortisation,
change in fair value of financial instruments and
other significant items. Underlying earnings after
tax is statutory profit excluding significant items
that do not reflect 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 profit is provided in Note 2 of Contact’s
audited financial statements, on page 57.
Any system build and change like the size
and scale of our SAP customer service and
billing system implementation comes with
its challenges and, yes, it’s fair to say we have
encountered a number ourselves as we
have stabilised and integrated our new system
into the day to day running of the business.
The problems we have encountered were not
a complete surprise when you consider we
consolidated 20 legacy computer systems
:
i
n
g
s
e
D
2
CEO review
Contact 2015
3
Lastly, I have no doubt of the
challenges in the years ahead,
but I am excited and confident
that as we enter our 21st year
Contact will continue to prosper.
Dennis Barnes
Chief Executive Officer
into one and migrated the millions of data
points of half a million customers. However,
with this behind us we now have a world-class
platform that we can build the future
customer business from.
Increase in renewable energy and the
closure of Ōtāhuhu power station
In the generation and trading business, cost
of energy was stable at $35 per megawatt
hour as total generation increased 3 per cent
to offset additional purchases. The generation
from Te Mihi geothermal power station and
reduced thermal generation resulted in
Contact’s percentage of generation from
renewable fuel increasing from 69 per cent
to 76 per cent.
In August this year we made the announcement
that we were closing Ōtāhuhu power station.
Closing a power station is never a decision
that is taken lightly, and our decision came
after extensive analysis of the needs of the
current and future market. Over the past
5 years significant extra renewable generation
has come on line, including our own Te Mihi
geothermal power station. This renewable
generation has been displacing thermal
(gas or coal-fired) generation meaning that
our combined-cycle gas-fired power stations
were only utilised at 24 per cent of their
capacity in FY15.
Prior to our decision to close , we called for
tenders on the remaining hours of operation
left in Ōtāhuhu to test whether there was
demand in the market for thermal generation.
There was no interest and therefore we made
the final decision to close the power station.
We are supporting the people whose roles
are impacted by this decision, looking for
internal opportunities as well as assisting
them in looking for roles outside of Contact.
We have also announced plans to complete
a major maintenance programme that will
ensure we are able to provide an additional
24,000 hours of efficient baseload
generation from our Taranaki combined-
cycle gas-fired power station after the
closure of Ōtāhuhu.
Significant improvement in our health
and safety performance
Safety remains our number one priority.
In FY15, we saw a 55 per cent reduction in
our Total Recordable Injury Frequency Rate
(TRIFR), which we use to measure our safety
performance. Our TRIFR, calculated as total
recordable injuries for employees per million
hours worked, was 1.9 in FY15, representing
7 people hurt. This was below our target
TRIFR of 3.2 for the year, and represents a
significant improvement since 2011. We are
not satisfied with injuries to 7 of our people
during a total of 3.7 million hours worked,
and continue to focus on our safety culture
and improve our safety performance.
In FY15, we launched an integrated safety
programme to help improve our process
safety performance and capability, and
simplify our safety processes. This will be
a major programme of work for Contact,
and will help us to improve our critical
process safety controls.
We believe that everyone should expect
to go home from work in the same condition
that they arrived in, and to help us achieve
this goal we have focused on advancing
our generative safety culture, while pursuing
our target of zero harm.
Taking care of the resources that
come under our control
We continue to manage our impact on the
natural environment through compliance
with the 220 resource consents across
our operational sites. We have reduced
our Emissions Trading Scheme (ETS)
obligations by 33 per cent in the last calendar
year. Water quality and access, and
biodiversity continue to be high priorities
for us as the ongoing competing interests
and values of water and ecosystems hold
centre stage for New Zealand. Contact is
working on developing a strategy for how
we will care for and manage these resources
which are critical to the sustainability
of our business.
Building strong relationships with
our communities based on trust
We pride ourselves on our ability to build
and maintain strong relationships with our
stakeholders, particularly in the communities
within which we operate. In FY15 we invested
$559,000 into initiatives that supported a
range of community and social outcomes.
We continue to engage with our tangata
whenua partners towards ensuring that we
are recognising and providing for the unique
relationship that exists between tangata
whenua and their tāonga (treasures).
As we are still early on in the sustainability
journey, we have yet to create a set of targets
for each of our focus areas. However we have
aspirational priorities that we elaborate on
throughout this report.
Looking forward
After a year of mixed results, improvements
across all areas of the business are expected
in FY16. The completion of maintenance
outages at the geothermal power stations
will see increased availability with generation
expected to exceed 3,300 gigawatt hours
(GWh) in FY16.
In the retail business, our customer service
and billing system provides a platform
for efficiency and innovation in a highly
competitive market. While retail margins
are expected to remain under pressure,
I expect a reduction in the cost to serve our
customers in FY16 that will provide a positive
contribution to profits above the increase
in interest and depreciation costs from
the retail system. We will continue to review
our pricing and product offerings to ensure
that customers are provided with profitable
services that they value.
Despite the announcement of gas and
coal-fired power stations closing, thermal
generation will continue to play an important
role in the future of New Zealand electricity
generation. Contact is well positioned to
support this transition through the Ahuroa
gas storage facility and if required a pipeline
of thermal peaking developments.
CEO reviewContact 2015 4
Our Annual Report
Contact 2015
Contents
Contact 2015
5
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 3 September 2015 and is signed on behalf of the Board by:
Phil Pryke
Director
Sue Sheldon
Director
Contents
Page 1
CEO review
Page 6
Our Board
Page 7
Our Leadership Team
Page 9
Contact at a glance
What makes us tick?
Nga- tikanga
Generation portfolio
New Zealand from head to toe
Our business model
About our customers
10
11
12
14
16
18
Page 21
Our 7 material themes
Every dollar counts
Steering the way to a reliable,
renewable, safe supply
Valuing our customers
Safety first, last and always
Building high flying teams
Getting on board
with our communities
Looking after our ecosystems
Governance
Remuneration Report
Statutory Disclosures
Financial Statements
Independent Auditor’s Report
Sustainability Reporting
Corporate Directory
23
24
26
28
30
32
34
38
44
47
51
70
71
80
6
Our Board
Contact 2015
Our
Board
1
1. Phil Pryke
Interim 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 Nominations
Committee and Remuneration
Committee and member of the
Health, Safety and Environment
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 board member of Goodman
Group, a director of North Ridge
Partners Pty Limited, Tru-Test
Corporation Limited, and Goodman
(NZ) Limited. His previous roles
include vice president, global sales
and client solutions – Asia Pacific
at Electronic Data Systems (EDS),
chief executive of Nextgen Networks
and chief executive officer of Lucent
Technologies Australia Pty Limited.
Phil has management and
governance experience in a diverse
range of industries including the
energy sector, fishing, financial
services, health, and technology
industries. He holds a Bachelor
of Economics degree from the
University of Sydney.
2. Bruce Beeren
Independent
Non-Executive Director
3. Whaimutu Dewes
Independent
Non-Executive Director
4. Sue Sheldon CNZM
Independent
Non-Executive Director
Term of office
Appointed director
1 October 2004, last re-elected
2012 annual meeting.
Board committees
Member of the Board Audit
Committee, Remuneration
Committee and Risk Committee.
With over 40 years’ experience
in the energy industry, Bruce’s
previous roles include chief
executive officer of VENCorp,
the Victorian gas system operator,
and several senior management
positions at Origin Energy and AGL,
including chief financial officer. He is
a director of Equipsuper Pty Limited,
The Hunger Project Australia Pty
Limited and Veda Group Limited.
He is also a former director of Origin
Energy Limited, 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.
Term of office
Appointed director
22 February 2010, last re-elected
2013 annual meeting.
Board committees
Chairman of the Health, Safety
and Environment Committee
and member of the Board Audit
Committee, Nominations
Committee, Remuneration
Committee and 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
is a non-executive director on the
Treasury Board. His former
directorships include the Housing
New Zealand Board, 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 Affairs. Whaimutu has
a Master’s degree in public
administration and degrees
in arts and law.
Term of office
Appointed director 16 March 2009,
last re-elected 2014 annual meeting.
Board committees
Chairman of the Board Audit
Committee, member of the Health,
Safety and Environment Committee,
Nominations Committee and
Risk Committee.
Sue Sheldon is a professional
company director. She is the
chairman of Freightways Limited
and Paymark Limited. Her former
directorships include chairman of
Chorus Limited, 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.
2
3
4
Our Leadership
Team
4
8
1
5
9
Our Leadership Team
Contact 2015
7
“Our commitment to sustainability is premised
on our belief that we are an intergenerational
company whose success relies on thriving
New Zealand ecosystems, on communities that
are diverse and flourishing and on good business
decisions led by our tikanga that achieves the
aspirations of our shareholders. These beliefs
drive us today and for tomorrow.”
2
6
3
7
6. Tania Palmer
General Manager, Health,
Safety and Environment
7. Nicholas Robinson
General Manager,
Corporate Affairs
8. Annika Streefland
General Manager,
People and Culture
9. Catherine Thompson
General Counsel
1. Dennis Barnes
Chief Executive Officer
2. Graham Cockroft
Chief Financial Officer
3. Mark Corbitt
General Manager,
Information and
Communication Technology
4. Venasio-Lorenzo
Crawley
Chief Customer Officer
5. James Kilty
Chief Generation and
Development Officer
8
Contact at a glance
Contact 2015
Contact at a glance
Contact 2015
9
Contact at
a glance
We have 562,000
customer connections
and we help to keep the
lights burning, the hot
water flowing and the
BBQs fired up for homes
and businesses across
the country. We’re one
of New Zealand’s largest
electricity generators
and retailers.
10
What makes
us tick?
It’s people, and how we can make their lives more comfy,
safe and rewarding. We supply electricity, natural gas
and LPG to a wide spectrum of customers, with a focus
on delivering great value, products and service across the
board. To help us do that, and respond more efficiently to
changing market conditions, we’ve built a more flexible
portfolio by investing in new power generation assets and
gas storage in recent years.
Generation by type
for the year ended 30 June
Customer connections by
energy type as at 30 June
Generation type
Hydro (GWh1)
Geothermal (GWh)
Thermal (GWh)
Total
1. Gigawatt hours.
2015
4,119
3,074
2,321
9,514
2014
4,056
2,332
2,865
9,253
Energy type
Electricity
Natural gas
LPG
Total
2015
2014
430,000
437,500
61,500
63,000
70,500
67,000
562,000
567,500
Contact at a glance
Contact 2015
11
Our purpose is to help
New Zealanders live more
comfortably with energy
What we believe in, our compass or our ‘tikanga’,
guides how we bring our purpose to life. It’s our
set of beliefs, and values expressed as a series
of principles and commitments
OUR PRINCIPLES
These provide guidance for making
decisions every day
OUR COMMITMENTS
These define the sustainable outcomes that
we always strive to achieve for our key stakeholders
01. We conduct ourselves
and our business with due
care and in accordance with
relevant laws and regulations.
We have an overriding duty
to ensure the health and safety
of our employees, and to
minimise the health, safety and
environmental impacts on our
customers and the communities
in which we operate.
02. We will add value to the
resources that come under
our control.
03. The value we create
will be distributed to
stakeholders, recognising the
need to ensure the sustainability
of our business, and its impact
on the environment and
the communities in which
we operate.
04. We encourage diversity
and expression of ideas and
opinions but require alignment
with Contact’s Principles,
Commitments and Values
and the policies established
to implement them.
05. When faced with
choices, we make decisions
knowing they will be subject
to scrutiny. We should be
able to demonstrate the
soundness of our decisions
to all stakeholders.
01. Deliver market-leading
performance for shareholders
by identifying, developing,
operating and growing
value-creating businesses.
02. Create value for our
customers by understanding
their needs, and delivering
relevant and competitive
energy solutions to meet
these needs, both today
and into the future.
03. Create a rewarding
workplace for our people by
valuing everyone’s contribution,
encouraging personal
development, recognising
good performance, and
fostering equality of opportunity.
04. Respect the rights and
interests of the communities
in which we operate by listening
to them, understanding and
managing the environmental,
economic and social impacts
of our activities.
05. Respect the rights
and interests of our
business partners, by
working collaboratively
to create valued and
rewarding partnerships.
Contact at a glanceContact 2015 12 Contact at a glance
Contact 2015
Our generation
portfolio
All our customers, big and small, need a
reliable energy supply – so we’ve developed
one of the most flexible generation fleets
in New Zealand. Our geothermal, hydro
and thermal plants have the country
covered no matter what the weather’s
like with a reliable, safe energy supply.
1
3,074 GWh
in geothermal energy
generated in FY15
13
3
2,321 GWh
in thermal energy
generated in FY15
1. Geothermal
Fluid from highly pressurised,
natural geothermal systems is
brought to the surface by wells that
vary in depth from a few hundred
metres to 2.5 km. At the surface this
fluid is separated into 2 streams,
one of steam and the other of water.
The steam is used in a turbine to
generate electricity and the hot
geothermal water is either injected
back into the ground or drained away.
2. Hydro
Hydroelectric power plants
convert the potential energy
contained in water into electricity.
The water is stored in lakes
behind dams, and passed through
turbines which harness the
kinetic energy of water that is
then converted into mechanical,
and then electrical energy.
3. Thermal
Thermally generated power
converts the chemical energy
in fuels (gas, coal or oil) to
electricity. The main means of
generating electricity from fossil
fuels are conventional steam,
gas turbine, combined cycle or
cogeneration plants.
4. Gas storage
Our Ahuroa gas storage facility
consists of a near depleted gas
reservoir, to which additional wells
and compressors have been added.
This enables gas to be injected
into the reservoir during periods in
which it is not needed. When needed
the gas can be extracted from the
reservoir and used in Contact’s
gas-fired power stations.
2
4,119 GWh
in hydro energy
generated in FY15
4
1
Contact at a glance Contact 2015 15
LEGEND
Head office
Power stations
Offices
Gas storage facility
LPG sales and distribution
LPG franchises
Lake Hāwea control structure
14
New Zealand
from head to toe
NORTH ISLAND
Name
Output
Commissioned Type
Ahuroa
–
2011
Gas storage facility
Location
Taranaki
Capacity
(MW)1
2015
Generation
(GWh)
2014
Generation
(GWh)
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
Waikato
Ōtāhuhu B3 Thermal
1999
Combined-cycle turbine
Auckland
Poihipi
Geothermal
1996
Flash steam
Stratford
Thermal
1998
Combined-cycle turbine
Stratford
Thermal
2011
Peaker, gas turbine
Te Huka
Geothermal
2010
Binary cycle
Te Mihi
Geothermal
2014
Flash steam
Waikato
Taranaki
Taranaki
Taupō
Taupō
Te Rapa
Thermal
1999
Open-cycle turbine cogeneration
Waikato
Wairākei
Geothermal
1958, 2005
Flash steam/binary cycle
Taupō
Whirinaki
Thermal
2004
Diesel fuel, open-cycle turbine
Hawke’s Bay
50
400
55
377
210
28
166
44
132
155
327
269
1,326
1,698
298
329
477
204
1,159
189
433
691
273
174
218
201
1,086
1,239
–
1
SOUTH ISLAND
Name
Output
Commissioned Type
Clyde
Hydro
1992
Conventional
Roxburgh
Hydro
1956-1962
Conventional
1. Megawatts.
2. Petajoules.
3. Closes September 2015.
Location
Otago
Otago
Capacity
(MW)1
2015
Generation
(GWh)
2014
Generation
(GWh)
432
320
2,300
1,819
2,244
1,812
Contact at a glanceContact 2015Contact at a glance Contact 2015 16
Our business
model
17
INPUTS
SOURCE
GENERATE
WHOLESALE
DISTRIBUTE
SELL & SERVE
OUTPUTS
OUTCOMES
We rely on a range of inputs
that help our business to run
reliably and safely, enabling
us to deliver on our purpose
of helping New Zealanders to
live comfortably with energy.
From natural inputs like water,
gas and land, through to our
people, communities, capital,
and manufactured inputs
like our power stations.
Rain and snow-melt fill hydro
storage lakes; drilling extracts
geothermal fluid and steam.
One of the most significant
parts of our supply chain
is gas and diesel which we
purchase from producers,
and manage through fixed
term gas contracts, such
as our contract with Maui.
We vary the output and
combination of generation
plants used to meet energy
demand peaks and changing
weather conditions. We also
have the ability to store and
use gas from our Ahuroa gas
storage facility.
We sell the electricity we
generate on the wholesale
electricity market and also
purchase the electricity
needed for sales to our
customers. We also
trade a range of financial
instruments to manage
our risks.
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.
Through our business we
produce a range of outputs
such as the 9,514 GWh of
electricity that we generated
in FY15 and our range of
products that we develop
for the retail market,
like our ‘No Strings’ offer.
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 fleet of delivery trucks.
From helping our customers
keep their lights on and the
BBQs fired up, through to
our environmental mitigation
programmes. From the
122,218 swimming lessons
we’ve helped deliver through
our community investment
over the last 5 years, to our
share price. These outcomes
are the felt impacts of our
business, and why we seek to
better understand and deliver
on our tikanga, principles
and commitments.
Contact at a glanceContact 2015Contact at a glance Contact 2015
18
Contact at a glance
Contact 2015
Contact a glance
Contact 2015
19
Our residential
customers
The world is shifting, and New Zealand is no longer
a country that leads a ‘9-to-5’ life. So we’ve made
it our job to make our offers and services as efficient
and flexible as we can, so that our customers can
live their lives the way they choose to. We offer
helpful services like SmoothPay, and we are one of
New Zealand’s largest online retailers with 228,000
customers signed up to Contact’s online services.
21.5%
We supply 21.5 per cent of
the New Zealand electricity
and natural gas market
Our business
customers
We know that small to medium sized
enterprises (SMEs) have their own needs
and we go all out to ensure that our products
and services are made to fit. We also know
that behind every business is a team of
real people, and so that’s how we treat them,
with the same care, respect and great service
as we provide all our customers.
58k
We had more than 58,000 SME electricity
customer connections in FY15, a 3 per cent
increase on the year prior
20
Contact at a glance
Contact 2015
Our 7 material themes
Contact 2015
21
Our 7
material
themes
Our commercial
& industrial customers
We’re in the wheelhouse of some of
New Zealand’s largest companies, providing
the complete energy solutions they need to
make their businesses shine on local, national,
and global stages. Through our Energy Solutions
service, we help these businesses identify and
secure energy cost-savings and efficiencies
that aid their commercial strategies.
50%
In FY15, our commercial and industrial customer
connections accounted for 50 per cent of our
total electricity and natural gas sales volume
It’s never just been about
the numbers. We’ve always
reported on more than
financial performance and
this year we’ve adopted the
Global Reporting Initiative’s
G4 Sustainability Reporting
Guidelines. We talked to
our stakeholders about
business sustainability
and developed 7 themes
to tackle the key issues.
22
23
Focusing on
what matters most
At Contact, we strive
to operate in a way that
balances our economic,
environmental, cultural
and social responsibilities.
We seek to understand
and deliver on what our
customers want and to
supply them with their
energy needs. To do this,
we have to take into account
how our activities impact
and influence New Zealand
and ensure that this effect
is as positive as possible.
This year, in our 2015 Annual Report, we’ve
extended our commitment to broad based
reporting by adhering to a global benchmark
for sustainability focused reporting.
To ensure our annual report aligns with
internationally developed and mutually
agreed metrics for the measurement
of non-financial performance, we’ve
developed this report in accordance with
the ‘core’ option of Global Reporting
Initiative (GRI) G4 Sustainability Guidelines.
This is Contact’s first annual report
assured against these guidelines and the
external assurance report from Deloitte is
on page 78. We do not have a policy on the
assurance of non-financial or sustainability
data, but are working towards developing
this over coming years as we continue to
further integrate and improve how we
report on Contact’s activities.
The sustainability measures reported in
this annual report cover the operations
of Contact Energy Limited and its
subsidiaries Rockgas, Contact Wind
and Contact Aria within New Zealand for
the period 1 July 2014 to 30 June 2015.
1
Every dollar
counts
We make sure every dollar
works as hard as it possibly
can, so we’ve maintained
a focus on smart investments
for the future and careful
control of costs.
In the past 4 years we’ve negotiated
lower cost and more flexible gas contracts,
changed our maintenance contracts,
reduced head count, absorbed cost
increases associated with our new
assets and inflationary cost increases,
and sold a number of assets we didn’t
require. We’ve also completed a major
programme of investment into building
a more flexible and lower cost power
generation business, and a state of
the art customer service and billing
system to support our retail business.
As we’ve not increased the energy portion
of our customers’ bills in the past 2 years,
it is critical that we continue to focus on
managing the costs of the business
to ensure we can provide them with
competitively priced products and deliver
profits for our shareholders. In FY16, we
are expecting the investment we have
made in our customer service and billing
system will allow us to reduce the cost
to serve our customers and deliver a
better service to them. The supply side
of the business will continue to focus
on efficiency and availability. New gas
contracts will reduce costs and allow
us to fully utilise our diverse and flexible
fuel and asset portfolio.
In February 2015, we announced we
were reviewing opportunities to utilise
our geothermal expertise to invest in
international markets. When we concluded
that there were no material investment
opportunities available at this time,
and with no near-term plans for capital
expenditure on the horizon, we paid a
special dividend of 50 cents per share,
totalling $367 million, to our shareholders.
At the same time we revised the company’s
s
t
n
e
C
40
30
20
10
0
11
12
13
14
15
Financial year
s
t
n
e
C
80
60
40
20
0
11
12
13
14
15
Financial year
distribution policy to target an average
ordinary dividend equivalent to
approximately 100 per cent of underlying
earnings after tax. In the event that free
cash flow exceeds ordinary dividends,
Contact will make additional distributions.
We remain focused on creating long-term
value for our stakeholders into the future.
18%
Total shareholder
return for FY15
$363m
Free cash flow
$525m
EBITDAF
t
n
e
c
r
e
P
40
30
20
10
0
11
12
13
14
15
Financial year
Underlying earnings per share
Measures performance of the underlying
business by dividing underlying earnings
after tax by the weighted average number
of shares on issue during the year, removing
any significant items not related to the
ongoing performance of the business.
2015
The drop from FY14 is due to a reduction
in EBITDAF and increased depreciation
and interest costs following the completion
of the significant capital programme.
Operating cash flow per share
Measures cash available to fund distributions
to shareholders and growth capital expenditure.
This is calculated as operating cash flow divided
by the weighted average number of shares on
issue over the year.
2015
Operating cash flows improved by $44 million
due to favourable natural gas inventory
movements and retail collections more than
offsetting the reduction in EBITDAF.
Gearing – net debt ratio
Gearing demonstrates the degree to which
our activities are funded by owners’ versus
creditors’ funds. It’s calculated as net debt
divided by net debt plus shareholders’ equity,
adjusted for the net effect of fair value of
financial instruments after tax.
2015
Contact’s gearing ratio increased by 7 per cent
in FY15, primarily due to the timing of the
$367 million special dividend in June 2015.
Our 7 material themesContact 2015Our 7 material themesContact 2015
24
2
Steering the way to a reliable,
renewable, safe supply
Our thermal operations, which run
on gas, enable us to generate electricity
at relatively short notice ensuring that
we can always generate enough power
to meet our market commitments.
We also have our Ahuroa gas storage
facility in Taranaki which enables us to
better balance our gas purchases and
usage. Although thermal generation
is more expensive and adds to our
cost of energy, it’s an essential tool to
balance our supply against the inherent
unreliability of renewables operated
by all market participants. Having Ahuroa
enables us to store gas which means
we can keep the costs of thermal
generation as low as possible.
Making sure that our generation assets
are safe and reliable is key in ensuring
we are able to generate electricity year
round. Such reliability is assured through
the application of modern good practice
and prudent operations and maintenance
processes. We evaluate the reliability of
our generation assets by internationally
accredited standard measures and our
key measure is plant availability over a
39 month period across our generation
asset base.
In FY15, risks around the future of
Tiwai Smelter, the largest single electricity
user in New Zealand, brought a high level
of uncertainty to the electricity market.
In August this year, Meridian announced
that it had re-signed its contract with
New Zealand Aluminium Smelters to
provide Tiwai Smelter with price certainty
in relation to 572 MW of electricity. Contact
also announced that we had entered into
a financial hedge contract with Meridian
in relation to 80 MW for Tiwai for a
minimum of 4 years, and a maximum
of 14, commencing on 1 January 2017.
In August we also announced that we
will be closing the Ōtāhuhu B power
station from the end of September 2015.
Our decision to close Ōtāhuhu B is a result
of the growth in renewable electricity
generation, such as the new Te Mihi
geothermal power station, which has
effectively replaced Ōtāhuhu in Contact’s
portfolio. Before we announced the closure
we also sought expressions of interest
for the purchase of generation from the
Ōtāhuhu station, and the outcome did not
support continued operation of the plant.
Our power stations harness
the power of steam, water and
gas to ensure there’s enough
energy available to meet the
needs of our customers, while
keeping costs competitive.
As a company we are committed to
renewable energy generation, and
we’re proud that 76 per cent of our
electricity generated in FY15 was
harnessed from renewable sources
including our hydro generation stations
in the South Island, and our geothermal
power stations in the greater Taupō region
in the North Island. This is up from
69 per cent in the previous financial year,
which is largely due to our 166 megawatt
(MW) Te Mihi geothermal power station
being successfully integrated into our
operations since May 2014.
To support our integrated retail
position in the market we’ve developed
a generation portfolio that’s flexible
and diverse. We have invested in new
generation assets and gas storage in
recent years, and together this enables
us to respond efficiently to changing
electricity market conditions.
We have geothermal, hydro and thermal
operations, which mean when the weather
doesn’t play ball we can generate power
from other sources to ensure that we meet
the energy needs of our customers.
25
t
n
e
c
r
e
P
95
90
85
80
75
11
12
13
14
15
Financial year
Plant availability
The rolling availability factor calculates the
total availability of the generation portfolio
over a 39-month historical time period. The
time period selected removes the effect of
seasonality and known standard maintenance
cycles to provide a comparable measure of
performance across years.
2015
In FY15 our plant availability decreased due
to a few isolated technical issues. These are
well understood and not expected to repeat
and therefore we anticipate an improvement
in availability going forward.
Our team at Ōtāhuhu has worked hard
in recent years to adapt the operation of
the station to better meet the changing
needs of the market, and to ensure its
safe operation through a 3-year period of
uncertainty. We acknowledge their great
work, and will continue to support them
through the closure process, including
looking at redeployment opportunities
where suitable roles are available.
At the same time, we also announced our
plans to complete a major maintenance
project that will ensure we are able to
provide an additional 24,000 hours of
efficient base load generation from our
Taranaki combined-cycle gas-fired
power station.
Our focus for the future is on improving
process safety and simplifying the way we
work. We also seek greater efficiencies
and economies in taking advantage of our
flexible portfolio. The short term forecast
energy demand is relatively flat, however,
with thermal plants being retired, we
believe with our recent investments we
are positioned to play a part in meeting the
demand of the New Zealand energy market.
Our 7 material themesContact 2015Our 7 material themesContact 2015
26
3
Valuing our
customers
It’s personal. We’re in the
homes and businesses of
hundreds of thousands of
New Zealanders and we go
all out to help them live more
comfortably with energy.
We’re continually getting
to know them better to give
them what they need.
Our customers are vital to the ongoing
success of our business. As one of
New Zealand’s largest energy retailers,
we sell energy to 562,000 customer
connections1 and we aim to provide each
and every one of them with great service,
great products and great value. To do this
we need to make sure that we have the
right offerings and services in the market,
as well as the right systems in place to
help us deliver them to our customers.
In FY15 our focus has been on developing
a new customer strategy for our retail
business, while embedding our new
customer service and billing system.
These initiatives, supported by the wider
investment we’ve made in recent years
into ensuring a safe and reliable supply
of energy, have positioned us well for
the future, and enable us to continue to
offer reliable and competitive products
and services to our customers.
However, the last year has been
challenging, and in the past 12 months
our customer connections decreased
by 1 per cent overall.
There are a number of factors that
contributed to this. We’re operating in a
highly competitive electricity retail market
where no material growth is expected,
technological advances are moving at a
rate the industry hasn’t kept pace with,
consumer behaviour is shifting, and
increased competitor intensity has seen
an increase in people’s willingness
to ‘shop around’ for the best deal and
discounted offers. This has contributed to
a high level of customer switching across
the industry.
The combination of the range of joining
deals, discounts and incentives offered
by all retailers to entice new customers,
coupled with customers choosing to move
retailers more often, has increased costs
for Contact.
In addition to this, the bedding in of our
new customer service and billing system,
which was switched on in mid-2014, has
taken time to embed and impacted on
some of our customers who experienced
delayed bills and longer wait times to
have their calls answered and requests
responded to by our customer services
team. These are not the customer service
standards to which we strive and, as a
direct result, we saw a significant increase
in the number of Contact customer
complaints referred to the Electricity and
Gas Complaints Commissioner (EGCC).
We have since addressed the issues
with our new customer service and billing
system and can report that the number
of complaints we received in June 2015
was down 80 per cent from the peak in
the middle of 2014. Less than 1.5 per cent
of our customers are now facing billing
delays, meaning more than 550,000
Contact accounts are receiving their bills
on time and via the method of their choice
each month.
since completed a pricing review and has
recently announced that it has lowered its
prepaid prices to align with those available
on our pay monthly products.
Against this backdrop, we began developing
a new customer strategy that will see us
continuing to adapt to better suit our
customers’ needs and expectations.
When it came to learning more about our
customers we started by listening better
to understand exactly what it is they want.
At the same time, we started looking more
closely at other industries, and considering
how our customers experience those
products and services.
Overall, it’s about giving our customers
more value and more choice to select which
products and services best suit them.
This year we also faced criticism over the
pricing differential between our prepaid
and pay monthly products. Contact has
This strategy is in the early stages
of implementation, and will be further
rolled out over FY16 and beyond.
27
We have a wide range of indicators that we
use to measure our performance, service
and customer experience and, with the
support of our new customer service and
billing system, we are well positioned to
continue to meet the current and future
needs of our customers.
KEEPING THE LIGHTS ON
FOR ALL NEW ZEALANDERS
All New Zealanders should have the ability
to access the energy they need to live
comfortably, regardless of their financial
circumstances. For Contact, ‘access
to energy’ is about finding helpful and
valuable solutions for consumers who
are willing, but currently unable, to pay
for the energy they need.
Contact complies with the Electricity
Authority guidelines for vulnerable and
medically dependent customers. Over
the past year, along with a number of other
electricity retailers, we have signed a set
of voluntary practice benchmarks for
how we manage these types of accounts.
We are working with government, social
services and industry to ensure there
is a higher and more consistent level
of respect and service provided to
vulnerable people and families.
In the coming year, our access to
energy approach will include reviewing
the low-user fixed charge tariff, which
we believe needs to change to reflect
the shifting energy dynamics in
New Zealand, as well as to better
support those customers who are
most vulnerable to energy costs.
We will continue to develop and
progress this stream of work into FY16,
including developing ways to measure
our performance in this area.
1. See our customer connections by energy type
on page 10, and by account type on page 74.
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e
m
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t
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f
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25
20
15
10
5
0
11
12
13
14
15
Financial year
Contact
Market excluding Contact
Loyalty and 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).
2015
While the market saw losses decrease slightly
this year, Contact’s loss rate remained stable
with the prior year and higher than the market
during the stabilisation of the new retail system.
In the last 6 months of FY15, Contact’s churn
levels returned to be in line with the market.
10
M
E
C
8
6
4
2
0
11
12
13
14
15
Financial year
10,000
h
W
G
8,000
6,000
4,000
2,000
0
11
12
13
14
15
Financial year
Customer experience
We independently survey a sample of customers
who have called or emailed us to determine
how satisfied they are with their experience.
Customers score their experience between
1 (poor) and 10 (excellent) across a range of
topics with the results feeding into an overall
annual customer experience measure (CEM).
2015
The CEM decrease to 7.7 is due to effects of
the bedding in of our new customer service
and billing system, which led to increases in
call volumes and call wait times. Similarly the
time taken to respond to emails significantly
increased and our CEM relating to our email
service channel decreased to 6.4.
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.
2015
Total retail electricity sales were in line with
FY14 at 8,392 GWh with an increased share
of the growing small business market and
cooler temperatures driving an increase in
residential usage per customer. This more
than offset a reduction in customer numbers
and lower commercial and industrial sales.
Our 7 material themesContact 2015Our 7 material themesContact 2015
28
4
Safety first,
last and always
Safety comes first in
everything we do. Whether
it’s delivering an LPG cylinder
to a customer, managing
a power station outage
or checking the office
for potential injury risks,
the business we’re in can
be hazardous, so safety
is central.
Here at Contact we’re actively working
towards building a ‘generative’ safety
culture, where safety is a natural part of
our DNA and where putting safety first,
constant learning, improving our defences
and protecting New Zealand’s unique
natural environment are just part of a
normal day in the office for every single
one of our people. As a result, over the
last few years our safety performance
has continuously improved.
To help us achieve this, we’ve focused
on providing enabling leadership, and
ensuring that we’re leading our people
by example and engaging them to take
ownership of our safety environment.
Our overarching Health, Safety and
Environment (HSE) management system
sets out our commitments to our
people, contractors who we partner
with, customers, communities and the
environment we operate in. It also outlines
expectations and requirements to drive
continual improvement, and guides us
on how to identify and manage our risks
and hazards, supported by verification
and audit programmes.
In FY15 we launched an improvement
programme to improve our process safety.
As part of this wider work-programme,
which aims to ensure our assets are safe
to run, we are looking at simplifying our
systems, making them easy to understand
while still ensuring they remain effective
and front of mind for our people.
We also carried out an HSE Cultural Maturity
survey, which has provided a benchmark
on where we sit culturally, and enabled us
to hear from our people on the felt impact
of the way we manage safety. We will use
this to measure ourselves every few years.
The insight gained from the survey continues
to help guide small but consistent changes
in the way we lead safety at Contact and
we believe that these small changes will
contribute to larger positive impacts and
sustained improvement in our performance.
Both the HSE Cultural Maturity survey
and other measures, including Total
Recordable Injury Frequency Rates (TRIFR)
and Observation Frequency Rate (OFR),
allow us to measure our safety performance
in both qualitative and quantitative forms.
We are able to break that data down
by a range of indices including by gender,
and whether injuries were sustained by
permanent employees or contractors.
This allows for depth to our learning,
and enables us to target improvements
to enhance our safety defences.
Our TRIFR for FY15 was 1.9, exceeding our
target of 3.2 – a 55 per cent improvement
on FY14. We had 7 people injured in FY15.
Of these 7 injured, 1 was female and the
rest were male, and 2 of these 7 injuries
were sustained by our contractors.
In FY15 we had no recorded incidences
of occupational disease, and our lost time
case rate was 0.3, equating to 1 case, where
one of our male employees suffered a strain.
Our absentee rate for FY15 was
3.8 per cent for our female employees,
and 2.1 per cent for our male employees1.
We’ve had zero fatalities in Contact’s almost
20 years of operation, and every day our
people work together to ensure that all
those on our sites get home fit and well
to their families.
We outsource some of our work to
partners, for example LPG franchises,
metering services, and bulk LPG fuel, and
work proactively with them on health and
safety issues. We receive and monitor
relevant health and safety statistics from
these partners, and are working towards
including them in our future reporting
as our relationships with our partners
develop further.
Over the last year we have influenced
and supported change outside Contact
through engagement with government
stakeholders on proposed changes
to the legislation, as well as participating
in external organisations’ governance
committees on key HSE issues. We
have also proactively championed our
approach to safety by sharing our journey
with others through conferences and other
forums, and we continue to work closely
with our contracting partners to support
change and learning.
We know that having a safe business
correlates to a successful and profitable
business, and we will continue to foster a
culture that ensures the safety of Contact’s
people, its customers, its assets, and its
business as a whole.
1. This has been calculated as a percentage of
absentee days against scheduled work availability,
and does not include contractors.
29
I
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F
R
T
7
6
5
4
3
2
1
0
11
12
13
14
15
Financial year
Total Recordable Injury
Frequency Rate (TRIFR)
TRIFR enables us to track our progress against
our safety targets. It looks at how many people
are hurt when working for us, contractors as
well as our own people. TRIFR is calculated by
dividing the number of incidents that resulted
in medical treatment, restricted work or time
off work by the hours worked, and multiplying
this by 1 million. Our TRIFR statistic does
not include our outsourced work to partners.
2015
In FY15 we worked over 3.7 million hours on
Contact sites with 7 injuries. We have seen
a good improvement this year with a TRIFR
of 1.9 against a target of 3.2, using the world
standard 1 million hours as a multiplier.
Note that some New Zealand businesses use
a multiplier of 200,000 to calculate TRIFR.
Using this multiplier, our TRIFR for 2015 is 0.37.
R
F
O
3,500
3,000
2,500
2,000
1,500
1,000
500
0
13
14
15
Financial year
Observation Frequency
Rate (OFR)
We encourage all of our people to speak
up about safety, whether it’s to highlight an
observed great safety behaviour or to enquire
on something that might be concerning.
OFR is calculated by dividing the number of
observations by hours worked, and multiplying
this by one million.
2015
We had over 9,000 safety conversations during
the year and exceeded our OFR target (2,437
against a target of 1,700) and this included a
large number that took place during our power
station outages.
MAKING SURE OUR
ASSETS ARE SAFE
TO RUN
Being in a business where we deal every
day with very hot steam, electricity, gas
(both LPG and natural gas), and large
machinery means we have to know
exactly how well we are managing
these hazards to ensure our assets
are safe to run.
In FY15 we launched a safety
improvement programme which will
help us monitor and measure how well
our systems are performing at keeping
these hazards away from our people,
assets and the environment. It also
includes a framework for ensuring that
our assets are well maintained, that we
have a clear and effective management
system, and that our people can
use them to complete activities in
a safe way.
We know that the best solutions often
lie with the people who deal with this
stuff every day, so to deliver results that
are effective and embedded across the
business, the improvement programme
is strongly focused on engaging our
people and delivering the programme
in a way that aligns with our goal of
a generative safety culture.
Our 7 material themesContact 2015Our 7 material themesContact 2015 30
5
Building high
flying teams
Our people are our lifeblood.
We want everyone at Contact
to feel connected, supported
and well skilled, to aim
high and to achieve their
best. It’s about people feeling
motivated to make a difference.
It’s about how we talk about
Contact at home and in our
communities. It’s about being
able to attract the right people
and keeping them here.
We want our people to be truly
engaged, to keep building a
better and better company.
At Contact, our focus is on building
the capability of our people in order
to achieve our company priorities.
We believe that living our tikanga is
a key driver of this, alongside diversity,
learning and development, being a good
employer and creating a positive and
supportive workplace.
We use engagement as a measure of how
we’re performing for our people, and to
gauge how they are feeling about their
roles here at Contact. Each year we hold
a formal engagement survey that provides
us with a useful benchmark and areas
of focus for the following 12 months and
beyond. This year we ran a shorter ‘Pulse’
engagement survey and, disappointingly,
saw a drop in our overall score. It was,
however, pleasing to see an increase in
sentiment in the generation side of our
business, and it showed that our people
felt more empowered to contribute
to innovation through our co-creation
pilot, ‘Bounce’.
In FY15 we also undertook a Capability
Needs Assessment, which enabled our
people and culture specialists to assess
the capability we currently have against
the technical, behavioural and leadership
capability we’re going to need to make
sure Contact keeps performing and
achieving its strategic priorities into the
future. We’ll now identify and prioritise
initiatives to develop those capabilities
throughout FY16.
To enhance our capability, Contact
offers its people a range of training
and development opportunities,
with significant uptake from across the
organisation, with Contact employees
engaged in an average of 101 hours
of learning and development each.
Of course, a lot of learning is generated ‘on
the job’ with new projects, secondments or
a move to a new role. Last year 67 per cent
of our permanent hires to roles were
placed internally. We are very committed
to new learning experiences and have
improved this statistic year-on-year.
One of the people capability initiatives
now taking place is a part of the safety
improvement programme, where we are
focusing on a programme to support
leadership, technical and behavioural
aspects that combine towards creating
a generative safety culture.
We like to make sure that we have people
who possess a range of different skills,
talents, experiences and backgrounds
including gender, age and ethnicity.
This in turn creates the diversity of thought
to allow us to solve problems, innovate
and collaborate to make better decisions.
While we have a good mix of this at
Contact, we are also working towards
developing a strategy to increase diversity
in our organisation.
44 per cent of our employee workforce at
Contact last year were women, and 14 per
cent of our people identified with an ethnic
group other than New Zealand European.
We are proud to have a diverse Leadership
Team and Board2. Diversity is central to
achieving greater diversity of thought and
we recognise it can’t stand alone. Allowing
people to feel like they are adding value
and making a difference increases the
engagement of our employees, and an
‘inclusive’ culture is at the heart of this.
At the end of the day, this is about living
our tikanga, principles, commitments,
purpose and behaviours.
Our focus will remain on embedding
diversity and inclusion into everything
we do, as well as attracting more diversity
to Contact. In particular we want to
increase the number of senior females,
Māori, Pacific Island, Asian and other
ethnicities in our communities that
represent differing age groups and ability.
At the end of FY15, Contact’s employee
workforce was made up of 1,066 people1.
52 per cent were aged between 30 and
50 years old, while 8 per cent were aged
60 years and older. Our Generation
and Development business unit and other
areas of Contact hold a great deal of
knowledge and expertise. We are focused
on ensuring our leaders are actively
mitigating risk around their own succession
plans and that of their technical experts
by ensuring relevant information sharing
takes place, documentation is up to date
and training is in place around systems,
tools, and processes. It is also by the
passing on of knowledge and behavioural
aspects through coaching/mentoring and
developing people and teams to ensure
any transition to retirement is managed
for the long term.
At Contact, we believe that being fair to
our people also begins with our tikanga,
which sets the foundation for people to
grow and feel supported both personally
and professionally during their time with
Contact. We provide flexibility in our
working practices wherever possible
to ensure employees feel that they
31
can balance their life and career.
We recognise great performance, and
our rewards strongly reflect this.
Our focus for the future remains on
continuing to create an environment
where all our people feel acknowledged
and supported, both with their individual
careers and team success. It is about
creating leaders at all levels across
the business so ensuring our tikanga
is embedded and lives and breathes
in what we do every day.
1. See page 75 for more information.
2. For information on the diversity of our
Leadership Team, see page 75. For more
information on our Board see their profiles
on page 6, or see the Governance section
on pages 38-43.
60
50
40
30
20
10
0
l
d
e
g
a
g
n
e
s
e
e
y
o
p
m
e
f
o
t
n
e
c
r
e
P
11
12
13
14
15
Financial year
Employee engagement
Each year we conduct an independent
AON Hewitt survey to assess our progress
on employee engagement and to identify
areas for development.
2015
Our overall engagement score decreased
to 44 per cent in FY15, down from 52 per cent
in 2014. We are committed to improving and
increasing our levels of engagement in the
years ahead.
l
s
e
e
y
o
p
m
e
f
o
t
n
e
c
r
e
P
60
50
40
30
20
10
0
11
12
13
14
15
Financial year
Male
Female
Gender diversity
We believe the inclusion of a diverse range
of perspectives and ideas is a key ingredient
for success for any business. This graph shows
the progress we’ve made against gender
diversity over the last 5 years. For more detailed
information about the diversity of our workforce
please see page 75.
2015
We continued our trend of increasing female
representation across Contact, including at
senior levels. In FY15 almost 44 per cent of
people working at Contact were women, and
14 per cent identified with an ethnic group
other than New Zealand European.
BOUNCING IDEAS AROUND
WITH OUR PEOPLE
What do a Contact mobile app, a product
designed specifically to help families with
new babies, and a geothermal-powered
brewery all have in common? Well, not only
are they innovative ways of thinking about
how we do things here at Contact, they’re
also all ideas that came straight from the
minds of our people.
Over the past 12 months we’ve been
focused on embracing innovation and
diversity of thought – so we wanted
to give all of our people the chance to
be heard, and to share their big and
small thoughts and ideas with the rest
of the organisation.
In early 2015, Contact kick-started
Bounce, a pilot co-creation programme
designed to encourage diversity of
thought, drive innovation, and increase
internal engagement on ideas. For us,
co-creation is about creating an inclusive
environment that encourages all of our
people, from all parts of the business, to
collaborate on ideas they believe will help
improve, grow or even transform the way
we do things at Contact.
Put simply, we believe that if we open up
the ideation and problem solving process
to be more collaborative, encouraging the
perspective of individuals from differing
levels and teams, we often find a better
way forward.
We used an online platform as a means
to connect people, to share ideas, and
to collaborate on those ideas across the
business. It was an environment where
‘the crowd’ voted, and a place where
constructive feedback could be provided.
The best ideas rose to the top by a
process of review and voting.
Overseen and implemented by a group
of managers from across the organisation
as part of their own professional
development journey, Bounce not only
achieved its intended outcomes, it also
resulted in a number of great ideas and
initiatives being progressed through the
business for implementation.
Our 7 material themesContact 2015Our 7 material themesContact 2015
32
6
Getting on board
with our communities
We have a diversity of
communities we connect with
throughout our business. We
take our time to understand
the nitty gritty of their issues
and their needs so we can
create true partnerships that
last. It’s not only rewarding,
it’s vital to the ongoing
success of our business.
We manage multiple relationships with
a diverse set of stakeholders across all
parts of our business. Whether it’s a
customer, a shareholder, a supplier or one
of our neighbours, at Contact we actively
work towards building positive and enduring
relationships with our stakeholders. Why?
Because the nature of our business means
our operations impact on others, and
what others do sometimes impacts
on us. It’s about making our communities
comfortable with us and our operations.
We take a consultative and open approach
and aim to be a leader in the energy
industry. While at times engagement with
our stakeholders is driven by consenting
processes, changes in regulation or
business strategy, we also strive to be
a good neighbour and to play our part
as a member of the communities within
which we operate.
$559k
invested in communities
While many of our people across the
business are charged with working
with our communities, we also have a
Community Relations team who
proactively engages with the stakeholders
around our operations. Our approach
is to work with communities and local
stakeholders to develop an understanding
of what their aspirations and needs are,
and then provide support where we think
we can offer greatest benefit, while
working within our tikanga.
In some places, such as in and around
Central Otago or in Taupō, we’ve got
to know the people and our local
stakeholders over time and have worked
with them to look at how we can support
positive community outcomes.
33
The Contact Swim Well Taupō
programme, Taranaki ‘Connector’ bus
service, the Contact Epic Community
Fund for the Hāwea District, and Te Takere
Youth Space in Levin are examples of
initiatives that we’ve worked with the
communities to help support.
In the last few years we’ve also started
developing community engagement plans.
Contact has 4 existing engagement plans
for Ōtāhuhu, Levin, Ohaaki and Taupō,
which accounts for 29 per cent of our
operational sites by region. We are
currently developing a plan for Stratford,
and continue to provide community
investment at both a regional and national
level. Last year we invested $559,000 into
national and regional organisations and
communities across New Zealand.1
Because of the nature of our operations,
sometimes relationships can be tested.
That’s when we rely on our values,
principles, commitments, and tikanga
and an overarching philosophy to be a
good neighbour to guide us through tricky
situations. For example, in this last year
our neighbours had serious concerns
about noise from our Te Mihi power
station, and we received a number of
complaints from 7 of our neighbours, so
the local team worked with our affected
neighbours to address their concerns.
We worked hard to find the source of the
noise, to measure it, and to develop a plan
of attack to reduce it, and its impact on
our neighbours. While carrying out the
technical work to investigate this type
of issue takes time, we knew that our
operations were creating an issue outside
of our consents that was causing them
a problem, and sought to find a solution
that addressed our neighbours’ concerns
in the interim. This was more than a
resource consent issue to us, this was
about looking after our relationships
for the long-term benefit of both our
neighbours and our operations.
1. This figure includes our support of the Ākina
Foundation’s Launchpad, an acceleration
programme to support the growth of social
enterprise in New Zealand.
WORKING WITH TANGATA WHENUA
– THE POWER OF PARTNERSHIPS
Building on the success of our Ohaaki
Mitigation Agreement with Ngāti Tahu,
which was critical in the re-consenting of
the Ohaaki power station, we’ve started
developing an overarching iwi engagement
plan to guide our approach to building
partnerships with tangata whenua (Māori
indigenous people) around our operation
sites. Our aim is to build positive and
enduring relationships with tangata whenua
to support both our ongoing operations,
the role of tangata whenua as kaitiaki, or
stewards, of natural resources within their
specific tribal domains, and their cultural,
social and commercial aspirations.
While we currently have formal
relationships with 4 iwi, we are working
to develop additional relationships with a
range of tangata whenua groups, particularly
those with close association to the lands
and resources Contact uses to generate
electricity for all New Zealanders.
Our 7 material themesContact 2015Our 7 material themesContact 2015 34
7
Looking after
our ecosystems
New Zealand is rich with
natural resources and
intricate ecosystems – and
we aim to keep it that way.
Contact’s committed to
delivering energy in a
sustainable way, keeping
a close eye on the land
and all its critters.
We use natural resources such as water,
steam and gas to generate the electricity
we sell, meaning that our business impacts
on these resources and the environments
around them. We believe that it is our
responsibility to look after the resources
that we use, and we work towards this for
the well-being of all New Zealanders, and
for the sustainability of our business.
To deliver on this, we carefully monitor
the impacts our operations have on the
environment, and work to reduce and
mitigate these. We begin with our resource
consents granted under the Resource
Management Act 1991 to guide our
activities. These consents outline our
obligations to mitigate the impact of our
operations on the natural environment.
Ensuring that we comply with our resource
consents is critical to the sustainability of
our business. Not only does compliance
mean that we are operating within the law,
resource consents embody a clear
expectation from the wider community
and the local council as to how we should
manage these resources.
In the last 12 months, we’ve managed the
requirements of 220 resource consents
across the local communities in which
our power stations are located,
and our team is constantly monitoring
across all of the consents to ensure that
we are meeting our obligations. We have
had no significant consent breaches in
the past 12 months, although 7 minor
technical breaches occurred.
We believe it’s about more than ‘just’
compliance though and, going forward,
Contact wants to do more. One of our
principles is a commitment to adding value
to the resources that we manage, so it’s
important for us to set some of our own
targets so we can continue to work
towards reducing our impact on the
environment for the good of our company
and for the communities that we share
these resources with. We are working
towards this, and are engaged in a number
of activities to review our approach to how
we interact with the natural environment,
and the ecosystems that we rely on.
In FY15, for example, we took part in
the New Zealand pilot of the Ecosystem
Services Review (ESR) programme, which
enabled us to review the natural inputs
that we impact and depend on for our
operations on the Clutha/Mata-Au River.
With the support of experts in the field,
as well as input from our stakeholders,
the ESR programme highlighted the
importance of healthy ecosystems
to our business, expressed support for
our commitment to be good custodians
of natural resources, and identified
ways that we can improve our water
management, stakeholder engagement
and communication. We are now
incorporating some of this feedback
into our business processes.
BIODIVERSITY
Contact recognises the importance of the
complex biodiversity that exists in and around
our operational sites, and acknowledges that
our operations impact on those ecosystems.
We know that we have terrestrial and aquatic,
native and exotic flora and fauna which have
different needs in order to flourish. Our hydro
operations impact largely on biodiversity
of river systems, while our geothermal
operations can impact on wetlands and
thermotolerant vegetation and surface
geothermal features. We are a part of those
thriving environments and have an impact
on how well they continue to grow.
In FY15 we carried out work to restore the
regionally significant Torepatutahi Wetland
as part of our Ohaaki mitigation agreement.
In collaboration with Ngāti Tahu, we planted
1.2 hectares of frost tolerant monocots
including flax, toetoe, and carex in the
wetland area, and also removed gum trees,
and sprayed willow and blackberry. We have
encouraged the habitat for fern bird and
swamp nettle, 2 at-risk species found in the
wetland. We also continue to support the
ongoing maintenance and establishment
of other wetlands near Reporoa and our
geothermal operations.
In Stratford, we removed willows which
were choking the watercourse and carried
out other weed control in preparation
for planting areas with native species.
We also planted native species in
stormwater treatment ponds at Te Mihi.
Our native fish management planning
for our hydro operations includes the
monitoring, transport and release of native
longfin eels past our dams as well as habitat
and monitoring surveys for lesser known
taonga species such as kana kana (lamprey)
and īnanga (whitebait). We also assist with
the annual introduction of salmon smolt to
the Clutha/Mata-Au River for recreational
fishing, and in FY15 released 175,000 smolt
into the Clyde River.
35
WATER
From the water running through our
hydro stations at Clyde and Roxburgh,
to the water we pump from the Waikato
River to cool our geothermal station at
Wairākei, our business relies on an
ongoing supply of water.
Good quality water is an increasingly
scarce resource, and in order for us to
secure long term access to it we need
to prove that we are good stewards
of a resource shared by communities,
tangata whenua, and the country as
a whole. We also have a responsibility
to minimise the impact of our activities
on water quality and availability.
Most of the water we use is returned
to its source with little to no impact
on its quality. At our 2 run-of-river hydro
stations along the Clutha/Mata-Au River
in Central Otago, we use the kinetic
energy from billions of megalitres (ML)
of water each year to generate electricity
as it passes through the turbines, but
we don’t consume the water itself –
it continues down the river with little
impact on quality. We also use water
to keep our generators cool and safe to
run, which naturally increases the water’s
temperature. We manage the cooling
of the water when it is returned to its
environment to ensure it does not
adversely impact the quality of natural
water. Our generation and development
teams have ensured ongoing compliance
with prescribed temperature, pH, flow
rate, and dissolved solid levels required
by our resource consents.
At 2 of our 5 geothermal operations,
some of the geothermal fluid we extract
from deep underground for electricity
generation is discharged to nearby rivers
and streams. We work hard to balance
our impact on the natural resources
around us by re-injecting geothermal
fluid back into the reservoir where we can.
Re-injection has its own risks including
affecting the temperature and pressure
levels of the geothermal resource and
this needs to be balanced with the
effects of putting geothermal fluid
into the local waterways which can
increase temperature and contaminant
concentrations. The need to manage
this balance guides how we operate and
construct our plants. The design of our
new geothermal station at Te Mihi includes
100 per cent re-injection, and the award
winning Wairākei bioreactor naturally
reduces the level of hydrogen sulphide
discharged to the Waikato River.
The table below shows Contact’s
estimated water takes and discharges
in FY14 and FY15, excluding hydro,
broken down by source type.
In FY15 we began a process to address
the challenges that we face in balancing
the needs and interests of our business
and our stakeholders in relation to water.
This process is ongoing, and will be a
major focus for Contact over the next
year as we work towards establishing our
priorities and targets in relation to water.
We are currently looking into preparing
a water statement for Contact, and
investigating the development of
a stewardship plan.
Water use
Cooling, steam production,
and generation
Rivers and streams2
Estuaries
Third party
Council supply
Third party treatment
Other uses
Council supply
Groundwater
Total
Withdrawal use and source
Discharge and destination
FY15 (ML)1
FY14 (ML)
FY15 (ML)
FY14 (ML)
435,705
457,545
442,841
468,418
4,179
290
22
–
65
1
5,003
179
19
–
72
1
3,457
102
16
1
59
1
4,358
99
12
1
65
1
440,262
462,818
446,478
472,954
Withdrawal source
Discharge and destination
2014 (ML)
2013 (ML)
2014 (ML)
2013 (ML)
Geothermal fluid3
Geothermal reservoirs
Local business and geothermal areas
Rivers and streams
Total
99
–
–
99
88
–
–
88
61
6
12
79
51
5
12
69
1. Megalitres.
2. Discharge to rivers and streams is larger than the volume taken due to additional condensate (cooled
steam used for power generation) or stormwater discharge. The quality of water taken for cooling is
unchanged apart from temperature, or in the case of geothermal, temperature and additional condensate
containing mainly hydrogen sulphide and mercury, which are managed according to resource consents.
3. Geothermal fluid takes and re-injections are in calendar years 2013 and 2014. Geothermal fluid discharges
to rivers and streams fall within consented limits for temperature and mineral concentrations. Geothermal
fluid is measured in tonnes, and was converted to mega litres based on the weight of 1 cubic metre.
Our 7 material themesContact 2015Our 7 material themesContact 2015 Governance,
Remuneration
Report & Statutory
Disclosures
Page 38
Governance
Page 44
Remuneration Report
Page 47
Statutory Disclosures
36 Our 7 material themes
Contact 2015
7
Looking after
our ecosystems
GREENHOUSE
GAS EMISSIONS
We have a responsibility to reduce our
greenhouse gas emissions from our
operations and to contribute to reducing
the impacts of those emissions on the
planet. Reducing our emissions will also
have positive financial and non-financial
implications for our business and our
current and future society.
The New Zealand Emissions Trading
Scheme (ETS) has a direct financial
impact on Contact’s operating costs.
Our costs under the ETS cover the
emissions embedded in the natural gas
and LPG we purchase (including that
which we don’t burn ourselves), SF6
purchases (a synthetic compound used
to keep equipment insulated against high
voltages), and the geothermal steam we
bring up that emits some greenhouse
gases into the atmosphere. Contact
purchases carbon emission units and
surrenders units based on our calendar
year emissions1.
Contact surrendered emission units
to the Government for 1.8 million tonnes
of ETS emissions for calendar year 2014
which is down 33 per cent from 2.7 million
tonnes in 2013. In future, we expect
the price of emission units to increase,
which provides a financial incentive to
make the most of renewable resources
that are available.
There are also climate change impacts
that do not have a certain financial
implication for the business, but are
nevertheless issues that we monitor.
We recently commissioned a study of
projected changes in rainfall and hydrology
in 30 years’ time, and are using that and
other studies to build our company’s ability
to adapt to long term social, environmental,
and economic changes.
This year, we also measured our
own direct greenhouse gas emissions,
which are another way we look at our
impacts on the natural environment
and on society. Our own emissions
come from our consumption of fuels
to generate electricity, geothermal
steam emissions, and the use of
vehicles for LPG cylinder delivery and
other activities. Our new geothermal
power station at Te Mihi, with a full year’s
worth of production, allowed us to
burn less natural gas while generating
more electricity than last year, which
is beneficial on both financial and
non-financial grounds. Contact’s
emissions fell an estimated
8 per cent, from 1,624 kilotonnes
in FY14 to 1,496 kilotonnes in FY152.
Contact’s discharges to air are
closely monitored at our thermal sites
in accordance with their respective
resource consent requirements.
Concentrations of nitrogen oxide
(NOx) and carbon monoxide (CO) are
measured continuously at our Taranaki
combined-cycle, Ōtāhuhu combined-
cycle and Te Rapa gas-fired plants.
The Whirinaki and Stratford peaker
plants have been designed to operate
with fixed concentrations of products
of combustion, and therefore monitoring
is not required. No material breaches of
our consented air quality requirements
occurred this year.
1. See Note 7 to the financial statements on
page 59 for more information on our carbon
emission costs.
2. See the emissions table on page 74 for
more information.
2
O
C
s
e
n
n
o
t
n
o
i
l
l
i
M
2.5
2.0
1.5
1.0
0.5
0.0
11
12
Calendar year
13
14
Natural gas
LPG
Geothermal
Greenhouse gas obligations
This graph shows our annual carbon dioxide
CO2 emissions for which we have obligations
under the ETS, over the last 4 calendar years.
The majority of our ETS emissions came from
our natural gas operations.
2015
In the 2014 calendar year we surrendered
$1.5 million worth of carbon emission units
to the Government for 1.8 million tonnes
of ETS emissions, which is a 33 per cent
reduction on the 2013 year largely due to
the commissioning of Te Mihi geothermal
power station in May 2014.
38
Governance
Contact’s 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 9 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 contact.co.nz.
Principle 1 – Ethical standards
Contact expects its directors, officers, 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, officers, 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
in 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 confidential
knowledge of the company or its business to engage in securities trading for personal benefit or to provide benefit 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
Contact’s Board comprises directors with a mix of qualifications and skills, who hold substantial and diverse business, governance
and energy industry experience appropriate to its existing operations and strategic direction. The Board encourages strong individual
thinking and rigorous discussion and analysis when making decisions.
As at 10 August 2015, Contact’s Board consists of 4 directors, 2 of whom are resident in New Zealand. The Board regularly assesses
its performance to ensure that constructive working relationships are maintained. Qualifications and experience of individual directors
are detailed on page 6.
39
Director independence
The NZSX Listing Rules and the company’s constitution require Contact to have a minimum of 2 independent directors.
To be an independent director, a director must not be an executive officer of the company, or have a ‘disqualifying relationship’.
Having a disqualifying relationship includes (but is not limited to):
• any direct or indirect relationship that could reasonably influence in a material way the director’s decisions, or being related
(considered broadly) to a major shareholder; or
• having a relationship (other than the directorship itself) with the company or being a substantial product holder of the company
by virtue of which the director is likely to derive, in the current financial year of the company, a substantial portion of his or her annual
revenue from the company (excluding dividends and other distributions payable to all shareholders).
The Board has determined that, for the purposes of NZSX Listing Rule 3.3.2, Phil Pryke, Whaimutu Dewes and Sue Sheldon are each
independent directors as at 30 June 2015. Bruce Beeren became an independent director on 10 August 2015.
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 Officer (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 financial report. In addition, the Board receives regular briefings 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 conflicts of interest
The Board is conscious of its obligation to ensure that directors avoid conflicts 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 (page 47) 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 briefings 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.
Nomination and appointment of directors
Procedures for the appointment and removal of directors are governed by the company’s constitution. The Nomination Committee
identifies and nominates candidates to fill 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 3 years. Directors who retire each year are those who have been longest in office 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 2 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 2015
Contact undertook a formal assessment of the Board and the Board Audit Committee.
Subsequent to Origin Energy’s divestment of its 53 per cent stake in Contact, Grant King, David Baldwin and Karen Moses resigned
effective 10 August 2015. Contact has commenced the process of finding suitable replacements for departing directors including
Bruce Beeren who will retire at the next annual meeting.
GovernanceContact Energy LimitedGovernanceContact Energy Limited 40
41
Principle 3 – Board committees
Committees established by the Board review and analyse policies, strategies and performance. They examine proposals and
make recommendations to the full Board. They do not take action or make decisions unless specifically 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 specific issues from time to time. An Independent
Directors Committee (IDC) met during the financial year to evaluate and approve various related party transactions with Origin Energy.
At 30 June 2015, the members of the IDC were:
• Phil Pryke (chairman)
• Sue Sheldon
• Whaimutu Dewes
Board Audit Committee
Membership is restricted to non-executive directors, with at least 3 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 financial experience
and at least one member must have an accounting or financial background. At 30 June 2015, the members of the Board Audit
Committee were:
• Sue Sheldon (chairman)
• Bruce Beeren
• Whaimutu Dewes
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. All members are independent directors
as at 10 August 2015.
The Board Audit Committee meets a minimum of 4 times each year. The Board Audit Committee’s role is to assist the Board
to fulfil its responsibilities in relation to the oversight of the:
• quality and integrity of external financial reporting
•
• adequacy of the internal control system for financial reporting integrity.
independence and performance of the external auditor
The CEO and the Chief Financial Officer (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 each of the Head of Risk
and Assurance, Contact’s external auditors, the CEO and the CFO.
Health, Safety and Environment Committee
Membership shall comprise at least 3 members, and the majority must be independent. The members of the Health, Safety
and Environment Committee were:
At 30 June 2015
• David Baldwin (chairman)
• Phil Pryke
• Whaimutu Dewes
Effective 10 August 2015
• Whaimutu Dewes (chairman)
• Phil Pryke
• Sue Sheldon
The Health, Safety and Environment Committee meets a minimum of 3 times each year. The Health, Safety and Environment
Committee’s role is to assist the Board to fulfil 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 affect 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 serious incidents/near misses and audit
results, evaluating responses and being satisfied with the adequacy of management actions.
Nominations Committee
Membership shall comprise a minimum of 3 members, and the majority must be independent. The members of the
Nominations Committee were:
At 30 June 2015
• Grant King (chairman)
• Phil Pryke
• Sue Sheldon
Effective 10 August 2015
• Phil Pryke (chairman)
• Whaimutu Dewes
• Sue Sheldon
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 assessment and appointments, with recommendations to the Board.
Remuneration Committee
Membership is restricted to non-executive directors, with no fewer than 3 members. The members of the Remuneration
Committee were:
At 30 June 2015
• Phil Pryke (chairman)
• Bruce Beeren
• Karen Moses
Effective 10 August 2015
• Phil Pryke (chairman)
• Bruce Beeren
• Whaimutu Dewes
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 3 members. At 30 June 2015, 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 3 times a year, with additional meetings called as deemed necessary. The role of the Risk
Committee is to assist the Board to fulfil its responsibilities in relation to the identification and control of significant 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 profile, significant 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 specific matters. The table below shows
the directors attendance at the Board and committee meetings during the year ended 30 June 2015.
Number of meetings
Grant King 1
Phil Pryke
David Baldwin 1
Bruce Beeren
Whaimutu Dewes
Karen Moses 1
Sue Sheldon
Board
11
11
11
11
11
11
11
11
Board Audit
Committee
4
4
3
3 (2)
4
1. Ceased to be directors effective 10 August 2015.
2. Attended as an observer.
Health, Safety
and Environment
Committee
Nominations
Committee
Remuneration
Committee
Risk
Committee
Independent
Directors
Committee
3
2
3
3
1 (2)
1
1
1
1
3
3
3
2
3
3
3
3
3
3
3
3
3
3
3
3
GovernanceContact Energy LimitedGovernanceContact Energy Limited 42
43
Principle 4 – Reporting and disclosure
The Board has overall responsibility for reporting company results. The directors are committed to preparing financial statements that
present a balanced and clear assessment of Contact’s financial position. To assist with this task, the Board Audit Committee monitors
the effectiveness of the company’s internal financial controls.
Financial reporting
The Board Audit Committee oversees the quality and the integrity of external financial reporting including the accuracy, completeness
and timeliness of financial statements. It reviews half-year and annual financial statements, and makes recommendations to the
Board concerning accounting policies, areas of significant estimation and judgement, compliance with New Zealand generally
accepted accounting practice and New Zealand equivalents to international financial reporting standards, stock exchange legal
requirements and the results of the external audit.
Management accountability for the integrity of Contact’s financial reporting is reinforced by certification from the CEO and the CFO.
The CEO and CFO provided the Board with written confirmation that Contact’s financial statements presents a true and fair view,
in all material respects, of Contact’s financial position at, and for the year ended 30 June 2015, and that operational results are in
accordance with relevant accounting standards.
Timely and balanced disclosure
Contact is committed to promoting investor confidence 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 Company Secretary has responsibility for overseeing and co-ordinating disclosure to the market.
Principle 5 – Remuneration
Contact’s remuneration structure is designed to attract, reward and retain high performing directors and employees who are
able to enhance the company’s performance. The ‘Remuneration Report’ on pages 44 to 46 outlines in detail the remuneration
framework of Contact.
Principle 6 – Risk management
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 significant 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 demonstrates that Contact is committed to the effective
management of risk, which is central to the continued growth and profitability 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 effectiveness of the
internal control framework.
Business Assurance assists Contact to accomplish its objectives by bringing a disciplined approach to evaluating and improving the
effectiveness 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 findings from the internal assurance programme for the external auditors to consider when providing their opinion on the
financial statements. Led by the Head of Risk and Assurance, Business Assurance has the autonomy to report significant 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 auditors and other third parties as it deems necessary.
Principle 7 – Auditors
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 auditors.
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 confirm on a 6-monthly basis that it has:
•
• complied with the provisions of all applicable laws and relevant professional guidance in respect of independence,
remained independent of Contact at all times
integrity and objectivity; and
• adopted a best practice approach in relation to matters of financial 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
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 briefings
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 identification 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
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
offered 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 levels at 30 June 2015 is outlined below, alongside
comparable figures for the past year.
Board of Directors
Leadership Team
Male
5
6
FY15
Female
2
3
Total
7
9
Male
5
7
FY14
Female
2
2
Total
7
9
GovernanceContact Energy LimitedGovernanceContact Energy Limited 44
Remuneration
Report
Directors’ remuneration
The current total directors’ fee pool approved by shareholders in 2008 is $1,500,000 per annum. Directors receive fees determined
by the Board on the recommendation of the Remuneration Committee. Those fees must be within the aggregate amount per annum
approved by shareholders. For FY15 a 3 per cent increase (subject to rounding) was approved by the Board including fees payable to
directors on the IDC.
Details of the total remuneration received by each Contact director for FY15 are as follows:
45
The following tables detail the nature and amount of the remuneration paid to Dennis Barnes during FY15.
Cash remuneration
Year ended 30 June 2015
Year ended 30 June 2014
Fixed remuneration $
Variable remuneration $
Total cash remuneration paid $
928,500
897,750
281,645
538,566
1,210,145
1,463,316
Equity rights issued (options, performance share rights and deferred share rights) 1
Number of options
issued during year
Number of
performance share
rights issued during
year
Number of deferred
share rights issued
during year
Value of equity
rights issued and
amortising during
year $
Value of equity rights
issued in past years
and amortising
during year $
Total equity rights
exercised during
year $
Year ended 30 June 2015
Year ended 30 June 2014
620,157
590,626
32,371
106,876
51,390
–
$185,151
$168,329
$494,857
$479,753
–
–
1. The allocation of equity based incentives is determined at the end of each financial year. The value of equity disclosed above is the portion of the fair value of
options, performance share rights and deferred share rights allocated to the relevant reporting period. None of the equity rights allocated to Dennis Barnes became
exercisable in the financial years 2014 and 2015. Details on the equity scheme are described on page 68.
Committee fees
Total remuneration
Employee remuneration
Directors
Grant King
Phil Pryke
David Baldwin
Bruce Beeren
Whaimutu Dewes
Karen Moses
Sue Sheldon
Total
Position
Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Board fees
$230,000
$144,000
$126,500
$126,500
$126,500
$126,500
$126,500
–
$79,375
$23,500
$43,500
$77,900
$24,000
$98,500
$230,000
$223,375
$150,000
$170,000
$204,400
$150,500
$225,000
$1,006,500
$346,775
$1,353,275
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.
Chief Executive Officer remuneration
Employment arrangements
Dennis Barnes was seconded to the role of Chief Executive Officer (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, performance share rights and deferred share rights
awarded under Contact’s equity scheme which are provided directly by Contact.
Remuneration
Remuneration paid by Contact to the CEO reflects 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 fixed remuneration component comprising cash salary and other employment
benefits, 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 one-third of the CEO’s potential annual remuneration is paid as fixed remuneration and two-thirds is at-risk/variable
remuneration. The amount of short-term incentive awarded and the level of long-term incentive allocated to the CEO is dependent on
the degree to which Contact’s financial, health, safety and environment (HSE), and other strategic goals are met. This is determined
after the end of the relevant financial year and paid in the subsequent financial year.
There are three components to employee remuneration – fixed remuneration, at-risk/variable remuneration and other benefits.
These are designed to attract, reward and retain high-performing employees.
Fixed remuneration
Fixed remuneration is determined based on the role responsibilities, individual performance and experience, and available market
remuneration data. Contact targets fixed remuneration at the median of the market range.
At-risk/variable remuneration
At-risk/variable remuneration recognises and rewards high-performing employees and comprises short-term incentives
(cash and deferred share rights), and long-term incentives (options and performance share rights).
• Short-term incentives (STIs)
STIs are designed to differentiate and reward high performance with cash incentives for eligible employees, and deferred
share rights through Contact’s equity scheme for some higher level roles. The STIs are based on employee performance
measured against key performance indicators (KPIs) which generally comprise company, business unit and individual objectives.
The Board reserves the right to adjust STI awards if company targets are not met.
• Long-term incentives (LTIs)
Contact provides awards of options and performance share rights through Contact’s equity scheme to senior and
key talent employees. This aims to encourage and reward longer-term decision making and align participants’ interests
with that of Contact’s shareholders. These are subject to performance hurdles.
Equity scheme
At 30 June 2015 there were 99 participants in Contact’s equity scheme. Further details on the equity scheme including the
number of options, performance share rights and deferred share rights granted, exercised, lapsed and on issue at the end
of the reporting period, see note 19 to the financial statements.
Other benefits
Contact also offers a range of benefits. These have varying eligibility criteria and include the following: discounts for home
energy, including electricity, natural gas and LPG; employer subsidised health insurance; an employee share ownership
plan ‘Contact Share’, (details of Contact Share can be found on page 68); and additional benefits and offers from retailers
and services providers.
Remuneration ReportContact Energy LimitedRemuneration ReportContact Energy Limited
46
Remuneration Report
Contact Energy Limited
The table at right shows the number of employees and former
employees of Contact who, in their capacity as employees,
received remuneration and other benefits during FY15 of
at least $100,000. At 30 June 2015, no Contact subsidiary
had any employees.
The value of remuneration benefits analysed includes:
• fixed remuneration including allowance/overtime payments
• employer superannuation contributions
• short-term cash incentives relating to FY14 performance
but paid in FY15. (Note, STI payments for FY15 performance
which will be paid in FY16 are expected to be lower)
the value of equity-based incentives expensed during FY15
the value of Contact Share expensed during FY15
redundancy and other payments made on termination
of employment.
•
•
•
The figures do not include amounts paid post 30 June 2015
that relate to the year ended 30 June 2015.
The remuneration (and any other benefits) of the CEO,
Dennis Barnes, is disclosed in the CEO remuneration section
on pages 44-45.
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
$310,001-$320,000
$320,001-$330,000
$330,001-$340,000
$340,001-$350,000
$350,001-$360,000
$370,001-$380,000
$380,001-$390,000
$400,001-$410,000
$410,001-$420,000
$420,001-$430,000
$450,001-$460,000
$460,001-$470,000
$490,001-$500,000
$500,001-$510,000
$540,001-$550,000
$550,001-$560,000
$570,001-$580,000
$640,001-$650,000
$720,001-$730,000
$940,001-$950,000
$1,010,001-$1,020,000
Grand Total
1.
Includes 30 former employees.
Number of employees
55
47
46
49
60
35
25
14
20
22
9
10
8
7
8
3
6
2
2
4
3
2
5
2
2
2
3
1
1
1
1
2
1
1
1
2
1
1
1
1
1
467(1)
Statutory
Disclosures
47
Disclosures of interests by directors
The following are particulars of general disclosures of interest by directors holding office as at 30 June 2015, 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 (resigned 10 August 2015)
Origin Energy Limited and Group companies
Business Council of Australia
Australian Petroleum Production and Exploration Association
Managing director/shareholder/employee
Director
Councillor
Phil Pryke
GMT Bond Issuer Limited
GMT Wholesale Bond Issuer Limited
Goodman Funds Management Limited
Goodman Limited
Goodman (NZ) Limited
Goodman Property Aggregated Limited
North Ridge Partners Pty Limited (formerly Co-Investor Capital Partners Pty Ltd)
Pryke Pty Limited
Tru-Test Corporation Limited
Tru-Test Pty Limited
Director
Director
Director
Director
Director
Director
Director
Director/shareholder
Director
Director
David Baldwin (resigned 10 August 2015)
Australia Pacific LNG Pty Limited and Group companies
Origin Energy Limited
Director
Employee/shareholder
Bruce Beeren
Equipsuper Pty Limited
Origin Energy Limited
The Hunger Project Australia Pty Limited
Veda Group Limited
Whaimutu Dewes
Aotearoa Fisheries Limited
Housing New Zealand Board (ceased 6 July 2015)
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
Karen Moses (resigned 10 August 2015)
Origin Energy Limited and Group companies
SAS Trustee Corporation Board
Sydney Dance Company
University of New South Wales, Australian School of Business Advisory Council
Sue Sheldon
Christchurch City Council
FibreTech New Zealand Limited
Freightways Limited
Paymark Limited
Sue Sheldon Advisory Limited
Director
Shareholder and former director/employee
Director
Director
Chairman
Director
Director
Chairman
Director
Director
Chairman
Director
Director
Director
Director
Director
Managing director/shareholder
Director
Director/shareholder/employee
Director
Director
Committee member
Independent Chair of Audit and Risk Management Committee
Chairman
Chairman
Chairman
Director
There were no specific disclosures made during the year of any interests in transactions entered by Contact or any of its subsidiaries.
Statutory DisclosuresContact Energy Limited 48
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.
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 officers, 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 2015
Director
Grant King
Phil 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
577,050 (2)
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
Whaimutu Dewes
Date of transaction
Consideration
per share
Number of ordinary shares
acquired (disposed of)
Nature of relevant interest
01/12/14
01/12/14
16/07/14
Nil
Nil
Nil
Lapse of options under LTI scheme
Lapse of PSRs under LTI scheme
(253,609)
(45,347)
(20,011) Off-market transfer from WK Dewes to WK Dewes,
20,011
JA Baillie and GW David
Subsidiary company directors
The following people held office as directors of subsidiary companies at 30 June 2015. No director of any of Contact’s subsidiaries
received additional remuneration or benefits in respect of their directorships.
Company
Contact Aria Limited
Contact Wind Limited
Rockgas Limited
Directors
Dennis Barnes
Catherine Thompson
Dennis Barnes
Graham Cockroft
Alistair Yates
Dennis Barnes
Graham Cockroft
Peter Kane
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).
Shareholder statistics
Twenty largest shareholders at 17 August 2015
JP Morgan Chase Bank – NZCSD1
HSBC Nominees (New Zealand) Limited – NZCSD1
National Nominees New Zealand Limited – NZCSD1
Citibank Nominees (NZ) Limited – NZCSD1
HSBC Nominees (New Zealand) Limited – NZCSD1
Accident Compensation Corporation – NZCSD1
Cogent Nominees Limited – NZCSD1
Tea Custodians Limited – NZCSD1
BNP Paribas Nominees NZ Limited – NZCSD1
New Zealand Superannuation Fund Nominees Limited – NZCSD1
BNP Paribas Nominees NZ Limited – NZCSD1
FNZ Custodians Limited
Deutsche Securities New Zealand Limited
Guardian Nominees Limited No.2 Ltd – NZCSD1
Custodial Services Limited
Premier Nominees Limited – NZCSD1
RBC Investor Services Australia Nominees Pty Limited
Private Nominees Limited – NZCSD1
Investment Custodial Services Limited
Forsyth Barr Custodians Limited
Total for top 20
49
Number of ordinary shares
% of ordinary shares
116,649,635
85,116,220
81,000,232
45,788,938
42,131,055
35,865,774
15,142,282
14,600,624
14,513,147
10,589,991
10,223,713
9,736,398
9,139,864
8,507,404
8,232,236
6,751,722
6,513,954
5,039,086
4,615,820
4,240,797
534,398,892
15.91
11.61
11.05
6.24
5.74
4.89
2.06
1.99
1.98
1.44
1.39
1.33
1.25
1.16
1.12
0.92
0.89
0.69
0.63
0.58
72.87
1. New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to members. As at 17 August 2015,
total holding in NZCSD was 507,395,058 or 69.19% of shares on issue.
Distribution of ordinary shares and shareholders at 17 August 2015
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
31,524
32,407
3,203
1,742
115
99
69,090
45.63
46.90
4.64
2.52
0.17
0.14
100.00
20,789,242
56,600,221
22,254,218
32,429,514
8,128,733
593,156,944
733,358,872
2.84
7.72
3.03
4.42
1.11
80.88
100.00
Substantial product holders
According to notices given under the Financial Markets Conduct Act 2013, the following persons were substantial product holders
of the company as at 30 June 2015:
Substantial product holder
Number of ordinary shares in
which relevant interest is held
Date of notice
Origin Energy New Zealand Limited and its subsidiaries 1
389,314,921
11 August 2011
1. Ceased to be a substantial product holder effective 10 August 2015.
The total number of voting securities of Contact at 30 June 2015 was 733,358,872 fully paid ordinary shares.
Statutory DisclosuresContact Energy LimitedStatutory DisclosuresContact Energy Limited 50
Bondholder statistics
Retail fixed rate bonds (CEN020) at 17 August 2015
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Total
Auditor fees
Number of bondholders
% of bondholders
Number of bonds
% of bonds
215
537
1,518
229
128
2,627
8.18
20.44
57.79
8.72
4.87
100.00
1,073,334
5,170,000
43,152,500
19,560,000
153,044,166
222,000,000
0.48
2.33
19.44
8.81
68.94
100.00
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 FY15 was $564,723. KPMG also provided services in relation to tax compliance ($3,850).
Donations
In accordance with section 211(1)(h) of the Companies Act 1993, Contact records that it donated $11,724 in FY15. 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 FY15 are available on the company’s
website contact.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 FY15.
Credit rating at 17 August 2015
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 fixed rate bonds issued in March 2014 are rated BBB by Standard & Poor’s.
Financial
Statements
For the year ended 30 June 2015
Page 52
Income Statement
Page 52
Statement of
Comprehensive Income
Page 53
Statement of Changes
in Equity
Page 54
Statement of
Financial Position
Page 55
Statement of Cash Flows
Page 56
Notes to the
Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
About these Financial Statements
Performance by segment
Components of profit
Earnings per share
Share capital and distributions
Inventories
PP&E and intangible assets
Goodwill and impairment testing
Borrowings
Financial instruments
Financial risk management
Reconciliation of profit
to operating cash flows
Receivables and prepayments
Payables and accruals
Provisions
Taxation
Operating leases
Related parties
Share-based compensation
13.
14.
15.
16.
17.
18.
19.
20. Contingent liabilities
Subsequent events
21.
56
57
58
58
59
59
59
61
62
62
64
65
66
66
66
66
67
67
68
69
69
Page 70
Independent Auditor’s
Report
Statutory DisclosuresContact Energy Limited
53
Statement of
Changes in Equity
For the year ended 30 June 2015
Balance at 1 July 2013
Profit
Other comprehensive income
Lapsed share scheme awards
Share-based compensation expense
Dividends paid
Balance at 30 June 2014
Balance at 1 July 2014
Profit
Other comprehensive income
Lapsed share scheme awards
Share-based compensation expense
Dividends paid
Balance at 30 June 2015
Note
19
5
19
5
Share
capital
$m
1,605
–
–
–
–
–
1,605
1,605
–
–
–
–
–
1,605
Retained
earnings
$m
1,917
234
–
1
–
(184)
1,968
1,968
133
–
3
–
(558)
1,546
Cash flow
hedge
reserve
$m
Share-based
compensation
reserve
$m
Total
shareholders’
equity
$m
4
–
(9)
–
–
–
(5)
(5)
–
10
–
–
–
5
11
–
–
(1)
4
–
14
14
–
–
(3)
4
–
15
3,537
234
(9)
–
4
(184)
3,582
3,582
133
10
–
4
(558)
3,171
The accompanying notes form an integral part of these financial statements.
52
Income
Statement
For the year ended 30 June 2015
Revenue and other income
Operating expenses
Other significant items
Depreciation and amortisation
Change in fair value of financial instruments
Net interest expense
Profit before tax
Tax expense
Profit
Basic and diluted earnings per share (cents)
Statement of
Comprehensive Income
For the year ended 30 June 2015
Profit
Other comprehensive income – items that may be reclassified to profit:
Change in cash flow hedge reserve before tax
Deferred tax relating to cash flow hedges
Other comprehensive income
Comprehensive income
The accompanying notes form an integral part of these financial statements.
Note
3
3
3
7
10
3
16
4
Note
10
10
2015
$m
2,443
(1,918)
(24)
(204)
(37)
(98)
162
(29)
133
18.2
2014
$m
2,446
(1,859)
1
(190)
7
(77)
328
(94)
234
32.0
2015
$m
133
12
(2)
10
143
2014
$m
234
(12)
3
(9)
225
Financial StatementsContact Energy LimitedFinancial StatementsContact Energy Limited Statement of
Cash Flows
For the year ended 30 June 2015
Receipts from customers
Payments to suppliers and employees
Tax paid
Liquidated damages received
Dividends received
Net cash flow from operating activities
Purchase of property, plant and equipment
Purchase of computer software assets
Proceeds from sale of property, plant and equipment
Interest received
Net cash flow from investing activities
Dividends paid
Proceeds from borrowings
Repayment of borrowings
Interest paid
Gas sale and repurchase arrangement (payments)/proceeds
Financing costs
Net cash flow from financing activities
Net cash flow
Add: cash at the beginning of the year
Cash at the end of the year
Bank overdraft
Cash and cash equivalents
The accompanying notes form an integral part of these financial statements.
55
2014
$m
2,385
(1,930)
(53)
43
1
446
(151)
(60)
73
6
(132)
(184)
670
(766)
(113)
14
(3)
(382)
(68)
80
12
–
12
Note
3
12
5
9
2015
$m
2,495
(1,970)
(45)
9
1
490
(94)
(35)
7
1
(121)
(558)
456
(192)
(90)
(2)
(1)
(387)
(18)
12
(6)
(10)
4
54
Statement of
Financial Position
At 30 June 2015
Cash and cash equivalents
Receivables and prepayments
Inventories
Intangible assets
Derivative financial instruments
Tax receivable
Assets held for sale
Total current assets
Property, plant and equipment
Intangible assets
Goodwill
Inventories
Derivative financial instruments
Other non-current assets
Total non-current assets
Total assets
Payables and accruals
Borrowings
Derivative financial instruments
Provisions
Tax payable
Total current liabilities
Borrowings
Derivative financial instruments
Provisions
Deferred tax
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Share capital
Retained earnings
Cash flow hedge reserve
Share-based compensation reserve
Shareholders’ equity
The accompanying notes form an integral part of these financial statements.
Authorised on behalf of the Contact Energy Limited Board of Directors on 14 August 2015:
Phil Pryke
Director
Sue Sheldon
Director
Note
13
6
7
10
7
7
7
8
6
10
14
9
10
15
9
10
15
16
5
10
2015
$m
4
217
64
15
15
19
2
336
5,078
314
182
99
69
11
5,753
6,089
214
531
28
8
–
781
1,219
53
51
792
22
2,137
2,918
3,171
1,605
1,546
5
15
3,171
2014
$m
12
292
54
17
9
–
2
386
5,180
310
182
114
3
11
5,800
6,186
277
237
83
8
19
624
1,057
82
47
768
26
1,980
2,604
3,582
1,605
1,968
(5)
14
3,582
Financial StatementsContact Energy LimitedFinancial StatementsContact Energy Limited 56
Notes to the
Financial Statements
For the year ended 30 June 2015
1. ABOUT THESE FINANCIAL STATEMENTS
Contact includes Contact Energy Limited, its controlled entities
and joint arrangements. Contact is a profit-oriented entity registered
in New Zealand under the Companies Act 1993. Contact is listed on
the New Zealand stock exchange and has a series of bonds listed
on the debt exchange. Being an issuer of shares and debt under the
Financial Markets Conduct (FMC) Act 2013, Contact is an FMC entity
for reporting purposes.
These are Contact’s financial statements for the year ended
30 June 2015. They are prepared in accordance with New Zealand
Generally Accepted Accounting Practice (NZ GAAP) and also
comply with New Zealand equivalents to International Financial
Reporting Standards (NZ IFRS) and International Financial Reporting
Standards (IFRS).
The financial statements are presented in New Zealand dollars
and are rounded to the nearest million ($m), unless otherwise stated.
The measurement basis adopted in the preparation of these financial
statements is historical cost, except for financial 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 policies and standards
During the year Contact changed its accounting policy for
costing carbon emission units from a first-in-first-out method to
weighted average cost. The change had an immaterial impact
on previously reported and current financial year results. There
were no other changes in accounting policy. Contact’s accounting
policies have been consistently applied to all years presented
in these financial statements.
Contact has chosen not to early adopt NZ IFRS 15 Revenue from
Contracts with Customers (effective for the year ending 30 June 2018)
and NZ IFRS 9 Financial Instruments (effective for the year ending
30 June 2019). The standards are likely to have an impact on
the financial statements when adopted, but the impact has not
yet been assessed.
Accounting estimates and judgements
Estimates and judgements are made in applying Contact’s accounting
policies. The areas of significant estimation and judgements are:
• unbilled retail revenue for electricity and gas (notes 3 and 13)
•
inventory gas classification 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)
impairment testing of cash-generating units and capital work in
progress in relation to future generation developments (note 8)
fair value measurement of financial instruments (note 10)
•
• provision for impairment of receivables (note 13)
•
future expenditure for restoration and environmental
rehabilitation provisions (note 15).
57
2. PERFORMANCE BY SEGMENT
Contact has two operating segments reported to the Chief Executive
Officer (CEO); they are split based on the different products and
services provided. Contact’s segments are:
•
Integrated Energy: a generator of electricity and a purchaser
and retailer of electricity and natural gas to customers throughout
New Zealand, and
The profit measures provided to the CEO to measure Contact’s
performance are:
• Earnings before net interest expense, tax, depreciation,
amortisation, change in fair value of financial instruments
and other significant items (EBITDAF), and
• Underlying earnings after tax, which is profit excluding significant
• Other: other products and services offered by Contact, which
items that do not reflect Contact’s ongoing performance.
includes the sale of LPG.
Integrated
Energy
$m
Note
2,318
(1,586)
(248)
484
2015
Other
$m
163
(107)
(15)
41
Inter-
segment
$m
(38)
38
–
–
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)
4
Integrated
Energy
$m
2,321
(1,535)
(235)
551
2014
Other
$m
164
(110)
(18)
36
Inter-
segment
$m
(39)
39
–
–
Total
$m
2,443
(1,655)
(263)
525
(204)
(98)
(62)
161
21.9
Total
$m
2,446
(1,606)
(253)
587
(190)
(77)
(93)
227
31.0
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.
The table below reconciles underlying earnings after tax to profit as reported in the Income Statement.
Underlying earnings after tax
Change in fair value of financial instruments
Other significant items
Tax on items excluded from underlying earnings
Reinstatement of tax depreciation on powerhouses
Profit
Note
10
3
16
2015
$m
161
(37)
(24)
17
16
133
2014
$m
227
7
1
(1)
–
234
For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited 58
3. COMPONENTS OF PROFIT
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
Clutha land sales
Gain on restructure of gas storage operations
Asset impairments
Total other significant items
Interest expense
Unwind of discount on provisions
Interest income
Interest expense capitalised
Net interest expense
Note
15
(24)
–
–
–
(24)
(93)
(6)
1
–
(98)
(11)
7
7
(2)
1
(116)
(4)
6
37
(77)
4. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing profit
by the weighted average number of shares on issue over the year.
The diluted number of shares includes deferred share rights and
restricted shares that are expected to vest. There is no material
difference in 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.
Basic and diluted earnings per share
(cents)
Underlying earnings per share (cents)
Weighted average number of shares:
– basic
– diluted
2015
2014
18.2
21.9
32.0
31.0
733,345,281
733,793,826
733,305,814
733,377,089
Revenue and other income
Retail electricity, natural gas and LPG revenue includes 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
Te Mihi Geothermal Power Station outage delays and in the prior
year due to delayed commissioning.
Operating expenses
Labour costs include contributions to KiwiSaver of $3 million
(2014: $3 million).
Other operating expenses include fees paid to Contact’s auditors
(KPMG) of $564,723 for review of the interim and audit of the year
end financial statements (2014: $675,840 which includes $117,439
for transitional audit procedures on the SAP customer billing and
service system) and $3,850 for services in relation to tax compliance
(2014: $11,330).
Other significant items
Transactions are classified as other significant items, and excluded
from underlying earnings, when they meet certain criteria approved
by Contact’s board of directors (the Board). Other significant items
are determined in accordance with the principles of consistency,
relevance and clarity. Transactions considered for classification as
other significant 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 significant impact on reported profit.
This year other significant items include transition costs incurred
on the Retail Transformation project which are comprised primarily
of temporary staffing, infrastructure and technology costs.
2015
$m
1,514
693
118
81
21
2,427
9
7
2014
$m
1,534
641
116
83
20
2,394
43
9
2,443
2,446
(674)
(633)
(236)
(70)
(36)
(6)
(102)
(161)
(624)
(596)
(278)
(77)
(32)
1
(100)
(153)
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.
Balance at 1 July 2013
Share capital issued
Balance at 30 June 2014
Ordinary shares
Restricted shares
– Contact Share
Balance at 1 July 2014
Share capital issued
Balance at 30 June 2015
Ordinary shares
Restricted shares
– Contact Share
Distributions
Note
Number
733,301,821
6,941
733,308,762
733,151,706
$m
1,605
–
1,605
1,605
18
157,056
–
733,308,762
50,110
733,358,872
733,084,168
1,605
–
1,605
1,606
18
274,704
(1)
(1,918)
(1,859)
Paid during the year ended
Cents per share
2013 final dividend
2014 interim dividend
30 June 2014
2014 final dividend
2015 interim dividend
2015 special dividend
30 June 2015
14.0
11.0
15.0
11.0
50.0
$m
103
81
184
110
81
367
558
The Board declared a final dividend after year end of 15.0 cents
per share to be paid on 15 September 2015.
INVENTORIES
6.
Inventories are stated at the lower of cost and net realisable value
(NRV). Any write-down to NRV is recognised in the Income Statement.
Inventory gas
Consumables and spare parts
LPG
Diesel fuel
Current
Non-current
2015
$m
148
10
2
3
163
64
99
2014
$m
152
9
4
3
168
54
114
The cost of inventory is determined on a weighted average basis.
NRV is determined as follows:
•
Inventory gas: based on a calculation that uses forecast gas
requirements to operate thermal plants, the amount of gas
extracted to run those plants and the forward wholesale
electricity prices for generation. The forward wholesale electricity
prices are derived from Australian Securities Exchange (ASX)
market quoted 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 variable selling expenses.
The classification of inventory gas between current and non-current
is based on expected future usage and past actual usage. Contact
expects to utilise 30 per cent of inventory gas held in storage within
1 year of the end of the reporting period (2014: 20 per cent).
59
7. PP&E AND INTANGIBLE ASSETS
Property, plant and equipment (PP&E) 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.
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 specifically
associated with construction, resource management consent costs
and directly attributable variable and fixed 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 assets constructed by Contact 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
PP&E or intangible assets.
Expenditure on existing assets 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 expenditure related to existing assets is expensed
as incurred.
Exploration expenditure in relation to geothermal fields 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 field,
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.
Gas storage – cushion gas
Contact has beneficial access to the remaining natural gas
and LPG reserves (excluding condensate) in the Ahuroa reservoir.
The natural gas reserves at the date of acquisition, together with
some additional natural gas injections since acquisition, are referred
to as cushion gas and represent the investment necessary to enable
the field to be used for the storage of operational gas. Cushion gas
of $52 million (2014: $52 million) is classified as generation plant
and equipment.
Carbon emission units
Carbon emission units are measured at weighted average cost.
Units are classified 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 is expected
to be incurred within 1 year of the end of the reporting period.
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited 60
Depreciation and amortisation
Generation plant and equipment assets that are expected to be
consumed on a usage basis are depreciated on an equivalent
operating hours basis. Depreciation and amortisation for all other
assets 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.
Asset useful lives and residual values are reviewed annually for
triggers that may indicate the need for a revised estimate. The range
of depreciation and amortisation rates for each class of asset is:
Asset
Generation plant and equipment
– Straight line
– Equivalent operating hours
Other buildings, plant and equipment
Gas storage rights
Computer software
Land and capital work in progress
Cushion gas and carbon emission units
Rate/Hours
1-33%
8,000 -100,000
2-33%
3%
6-33%
Not depreciated
Not amortised
Assets held for sale
Assets classified 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. All assets held for sale
are land assets.
Capital commitments
At 30 June 2015, Contact had $32 million (2014: $6 million) committed
under contractual arrangements. The outflow of these commitments
is $13 million due within 1 year, $13 million due between 2 and 5 years
and $6 million due more than 5 years from the reporting period end.
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 confirmed and the land
is to be returned, compensation will be paid to Contact under the
provisions of the Public Works Act 1981.
Significant intangible assets
The carrying amount of computer software and capital work
in progress includes $264 million (2014: $265 million) in relation
to the integrated SAP system that Contact has developed.
This has a remaining useful life of 14 years.
Property, plant and equipment
Cost
Balance at 1 July 2013
Additions
Transfers from capital work in progress
Transfers to assets held for sale
Disposals
Balance at 30 June 2014
Balance at 1 July 2014
Additions
Transfers from capital work in progress
Transfers to assets held for sale
Disposals
Balance at 30 June 2015
Depreciation and impairment losses
Balance at 1 July 2013
Depreciation charge
Impairments
Disposals
Balance at 30 June 2014
Balance at 1 July 2014
Depreciation charge
Transfers to assets held for sale
Disposals
Balance at 30 June 2015
Carrying amount
At 30 June 2014
At 30 June 2015
Generation plant
and equipment
$m
Other land and
buildings
$m
Other plant and
equipment
$m
Capital work in
progress
$m
5,300
112
565
(3)
(8)
5,966
5,966
31
81
(2)
–
6,076
(1,037)
(161)
(2)
9
(1,191)
(1,191)
(166)
2
–
(1,355)
4,775
4,721
28
–
1
(1)
(1)
27
27
–
9
(3)
–
33
(10)
(1)
–
–
(11)
(11)
(2)
–
–
(13)
16
20
231
2
1
–
(1)
233
233
5
15
–
(1)
252
(146)
(13)
–
1
(158)
(158)
(10)
–
1
(167)
75
85
868
79
(567)
–
–
380
380
43
(105)
–
–
318
(66)
–
–
–
(66)
(66)
–
–
–
(66)
314
252
Total
$m
6,427
193
–
(4)
(10)
6,606
6,606
79
–
(5)
(1)
6,679
(1,259)
(175)
(2)
10
(1,426)
(1,426)
(178)
2
1
(1,601)
5,180
5,078
Intangible assets
Cost
Balance at 1 July 2013
Additions
Disposals
Balance at 30 June 2014
Balance at 1 July 2014
Additions
Disposals
Balance at 30 June 2015
Amortisation
Balance at 1 July 2013
Amortisation charge
Disposals
Balance at 30 June 2014
Balance at 1 July 2014
Amortisation charge
Balance at 30 June 2015
Carrying amount
At 30 June 2014
At 30 June 2015
Current
Non–current
8. GOODWILL AND IMPAIRMENT TESTING
The carrying amounts of non-financial assets including PP&E and
intangible assets are reviewed at the end of each reporting period
for any indicators of impairment. If an impairment indicator exists,
the recoverable amount of the asset, or cash-generating unit (CGU)
to which it relates where it does not generate largely independent
cash flows, is estimated. Goodwill is tested annually for impairment
regardless of impairment indicators. An impairment loss is
recognised when the carrying amount exceeds the estimated
recoverable amount.
Contact has three CGUs: Generation, Retail and LPG. The Retail
CGU has goodwill of $179 million and the LPG CGU has $3 million,
which is unchanged from the prior year. The recoverable amount
of the Generation CGU is estimated annually because it is a
significant CGU. Capital work in progress related to future generation
developments of $129 million (2014: $128 million) is not allocated
to a CGU but is assessed annually for impairment.
No impairments were recognised in the current year. In the prior
year all impairments recognised (refer note 3) related to assets held
for sale and are based on the assets’ fair value less costs to sell.
Computer
software and
capital work in
progress
$m
Gas storage
rights
$m
Carbon
emission units
$m
264
79
(2)
341
341
29
–
370
(55)
(14)
2
(67)
(67)
(25)
(92)
274
278
–
278
35
–
–
35
35
–
–
35
(2)
(1)
–
(3)
(3)
(1)
(4)
32
31
–
31
18
4
(1)
21
21
1
(2)
20
–
–
–
–
–
–
–
21
20
15
5
61
Total
$m
317
83
(3)
397
397
30
(2)
425
(57)
(15)
2
(70)
(70)
(26)
(96)
327
329
15
314
Key assumptions in the value in use calculations of the recoverable
amount for Contact’s CGUs are:
General
Assumption
Method of determination
Discount rate (post-tax) Between 8 and 10 per cent
Terminal growth rates
Estimate of future growth based on
historical consumer price index (CPI)
average growth rates
Actual operating costs adjusted for
expected market movements and impacts
Operating costs
Retail and LPG CGUs
Assumption
Method of determination
Period of cash flows
Customer numbers
and churn
Gross margin per
customer
Cost of purchased
electricity
5 years of estimated future cash flows
Actual customer numbers profiled using
historical data on churn, expected market
trends and competition for customers
Actual gross margin per customer adjusted
for expected market movements and
competition for customers
ASX market quoted prices adjusted for
Contact’s best estimate based on analysis
of expected demand and cost of new supply
Generation CGU
Assumption
Method of determination
Period of cash flows
Generation required and
mix of generation
Amount received for
generated electricity
Gas price
10 years of estimated future cash flows
Management’s strategy for generation and
historic average weather patterns
ASX market quoted prices adjusted for
Contact’s best estimate based on analysis
of expected demand and cost of new supply
Contracted gas prices otherwise Contact’s
best estimate of future prices
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited 62
9. BORROWINGS
Borrowings are initially recognised at fair value less directly attributable
transaction costs and subsequently measured at amortised cost
using the effective interest rate method. Debt designated in fair value
hedge relationships (refer note 10) is adjusted for the change in fair
value of the hedged risk.
Maturity
Coupon
Bank overdraft
< 3 months
< 3 months
Commercial paper
Various
Bank facilities
Various
Finance lease liabilities
Mar 2015
USPP notes – US$103m
Apr 2017
Wholesale bonds
Mar 2018
USPP notes – US$40m
Apr 2018
USPP notes – US$25m
May 2018
Wholesale bonds
May 2019
Retail bonds – CEN020
May 2020
Wholesale bonds
Dec 2020
USPP notes – US$56m
Dec 2023
USPP notes – US$22m
Dec 2023
USPP notes – US$51m
USPP notes – US$58m
Dec 2025
Export credit agency facility Nov 2027
Dec 2028
USPP notes – US$23m
Dec 2028
USPP notes – US$30m
Total borrowings at face value
Unamortised discount
Total borrowings at amortised cost
Floating
Floating
Floating
Various
5.31%
7.86%
5.55%
7.13%
4.80%
5.80%
5.28%
3.46%
4.19%
4.09%
4.33%
Floating
4.44%
4.50%
Fair value adjustment on hedged borrowings
Carrying value of borrowings
Current
Non-current
2015
$m
10
100
639
25
–
100
71
43
50
222
50
70
28
64
73
90
29
38
2014
$m
–
60
223
27
183
100
71
43
50
222
50
70
28
64
73
97
29
38
1,702
1,428
(8)
(9)
1,694
1,419
56
(125)
1,750
1,294
531
1,219
237
1,057
The fair value of all borrowings is $1,763 million (2014: $1,341 million),
with fair value measurement categorised as level 2 of the fair value
hierarchy as described in note 10.
USPP notes
In June 2015 US$100 million (NZ$145 million) of United States
Private Placement (USPP) notes were executed with an issue date of
September 2015. The notes have fixed interest rates ranging between
3.63 and 3.95 per cent and maturities between 8 and 12 years. The
notes were hedged by entering into cross-currency interest rate swaps
(CCIRS) at the same time as the debt. Although the notes are undrawn
at 30 June 2015, they are committed liabilities and the change in fair
value of the hedged risk is recognised as a component of borrowings.
Committed bank facilities
Maturity
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
More than 3 years
2015
$m
430
145
150
175
900
2014
$m
–
350
75
175
600
At 30 June 2015, Contact had $300 million of bridging bank facilities
maturing by 31 December 2015. In July 2015, $100 million of these
facilities were cancelled and Contact entered into two $40 million
bank facilities with maturities of 2 and 5 years. The remainder of the
bridging facilities will be refinanced with the $145 million of USPP
notes to be issued in September 2015 and other new long-term debt.
Finance leases
Contact has leased assets primarily in respect of connections to the
national grid. The leased assets are categorised as generation plant
and equipment and included in the carrying values of PP&E in note 7.
Security
All borrowings rank equally. Contact’s borrowings are unsecured
except for finance leases, which are secured over the leased assets.
Under Contact’s Deed of Negative Pledge and Guarantee and 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 reporting period.
10. FINANCIAL INSTRUMENTS
Financial instruments carried at amortised cost
Loans and receivables and financial liabilities are initially recognised
at fair value less transaction costs and subsequently carried at
amortised cost. The value of financial instruments carried at amortised
cost within the asset and liability types below are:
Cash and cash equivalents
Receivables
Payables and accruals
Borrowings
2015
$m
4
215
(212)
(1,694)
2014
$m
12
289
(273)
(1,419)
Fair value measurement of financial instruments
Contact uses discounted cash flow valuations to estimate the fair value
of all derivatives (and of borrowings for disclosure purposes). The key
variables used in these valuations are forward prices (for the relevant
underlying interest rates, foreign exchange rates, LPG prices and
wholesale electricity prices) and discount rates. All inputs are sourced
or derived from market information except as noted in the table:
Valuation input
Source
Forward interest rates
Forward foreign
exchange rates
Forward wholesale
electricity prices
Forward LPG prices
Discount rates
Published market swap rates
Published market foreign exchange rates
ASX market quoted prices where available
otherwise Contact’s best estimate based
on analysis of expected demand and cost
of new supply
Market quoted Saudi Aramco propane
futures prices
Published market rates as applicable to the
remaining life of the instrument adjusted for
counterparty or Contact’s own credit risk
with credit spreads derived from published
market data
Fair value hierarchy
Financial instruments recognised at fair value are categorised
according to a fair value hierarchy that shows 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 inputs derived from quoted prices are used, the
instruments are categorised as level 2 and, if inputs are not based
on observable market data they are level 3 instruments.
At 30 June 2015, financial instruments measured at fair value were
categorised as level 2, except for some electricity price derivatives
categorised as level 1 of $1 million liability (2014: $2 million liability)
and $2 million asset categorised as level 3 (2014: $1 million asset).
Derivative financial instruments carried at fair value
The following table classifies derivative financial instruments by type
and current or non-current classification:
Fair value hedges
CCIRS
Interest rate derivatives
Cash flow hedges
CCIRS – margin
Foreign exchange derivatives
Electricity and LPG
price derivatives
Derivatives not designated in
hedge relationships
Interest rate derivatives
Electricity price derivatives
Current
Non–current
2015
Asset
$m
2015
Liability
$m
2014
Asset
$m
2014
Liability
$m
56
6
6
3
4
4
5
84
15
69
(12)
–
(5)
–
(2)
(58)
(4)
(81)
(28)
(53)
–
–
–
–
6
4
2
(120)
(4)
(10)
(1)
(1)
(26)
(3)
12
(165)
9
3
(83)
(82)
Net fair values
Contact enters into derivative transactions under International Swaps
and Derivatives Association (ISDA). Under these ISDAs, unless there
is an event of default, Contact does not have a legally enforceable
right to set off all of its assets and liabilities with the same counterparty.
Therefore all derivatives in the balance sheet and in the table above
are shown gross by instrument. In an event of default, netting is
permitted under Contact’s ISDAs. The net fair value after offsetting
the instruments by counterparty is shown in the table:
CCIRS
CCIRS – margin
Foreign exchange derivatives
Interest rate derivatives
Electricity and LPG
price derivatives
2015
Asset
$m
53
6
3
6
7
75
2015
Liability
$m
2014
Asset
$m
(9)
(5)
–
(54)
(4)
(72)
–
–
–
1
8
9
2014
Liability
$m
(120)
(10)
(1)
(27)
(4)
(162)
Fair value hedges
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:
• CCIRS to swap the United States dollar principal and fixed
coupon obligations related to the USPP notes to New Zealand
dollar floating rate exposures
interest rate swaps to convert the fixed coupons on the domestic
bonds to floating rates.
•
Cash flow hedges
Contact’s cash flow hedges include the following:
•
the margin component of CCIRS designated as a hedge against
the margin component of USPP notes
foreign exchange derivatives to hedge foreign currency risk
of future offshore cash flows
•
• electricity price derivatives to hedge electricity price risk related
to Contact’s wholesale electricity spot market exposure
• LPG price derivatives to hedge price risk of LPG
purchase agreements.
63
The period over which the cash flow hedges are expected to impact
profit matches the period that the cash flows are expected to occur:
• CCIRS over a period of 2 to 14 years (2014: 9 months to 15 years).
foreign exchange derivatives over a period of 1 month to 2 years
•
(2014: 1 month to 1 year)
• electricity price derivatives over a period of 1 month to 3 years
(2014: 1 month to 3 years)
• LPG price derivatives over a period of 6 months (2014: nil).
Derivatives not designated in hedge relationships
Derivatives not designated in hedge relationships are:
• some interest rate swaps used to manage interest rate risk in
accordance with Contact’s treasury risk management policy, and
• electricity futures purchased as part of a requirement to participate
in the ASX futures electricity market.
Change in fair value of financial instruments
The change in fair value of financial instruments is recognised as follows:
fair value hedges: recorded in the Income Statement together
•
with any changes in the fair value of the underlying hedged risk
• cash flow hedges: the effective portion is recognised in the cash
flow hedge reserve, while any ineffective portion is recognised
immediately in the Income Statement as change in fair value of
financial instruments. Amounts recognised in the cash flow hedge
reserve are subsequently reclassified to the Income Statement
or Statement of Financial Position according to the nature of the
hedged item (refer to the analysis of the cash flow hedge reserve
movement below)
• derivatives not designated in a hedge relationship: recognised
in the Income Statement.
The change in the fair value of derivatives and the fair value
adjustment to borrowings is provided in the table:
Favourable/(Unfavourable)
CCIRS
Interest rate derivatives
Fair value adjustment
to borrowings
Fair value hedges
CCIRS – margin
Foreign exchange derivatives
Electricity and LPG price
derivatives
Tax on change in fair value
Cash flow hedges
Interest rate derivatives
Electricity price derivatives
Derivatives not designated
in hedge relationships
Total fair value movement
2015
Income
statement
$m
2015
Cash flow
hedge
reserve
$m
2014
Income
statement
$m
2014
Cash flow
hedge
reserve
$m
164
10
(181)
(7)
–
–
–
–
–
(32)
2
(30)
(37)
–
–
–
–
11
4
(3)
(2)
10
–
–
–
10
(9)
(2)
11
–
–
–
–
–
–
7
–
7
7
–
–
–
–
(8)
–
(4)
3
(9)
–
–
–
(9)
Cash flow hedge reserve movement
Balance at the beginning of the year
Effective portion of cash flow hedges
Transferred to revenue
Transferred to property, plant and equipment
Transferred to deferred tax
Balance at the end of the year
2015
$m
2014
$m
(5)
7
4
–
(1)
5
4
(4)
(7)
1
1
(5)
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited
64
11. FINANCIAL RISK MANAGEMENT
Contact’s overall financial risk management system mitigates the
exposure to capital, liquidity, market and credit risks by ensuring
that material risks are identified, that the financial 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 financial risk management system is supported
by written policies covering each risk and the use of derivative
financial instruments and non-derivative financial instruments.
These policies provide a framework for identifying, monitoring
and managing financial 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 and benefits for
other stakeholders. 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 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:
Face value of borrowings
Cash and cash equivalents
Net debt
Shareholders’ equity
Remove net effect of fair value of
financial instruments after tax
Adjusted equity
Total capital funding
Gearing ratio
2015
$m
(1,702)
4
(1,698)
(3,171)
(38)
(3,209)
(4,907)
34.6%
2014
$m
(1,428)
12
(1,416)
(3,582)
(21)
(3,603)
(5,019)
28.2%
Liquidity risk
Contact’s liquidity risk arises from its need to ensure that it can meet
its committed expenditure and debt repayment obligations, normal
periodic cash flow fluctuations and unexpected funding requirements.
To reduce liquidity risk, Contact maintains a diverse portfolio of
funding, debt maturities are spread over a number of years and any
new financing requirements are addressed with an appropriate lead
time. Liquidity risk is monitored by continually forecasting cash flows
against the level of funding facilities available and ensuring an
appropriate liquidity buffer.
The table below summarises Contact’s exposure to liquidity risk
based on the undiscounted contractual cash flows and maturities of
financial liabilities, including derivatives. Cash inflows and outflows for
derivatives that require gross cash settlement are shown separately.
2015
Payables and accruals
Borrowings1
Finance lease liabilities
Electricity price derivatives – net settled
Interest rate derivatives – net settled
Foreign exchange derivatives – inflow
Foreign exchange derivatives – outflow
Cross–currency interest rate swaps – inflow
Cross–currency interest rate swaps – outflow
2014
Payables and accruals
Borrowings
Finance lease liabilities
Electricity price derivatives – net settled
Interest rate derivatives – net settled
Foreign exchange derivatives – inflow
Foreign exchange derivatives – outflow
Cross–currency interest rate swaps – inflow
Cross–currency interest rate swaps – outflow
Total contractual
cash flows
$m
Less than 1 year
$m
1–2 years
$m
2–5 years
$m
More than
5 years
$m
(212)
(2,140)
(50)
4
(24)
31
(29)
943
(1,015)
(2,492)
(212)
(538)
(4)
1
(6)
28
(26)
169
(178)
(766)
–
(397)
(4)
3
(4)
3
(3)
26
(37)
(413)
–
(551)
(9)
–
(11)
–
–
160
(212)
(623)
–
(654)
(33)
–
(3)
–
–
588
(588)
(690)
Total contractual
cash flows
$m
Less than 1 year
$m
1–2 years
$m
2–5 years
$m
More than
5 years
$m
(273)
(1,564)
(53)
4
(33)
10
(10)
607
(848)
(2,160)
(273)
(288)
(4)
4
(7)
10
(10)
140
(216)
(644)
–
(229)
(4)
–
(5)
–
–
16
(27)
(249)
–
(582)
(10)
–
(13)
–
–
116
(189)
(678)
–
(465)
(35)
–
(8)
–
–
335
(416)
(589)
1. Borrowings include inflows of $145 million in relation to USPP notes to be issued in September 2015.
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 the Australian dollar and United
States dollar). The exposure is managed with foreign exchange
derivatives that 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 2015 was $29 million (2014: $10 million).
Contact is also exposed to United States dollar foreign currency risk
on the future interest and principal payments on the USPP notes.
The exposure is managed using CCIRS and is measured as the
New Zealand dollar equivalent of the notional principal amount
of outstanding CCIRS, which was $560 million at 30 June 2015
(2014: $599 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 effectively fix 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
fixed volume electricity price derivatives at 30 June 2015 was
4,533 gigawatt hours (GWh) (2014: 2,159 GWh).
Contact is also exposed to commodity price risk from forecast LPG
purchases under market priced LPG supply agreements and uses
LPG price derivatives to effectively fix the price of LPG purchases.
The outstanding notional volume of LPG price derivatives was
29,960 tonnes (2014: nil).
Interest rate risk
Contact is directly exposed to interest rate risk as a result of floating
rate term borrowings, 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 2015, Contact had $673 million
(2014: $341 million) of notional debt on a floating rate basis and
$994 million (2014: $1,059 million) on a fixed rate basis.
Sensitivity analysis
The table below summarises the impact of possible changes in
forward wholesale electricity prices, forward LPG prices, forward
foreign exchange rates and forward interest rates. The analysis
assumes that all variables were held constant except for the relevant
market risk factor.
Favourable/(Unfavourable)
Impact on cash flow hedge
reserve
Forward electricity and LPG prices
Forward foreign exchange rates
Impact on post–tax profit
Forward interest rates
Forward electricity prices
+10%
–10%
+10%
–10%
+100bps
–25bps
+10%
–10%
2015
$m
2014
$m
(1)
1
(2)
2
23
(6)
2
(2)
(5)
5
(1)
1
16
(4)
–
–
65
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations, resulting in financial loss to Contact. Contact
is exposed to credit risk arising from cash and cash equivalents, trade
and other receivables and derivative financial instruments. The
carrying amount of these assets is $303 million (2014: $313 million)
and represents Contact’s maximum exposure to credit risk, 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 sufficient collateral, where
appropriate. Concentration of trade receivables credit risk is limited
due to Contact’s large customer base in a diverse range of industries
throughout New Zealand. Contact has no significant credit risk
exposure to any single customer.
Derivative counterparties and cash transactions are limited to high
credit quality financial 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.
Contact has no significant concentration of credit risk with any
one institution, despite significant sales to NZX Energy. NZX Energy
acts as an electricity market clearing agent and the counterparty
risk sits with the market participants. Contact has issued letters of
credit under the electricity market’s security requirements applicable
to all market participants. These letters of credit ensure there is no
significant credit exposure to any one market participant, should
another participant default.
12. RECONCILIATION OF PROFIT TO OPERATING
CASH FLOWS
Profit
Depreciation and amortisation
Change in fair value of
financial instruments
Asset impairments
Gain on sale of property,
plant and equipment
Net interest expense
Bad debt expense
Movement in deferred tax
Share-based compensation
Other
Changes in assets and liabilities,
net of non-cash, investing and
financing activities
Receivables and prepayments
Inventories
Payables and accruals
Tax payable/receivable
Other
Net cash flow from operating activities
2015
$m
133
204
37
–
(2)
98
15
22
4
(4)
59
6
(45)
(37)
–
490
2014
$m
234
190
(7)
2
(6)
77
17
36
4
(2)
(25)
(31)
(40)
4
(7)
446
Cash includes cash on hand, at bank, short-term deposits and
restricted cash net of bank overdrafts. Contact trades electricity price
derivatives on the ASX market using a broker who holds collateral on
deposit for margin calls. At 30 June 2015, this collateral was $4 million
(2014: $6 million) and is included within cash.
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited 66
13. RECEIVABLES AND PREPAYMENTS
15. PROVISIONS
Trade receivables
Unbilled receivables
Provision for impairment
Net trade receivables
Prepayments
Other receivables
Total receivables and prepayments
2015
$m
110
115
(10)
215
2
–
217
2014
$m
168
131
(12)
287
3
2
292
Restoration/
Environmental
rehabilitation
$m
53
(2)
6
57
7
50
Balance at 1 July 2014
Utilised
Unwind of discount
Balance at 30 June 2015
Current
Non-current
Other
$m
2
–
–
2
1
1
Total
$m
55
(2)
6
59
8
51
During the year, wholesale electricity sales and purchases changed to
net settlement. A net payable is included in trade payables (refer note
14) and resulted in a reduction in trade receivables and trade payables
of $43 million at 30 June 2015.
Unbilled receivables represent Contact’s best estimate of retail
sales for unread electricity and gas meters at the end of the reporting
period. The estimate uses the consumption history of customer
meters to determine the relevant unbilled amount for the period.
Contact recognises a provision for impairment when there is evidence
that debt may not be collectable; those receivables that are known to be
uncollectable are written off. Retail receivables are assessed on a portfolio
basis based on historical delinquency rates. Bad debts net of recoveries
of $12 million (2014: $15 million) were recognised during the year.
The ageing analysis of net trade receivables is:
Not past due
0-30 days past due
30-90 days past due
Over 90 days past due
14. PAYABLES AND ACCRUALS
Trade payables and accruals
Employee entitlements
Interest payable
2015
$m
177
21
10
7
215
2015
$m
190
17
7
214
2014
$m
246
30
9
2
287
2014
$m
243
26
8
277
The restoration and environmental rehabilitation provision includes
the expected costs to abandon and restore sites where natural
resources are extracted, to remove asbestos from properties,
and to restore LPG sites.
Provisions are calculated using discounted cash flow valuation techniques
using estimates of future cash flows to make good the affected sites.
The cash outflows are typically expected to coincide with the end
of the useful lives of the assets. The expected future cash flows are
discounted to their present value using a post-tax discount rate of
between 8 and 10 per cent.
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 comprehensive income.
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
The amount of deferred tax is based on the expected manner of
realisation of assets and liabilities.
A legislative change in the year ended 30 June 2010 resulted in the
removal of tax depreciation on buildings effective from Contact’s
income tax year ended 30 June 2012. During the current year,
Inland Revenue determined that some assets relating to powerhouses
are depreciable for tax purposes, so Contact is able to claim tax
depreciation on these assets from its income tax year ended
30 June 2012. This has resulted in a decreased deferred tax liability
in respect of those assets.
Tax expense is determined as follows:
Profit before tax
Tax thereon at 28%
Plus/(less) tax effect of adjustments:
– Clutha asset impairment and
land sales
– Reinstatement of tax depreciation
on powerhouses
– Prior period adjustments
Tax expense
Current tax
Deferred tax
2015
$m
162
45
–
(16)
–
29
7
22
2014
$m
328
92
(1)
–
3
94
58
36
At 30 June 2015, imputation credits available for use by shareholders through the consolidated imputation group are 32 million
(2014: 226 million). Deferred tax assets and liabilities are offset 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:
Balance at 1 July 2013
Recognised in the Income Statement
Recognised in other comprehensive income
Balance at 30 June 2014
Balance at 1 July 2014
Recognised in the Income Statement
Recognised in other comprehensive income
Balance at 30 June 2015
PP&E and
intangible assets
$m
Derivative
financial
instruments
$m
Provisions
$m
Other
$m
(757)
(34)
–
(791)
(791)
(31)
–
(822)
6
(2)
3
7
7
11
(2)
16
12
2
–
14
14
–
–
14
4
(2)
–
2
2
(2)
–
–
67
Total
$m
(735)
(36)
3
(768)
(768)
(22)
(2)
(792)
17. OPERATING LEASES
Operating leases relate to the rental of buildings, plant and
equipment and vehicles on normal commercial terms and conditions.
Rental expenses of $6 million (2014: $7 million) are included in the
Income Statement.
Less than 1 year
Between 1 and 5 years
More than 5 years
Total operating lease commitments
2015
$m
6
16
7
29
2014
$m
6
15
9
30
18. RELATED PARTIES
At 30 June 2015, the ultimate parent entity of Contact is Origin
Energy Limited (Origin), an Australian incorporated company.
Origin Energy Pacific Holdings Limited is the majority shareholder,
owning 52.3 per cent (2014: 52.3 per cent) of shares. Further shares
amounting to 0.8 per cent (2014: 0.8 per cent) are held by Origin
Energy Universal Holdings Limited and Origin Energy New Zealand
Limited. All three companies are ultimately wholly owned by Origin.
Contact has an interest in the following entities, all of which are
incorporated in New Zealand and have a 30 June balance date:
Name of entity
% interest
Principal activity
Rockgas Limited
Contact Aria Limited
Contact Wind Limited
Rockgas Timaru Limited
100
100
100
50
LPG retailer
Investment holding company
Wind generation (dormant)
LPG retailer
Contact’s related parties include subsidiaries of Origin, key
management personnel and Rockgas Timaru Limited. Rockgas
Timaru Limited is accounted for as a joint venture.
Contact entered into the following material transactions with related
parties during the year:
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
Rockgas Timaru Limited
Sale of LPG
Key management personnel
Directors’ fees
CEO seconded from Origin1
Leadership team (excluding CEO)
– Salary, other short-term benefits
and share-based compensation1
Balances payable at end of the year
Origin and its subsidiaries
Key management personnel
2015
$m
(24)
(6)
–
6
–
1
(1)
(2)
(6)
(2)
(1)
2014
$m
(33)
(6)
(2)
6
3
1
(1)
(2)
(7)
(3)
(1)
1. Contact recognised an expense of $1 million (2014: $2 million) in respect of
options, performance share rights and deferred 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
Contact for domestic purposes on normal commercial terms and
conditions with staff discount.
Contact paid a dividend of $195 million to its Origin shareholders
on 23 June 2015, $43 million on 26 March 2015 and $58 million
on 15 September 2014 (2014: $43 million on 27 March 2014 and
$55 million on 16 September 2013).
Contact and Origin have a Master Services Agreement for the provision
of professional, consulting and/or administrative services. During
the reporting period, two members of staff, including the CEO, were
seconded from Origin to Contact (2014: six), and no staff members
were seconded from Contact to Origin (2014: one). These secondments
are undertaken on a cost recovery basis.
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited
69
68
19. SHARE-BASED COMPENSATION
Equity Scheme
Contact provides an equity award to certain eligible employees
comprised of options, performance share rights (PSRs) and deferred
share rights (DSRs). These awards are unlisted, cannot be traded and
do not entitle the employee to distribution or voting rights. On exercise,
PSRs and DSRs convert to ordinary shares at no cost to the employee
and options convert on payment of the agreed exercise price.
The exercise hurdles for options and PSRs are measured on three
annual test dates, the first of which is 3 years after grant date. They
are exercisable if 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 or if a change of control of Contact
occurs. The exercise hurdle for DSRs is time-bound, with a single test
date 2 years after the grant date. DSRs become exercisable if the
employee is employed on the test date, or if a change of control of
Contact occurs.
The options, PSRs and DSRs will lapse if the performance hurdles are
not met, if they are not exercised by the lapse date or if an employee
leaves Contact (other than on redundancy or at the Board’s discretion).
The scheme continues on redundancy but the entitlements are
recalculated on a proportionate basis.
Share scheme movements
Contact Share
Contact Share is Contact’s employee share ownership plan that
enables eligible employees to acquire a certain number of Contact’s
ordinary shares for a consideration amount (determined by the
Board). The shares are acquired on market and legally held by a
trustee company for a restrictive period of 3 years, during which
time the employee is entitled to receive distributions and direct the
exercise of voting rights that attach to shares held on their behalf.
At the end of the restrictive period the shares are transferred
to the employee. Employees who leave Contact due to redundancy,
and in certain other circumstances, have their shares transferred at
that time; all other employees who leave Contact have their shares
transferred to an unallocated pool. Shares in the unallocated pool
can be used by the trustee company for future allocations under
Contact Share.
Balance at 1 July 2013
Granted
Exercised
Lapsed
Balance at 30 June 2014
Balance at 1 July 2014
Granted
Exercised
Lapsed
Balance at 30 June 2015
Equity Scheme – Share Options
Options
number
outstanding
Options
weighted average
exercise price
12,356,025
3,385,967
–
(989,937)
14,752,055
14,752,055
1,263,498
(12,458)
(2,539,672)
13,463,423
$5.57
$5.33
–
$7.05
$5.41
$5.41
$5.94
$5.46
$5.54
$5.44
PSRs
number
outstanding
2,257,066
612,729
(6,941)
(137,938)
2,724,916
2,724,916
219,108
(37,652)
(430,042)
2,476,330
DSRs
number
outstanding
–
–
–
–
–
–
417,483
–
(21,969)
395,514
At 30 June 2015, none of the Equity Scheme or Contact Share awards
were exercisable.
Share options had a weighted average remaining contractual life of
2 years and 2 months (2014: 2 years and 9 months), PSRs had 2 years
(2014: 2 years and 5 months) and DSRs had 1 year and 5 months.
Assumptions for fair value calculations
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Fair value
The fair value of employee services received in exchange for the grant
of the options, PSRs, DSRs, and restricted shares is recognised as
an expense with a corresponding increase in equity over the vesting
period. The amount recognised as an expense is adjusted to reflect
the number of options, PSRs, DSRs, and restricted shares that
are expected to become exercisable or vest. The total expense
recognised under the Equity Scheme and Contact Share was
$4 million (2014: $4 million).
Fair values of shares granted during the year
Share options
PSRs
DSRs
Restricted shares
2015
4%
6%
19%
2015
0.57
3.64
5.24
5.93
Contact Share
Restricted
shares number
outstanding
–
158,208
(1,152)
–
157,056
157,056
127,968
(10,320)
–
274,704
2014
4%
6%
19%
2014
0.57
3.15
–
5.19
20. CONTINGENT LIABILITIES
Contact has contingent liabilities in respect of claims and
warranties arising in the ordinary course of business. It is not
anticipated that any material liabilities will arise from these
claims and warranties.
The settlement negotiations in respect of the delayed
commissioning of the Te Mihi Geothermal Power Station
were resolved during the reporting period.
21. SUBSEQUENT EVENTS
In July 2015 Contact entered into a financial agreement with
Meridian Energy Limited for supply of a notional quantity of
electricity of 80MW per hour for a period of between 4 and
14 years commencing 1 January 2017. The agreement will be
accounted for as a derivative financial instrument with a portion
qualifying as a cash flow hedge arrangement.
In August 2015 Origin sold its indirect holding in Contact, held
through Origin Energy Pacific Holdings Limited, Origin Energy
Universal Holdings Limited and Origin Energy New Zealand
Limited, of 53.1 per cent.
As a result of the sale:
• Origin is no longer Contact’s ultimate parent entity
• a Transitional Relationship Arrangement has been executed
with Origin to ensure Contact’s ongoing operation is not
adversely impacted and includes a timetable for separation
of shared agreements in areas such as LPG supply, project
development and execution, and information technology
procurement and hosting
• due to the change in control, the balance of share
options, PSRs and DSRs issued under the Equity Scheme
at 30 June 2015 (refer note 19) became exercisable.
Participants in the Equity Scheme are able to exercise
their options, PSRs and DSRs until the relevant lapse date.
The remaining cost of the Equity Scheme at 30 June 2015
will be recognised as an operating expense in the year ended
30 June 2016, resulting in an additional expense of $1 million
12 million imputation credits held by Contact at the
date of the sale were forfeited due to the change in
shareholder continuity.
•
In August 2015, Contact announced closure of its Ōtāhuhu thermal
generation plant effective September 2015. The carrying value of
PP&E (excluding land) associated with Ōtāhuhu at 30 June 2015
of $251 million is expected to have a carrying value of zero on closure.
The proceeds from sale of the land are expected to exceed the
land’s carrying value.
For the year ended 30 June 2015For the year ended 30 June 2015Notes to the Financial StatementsContact Energy LimitedNotes to the Financial StatementsContact Energy Limited
Sustainability
Reporting
Page 72
Report Content
Page 74
Sustainability Data
Page 76
GRI Content Index
Page 78
Independent
Assurer’s Report
70 Independent Auditor’s Report
Contact 2015
Independent
Auditor’s Report
To the shareholders of Contact Energy Limited
We have audited the accompanying consolidated financial statements of Contact Energy Limited, its controlled entities and joint
arrangements (‘the group’) on pages 52 to 69. The financial statements comprise the consolidated statement of financial position
as at 30 June 2015, the consolidated income statement and consolidated 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.
Directors' responsibility for the consolidated financial statements
The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with generally accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial Reporting
Standards) and International Financial Reporting Standards, and for such internal control as the directors determine is necessary to
enable the preparation of consolidated 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 consolidated 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 consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the group’s preparation and fair presentation of the consolidated financial statements 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 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 consolidated 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 group in relation to tax compliance. Subject to certain restrictions, partners and
employees of our firm deal with the group on normal terms within the ordinary course of trading activities of the business of the group.
These matters have not impaired our independence as auditor of the group. Other than in our capacity as auditors, the firm has no
other relationship with, or interest in, the group.
Opinion
In our opinion, the consolidated financial statements on pages 52 to 69 comply with generally accepted accounting practice in
New Zealand and present fairly, in all material respects, the consolidated financial position of Contact Energy Limited as at
30 June 2015 and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand
Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
14 August 2015
Wellington
72
Report
Content
In defining the content of this annual report we focused on
the issues that were most important for Contact in the wider
context of sustainability. To ensure a holistic and complete
picture of the issues that matter most for our long term success,
we engaged a broad range of stakeholders in a process that
enabled us to gather a variety of perspectives on the issues
that matter most to our stakeholders and to Contact.
Contact has a large number of stakeholders both inside
and outside of our company. They have a broad range of
interests and aspirations, some of which are aligned with how
we do business and some of which are competing. Our key
stakeholder groups are named on the following pages and
have been identified because they are the major groups
who are impacted by our operations, or have a stake in
how we run our business.
In FY15 we convened a special meeting of stakeholder
representatives to get their views on what Contact should be
focusing on. Our ‘Stakeholder Council’ was made up of
representatives from our key stakeholder groups, including
community and non-government organisations, scientists,
innovators, tangata whenua, community leaders, shareholders,
employees and environmental consultants.
In coming years we intend to bring the Stakeholder Council
together bi-annually to ensure that we maintain our connections
with these key groups, while also ensuring that we continue to
focus on what matters most.
To ensure we got a comprehensive view from both outside
and inside of our organisation as to what we needed to focus
on, we also carried out workshops and extensive interviews
with our employees to find out what they thought the big issues
were facing our company. We’ve also drawn on information
that has been obtained through our usual stakeholder
engagement activities which occur on a regular basis
as part of our operations.
The following section outlines our key stakeholder groups,
and the everyday ways that we keep in touch with them.
It also tells us the issues that they’ve told us matters most
to them, and outlines our response.
Customers
Our contact centres are a key port of call for customers, who
touch base with us on the phone, via emails, through social
media, and post. They also provide us with feedback through our
website, regular customer surveys that we conduct, and other
forms of market research. They’ve told us that what matters
most to them is having more value and more choice. They want
to exercise greater control over where their power comes from,
how it’s used and how much it costs. Having warm, dry and healthy
homes, and a no surprises approach are also important to them.
Our response: We believe it’s our job to understand our
customers’ needs, and to ensure that our products and services
meet their expectations now and into the future. Our website has
tips for helping our customers live more comfortably with energy.
We are in the process of reviewing our customer strategy to
ensure we provide our customers with more value and more
choice in the future as discussed on pages 26-27.
Investors
We keep in touch with our equity and debt shareholders through
investor presentations and reports, one on one meetings, NZX
releases, site visits and regular dialogue. What they’ve told us
is that consistent disclosure and messaging, earnings growth,
efficient capital management and delivering a strong dividend
are key issues for them.
Our response: We work hard to deliver on the expectations of
our investors. This report provides an update of our performance
over the last financial year across a wide range of financial and
non-financial indicators. For more information on our approach
to stakeholder relations see page 43.
Employees
We regularly communicate with our people through our company
intranet, meetings, and email, and engage them in dialogue about
their experience with us through a regular engagement survey.
What they’ve told us matters most to them is being appreciated,
respected and safe, being adequately compensated for the work
they do, and having financial security, while having a fun, enjoyable
work environment.
Our response: We appreciate the hard work that our people
put in to making our business what it is today. We strive to create
a work environment that is supportive, engaging, rewarding
and supports our people in both their individual and collective
aspirations. Our tikanga guides the way that we interact with
them, and we also ensure that we work towards responding to
their needs. See page 11 for our tikanga.
73
Partners and suppliers
We talk to our partners and suppliers throughout the duration
of projects that they’re working on with us, and beyond. What
matters most to them is open and honest communication,
that we follow through on our commitments, that we maintain
good working relationships and can just pick up the phone
and resolve any issues.
Government
We have a Government and Regulatory Affairs team who
are charged with managing communications with politicians,
government and regulatory agencies. Those stakeholders have
told us that a competitive retail market, resolving issues around
transmission pricing, fresh water reform and ensuring security
of energy supply are issues that are important to them.
Our response: We work hard to build enduring relationships
with our suppliers. We take an open and honest approach to
communication, and work hard to deliver on our commitments.
Local communities
We engage with our neighbours and local communities in
a number of ways. We attend meetings organised by the
community, and often receive letters and requests for support.
Through resource consent processes we enter into formal
discussions with communities impacted by our business,
we also have a toll free number that our neighbours can call any
time there’s an issue, or they want to talk. They’ve told us that they
want open, early and frequent communication, and for us to be
accountable and honest if and when issues arise. They expect
us to be a good neighbour, and to build two-way partnerships
between the business and the community.
Our response: We work hard to build enduring relationships
with our communities based on trust. More information on our
approach to community relationships is on pages 32-33.
Tangata whenua (iwi and hapū)
Local iwi (tribes) and hapū (sub-tribes) communicate with us in
a number of ways including through hui (meetings), consultation
processes, as well as through resource consent processes. Key
issues for tangata whenua are issues of resource management,
stewardship and ownership, the Treaty of Waitangi, sustainability
of resources, as well as having their rights and relationship with
land and other resources recognised. They’re also interested in
development opportunities for their communities, and ensuring
that we engage in meaningful ways.
Our response: Over the years we have worked towards improving
our relationships with tangata whenua. We are in the process
of developing an iwi engagement plan to guide us in further
developing our relationships with tangata whenua over the
coming years.
Our response: Our Government and Regulatory Affairs team
work hard to represent Contact’s views to policy makers and
regulators, seeking to influence legislation, regulation or policy
being developed. They also draft submissions on a range of
issues that directly affect our customers and business.
We went through a process of collating and refining the
information provided to us by our stakeholders to settle on the
key issues that were most important to them and to Contact.
We grouped information into key themes, and asked our
Stakeholder Council to review them, and to rank them in order
of highest priority. We then took that information and asked for
feedback from our employees. A risk analysis and media scan
were then carried out to identify any issues considered to
be high risk or significant. For each topic that was identified,
we considered whether the impacts were caused by one of
our entities or by a part of our value chain.
With all of these filters and processes applied, we were able
to settle upon a list of key issues, which had the most material
impact to our business over the last year, as defined by our
stakeholders and us. This has defined the content of our
2015 Annual Report.
For each topic covered in this report we aim to present both
a current state picture, as well as to describe our future targets
and strategies. While each is important to our business,
we are at different points in our journey towards developing our
strategies and targets for each of them. Our business is always
evolving, and the coverage of aspects in this report reflects that.
For more information on the specific material aspects that we
cover please see our GRI Index on page 76.
Sustainability ReportingContact Energy LimitedSustainability ReportingContact Energy Limited 74
Sustainability
Data
Customer numbers
Connections (by account type)
Residential
Business
Unknown1
Total
FY15
FY14
482,500
77,000
2,500
562,000
462,000
73,500
32,000
567,500
1. Unknown includes LPG connections where data on account type was unavailable. FY15 saw classification of many of our LPG customer account types resulting in a
lower number of ‘unknown’ account types.
Contact’s direct (Scope 1) emissions1
Electricity generation
Other direct emissions
– Vehicles
– SF6
Total Scope 1 emissions
(3)
Emissions (Kt CO2e)
FY15
FY14
1,495
1,623
1
–
1
–
1,496
1,624
Thermal generation
emission intensity2
(Kg CO2e per MWh)
Total generation
emission intensity
(Kg CO2e per MWh)
FY15
644
FY14
566
FY15
157
FY14
175
1. These emissions are an operational control basis calculation of Contact’s Scope 1 (direct) emissions. The emissions factors used were Ministry for the Environment
(2015) Guidance for Voluntary Corporate Greenhouse Gas Reporting and geothermal emissions factors used in Contact’s reports under the Emissions Trading
Scheme reporting.
In FY15 a change in operating conditions for our combined-cycle gas turbines allowed us to reduce their output overnight when demand is low, but keep them warm
enough to ramp up again to meet high demand in the morning. This contributed to Contact burning 15 per cent less natural gas in our power plants, however, the lower
levels of output contributed to an increase in per MWh emissions intensity.
2.
3. SF6 is a greenhouse gas widely used in the electricity industry to insulate high voltage switchgear. The gas is vacuum sealed inside the switchgear, and the pressure
levels inside are monitored so that leaks can be detected and rectified. Contact has been tracking the use of SF6 since October 2003. In FY15 we estimate the
emissions of SF6 to be immaterial and are therefore excluded.
Memberships in associations and advocacy organisations
Holds a position on the governance body
Participates in projects or committees
The Electricity and Gas Complaints Commissioner Scheme
Electricity Retailers’ Association1
Gas Industry Company
Electricity Authority Wholesale Advisory Group
Electricity Authority Retail Advisory Group
Retailers’ Working Group Forum
Business New Zealand Energy Council1
The Sustainable Business Council
Business New Zealand
Hugo Group1
Provides substantive funding
beyond routine membership dues
Business New Zealand
1. Views membership as strategic.
Employee absentee rate1
FY15
Total scheduled days
Total absence days
Lost days as a percentage
1. Contractors are not included.
Females
117,047
4,465
3.8%
Males
All employees
152,997
3,157
2.1%
270,044
7,622
2.8%
75
Fixed term
Permanent
Permanent
part-time
Permanent
full-time
1
14
75
28
118
8
169
435
336
948
–
13
46
11
70
8
156
389
325
878
Fixed term
Permanent
Permanent
part-time
Permanent
full-time
1
11
160
21
193
8
178
459
331
976
–
15
43
9
67
9
163
416
321
909
Workforce by gender and employment type
FY15
Leadership Team
Corporate
Customer
Generation and Development
Total
FY14
Leadership Team
Corporate
Customer
Generation and Development
Total
Our Board
FY15
Total
FY14
Total
Total headcount
Female
9
183
510
364
1,066
3
107
303
60
473
Total headcount
Female
9
189
619
352
1,169
2
102
367
53
524
Total headcount
Female
7
2
Total headcount
Female
7
2
Workforce diversity information
Male
6
76
207
304
593
Male
7
87
252
299
645
Male
5
Male
5
FY15
Gender
Age
Ethnicity1
Leadership Team
Corporate
Customer
Generation and
Development
Total
FY14
Female
33%
58%
59%
16%
44%
Gender
Leadership Team
Corporate
Customer
Generation and
Development
Total
Female
22%
54%
59%
15%
45%
Male
67%
42%
41%
84%
56%
Male
78%
46%
41%
85%
55%
>30
30-49
50-59
60+
European
–
5%
25%
11%
16%
43%
18%
20%
31%
24%
57%
73%
50%
44%
52%
Age
–
4%
6%
13%
8%
67%
41%
38%
41%
40%
>30
30-49
50-59
60+
European
–
7%
26%
13%
19%
44%
73%
51%
43%
52%
56%
17%
17%
30%
21%
–
3%
6%
14%
8%
50%
41%
39%
40%
40%
Māori
–
6.6%
7.5%
2.7%
5.6%
Māori
–
4.8%
9.4%
2.3%
6.4%
Asian
Pasifika AMELA2 Undisclosed
–
8.7%
4.5%
6%
5.7%
11%
0.5%
3.3%
0.3%
1.9%
Ethnicity1
–
0.5%
0.8%
0.5%
0.7%
11%
19%
30%
22%
25%
Asian
Pasifika AMELA2 Undisclosed
–
13%
5%
5.7%
6.4%
–
1.1%
3.2%
–
1.9%
–
0.5%
0.5%
0.6%
0.5%
20%
17%
28%
23%
25%
Other
inc. NZer
56%
40%
26%
37%
32%
Other
inc. NZer
60%
41%
26%
37%
32%
1. Employees have the option to indicate more than one ethnic group, and therefore the percentages do not sum to 100 per cent.
2. AMELA: Latin American, Middle Eastern, or African.
Training and education1
Training type
General training (hours)
Leadership development (hours) Male
Female
Average hours per employee4
FY15
Permanent
FY15
Fixed term
FY14
Permanent2
FY14
Fixed term3
8,208
1,389
18,638
3,682
585
455
10
390
130
20
12
19
1. The figures reported above were sourced from our learning management systems, which do not capture all training courses, ‘on the job’ training, or other informal
2.
learning and development activities.
In FY15 a further 11,765 hours of training were delivered in our customer business spanning inductions, refreshers and support for new product and pricing products.
These numbers were not categorised according to employment type, but will be included in subsequent reports.
3. FY14 saw high levels of training during Contact’s implementation of SAP, which wound down in the early part of FY15.
4. The weighted average hours per employee is 10 for FY15.
Sustainability ReportingContact Energy LimitedSustainability ReportingContact Energy Limited
76
GRI Content
Index
General standard disclosures
Disclosure Description
Page number
Stakeholder engagement
G4-24
G4-25
G4-26
G4-27
Stakeholder groups
Stakeholder identification and selection
Approaches to stakeholder engagement
Key topics and concerns raised by stakeholders
Report content p. 72-73
Report content p. 72-73
Report content p. 72-73
Report content p. 72-73
77
External
assurance
General standard disclosures
Disclosure Description
Page number
Strategy and analysis
G4-1
Statement from the most senior decision maker
CEO Review, p. 1-3
External
assurance
Organisational profile
G4-3
G4-4
G4-5
G4-6
G4-7
G4-8
G4-9
Name of the organisation
Brands, products, and/or services
Headquarter location
Countries in operation
Nature of ownership
Markets served
Scale of the organisation
G4-10
G4-11
G4-12
G4-13
G4-14
G4-15
G4-16
G4-EU1
G4-EU2
G4-EU3
G4-EU4
G4-EU5
Employee statistics
Employees covered by collective
bargaining agreements
Organisation’s supply chain
Significant changes regarding size,
structure, or ownership
Precautionary principle
External charters, principles, or other initiatives
Memberships in associations and
advocacy organisations
Installed capacity
Net energy output broken down by primary
energy source and by region
Number of residential, industrial, institutional
and commercial customer accounts
Length of transmission and distribution lines
by region
Allocation of CO2 emissions permits
Identified material aspects and boundaries
G4-17
G4-18
G4-19
G4-20
G4-21
G4-22
G4-23
Entities included in the organisation’s consolidated
financial statements
Process for defining the report content
Material aspects identified
Aspect boundaries within the organisation
Aspect boundaries outside the organisation
Restatements of information
Significant changes in the scope, and aspect
boundaries compared to previous years
Front cover
Contact at a glance p. 10
Contact at a glance p. 15
Contact operates only in New Zealand
Listed New Zealand Limited Liability Company
Contact at a glance p. 9-15
Total employees p. 75
Number of operations p. 14
Net sales p.57
Debt and equity p. 23
Sustainability data p.75
At 30 June 2015, 11% of total employees were covered
by collective bargaining agreements
Contact at a glance p. 16-17
No significant changes occurred during the reporting period.
See p. 1-3 for ownership change in August 2015
Not specifically referenced. Potentially adverse environmental impacts
are addressed through adaptive management including official (often
publicly notified) resource consent assessments
None noted
Sustainability data p. 74
Contact at a glance p. 14
Contact at a glance p. 10
Sustainability data p.74
Not applicable
Zero allocations
Focusing on what matters most p. 22
Report content p. 72-73
GRI Index – specific disclosures
GRI Index – specific disclosures
GRI Index – specific disclosures
No restatements
Not applicable
Report profile
G4-28
G4-29
G4-30
G4-31
G4-32
G4-33
Reporting period
Date of most recent previous report
Reporting cycle
Contact point for questions
Chosen ‘In accordance’ option, GRI index
and external Assurance Report
External assurance for the report
Governance
G4-34
Governance structure
Ethics and integrity
G4-56
Organisation’s values, principles, standards
and norms of behaviour, and codes of ethics
Specific standard disclosures
Aspect and
indicators
Description
Focusing on what matters most p. 22
The previous report was dated 5 September 2014
Annual
Back cover
Focusing on what matters most p. 22,
Independent Assurer’s Report p. 78
Focusing on what matters most p. 22,
Independent Assurer’s Report p. 78
Governance p. 38-43
Values and principles p. 11, Ethical principles p. 38-43
Page
Omissions
and explanation
Materiality
coverage
External
assurance
Category: Economic
Aspect
G4-EC2
Aspect
EU10
Economic performance
Financial implications of climate change
Availability and reliability (sector specific)
Planned capacity against projected electricity demand p. 25
p. 1-2, 36
p. 36
p. 24-25
Water
Total water withdrawal by source
Effluents and waste
Category: Environmental
Aspect
G4-EN8
Aspect
G4-EN22 Total water discharge by quality and destination
Aspect
G4-EN13 Habitats protected or restored
Aspect
G4-EN15 Direct (Scope 1) Greenhouse gas emissions
Aspect
G4-EN29 Non-compliance with environmental
Compliance
Biodiversity
Emissions
laws and regulations
Occupational health and safety
Category: Social
Aspect
G4-LA6 Workplace injuries
Aspect
G4-LA9
Training and education
Average hours of training per year
p. 35
p. 35
p. 35
p. 35
p. 34
P. 34
p. 36
p. 74
p. 34
p. 34
p. 28-29
p. 29, 74
p. 30-31
p. 75
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within and outside the organisation
Within and outside the organisation
Within the organisation
Within the organisation
Gender-specific training
data unavailable, will be
included in future reports
Local communities
Community engagement and development
Product and service labeling
Diversity and equal opportunity
Aspect
G4-LA12 Gender and ethnic diversity
Aspect
G4-SO1
Aspect
G4-PR5 Customer satisfaction
Aspect
G4-EU30 Plant availability (sector specific)
Aspect
G4-EU27 Residential disconnections
Access (sector specific) – socioeconomic
Access (sector specific) – physical
p. 30-31
p. 6, 75
p. 32-33
p. 32-33
p. 27
p. 27
p. 24-25
p. 25
p. 26
p. 26
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Within the organisation
Unable to be measured Within the organisation
Sustainability ReportingContact Energy LimitedSustainability ReportingContact Energy Limited 78
79
Independent
Assurer’s Report
To the directors of Contact Energy Limited on the
sustainability content of the 2015 Annual Report
We have been engaged by the directors to conduct a limited assurance engagement over the sustainability content of Contact Energy
Limited’s 2015 Annual Report (the ‘Annual Report’) for the year ending 30 June 2015 as described below:
• Management’s assertion that the Annual Report content is in accordance with the Core option of the Global Reporting Initiative’s
G4 Sustainability Reporting Guidelines (‘GRI G4 Guidelines’); and
Information reported under the requirements of GRI G4 Guidelines General and Specific Standard Disclosures.
•
Director’s responsibility
The directors of Contact Energy Limited are responsible for ensuring that the Annual Report is presented fairly in accordance with the
Core option of the GRI G4 Guidelines. This responsibility includes:
• ensuring the accuracy and completeness of the information subject to this engagement, including adequate disclosure as required
by the GRI G4 Guidelines;
• providing us with all of the information required for us to complete this engagement;
• providing us with unrestricted access to persons within the company from whom we determine it necessary to obtain information;
•
the maintenance and integrity of the Contact Energy Limited website where the Annual Report will be hosted, and ensuring that the
electronic copy of the Annual Report is not altered post our review;
• determining objectives in respect of sustainability performance;
• establishing and maintaining an effective system of internal control over its operations and reporting, including, without limitation,
systems designed to ensure achievement of its control objectives and its compliance with the GRI G4 Guidelines; and
the fair presentation of the information and statements contained within the Annual Report.
•
Auditor’s responsibility
Our responsibility is to express an opinion whether, based on the procedures performed:
• Core option of the GRI G4 Guidelines – anything has come to our attention that causes us to believe that management’s assertion
that the 2015 Annual Report content is in accordance with the GRI G4 Guidelines Core option has not been fairly stated, in all
material respects; and
• GRI G4 Guidelines General and Specific Standard Disclosures – anything has come to our attention that causes us to believe that
the information provided in the 2015 Annual Report to meet the requirements of the GRI G4 Guidelines General and Specific
Standard Disclosures identified in the GRI Index on pages 76-77 has not been fairly stated, in all material respects.
Our engagement has been conducted in accordance with International Standard on Assurance Engagements (New Zealand) 3000:
Assurance Engagements Other than Audits or Reviews of Historical Financial Information (‘ISAE (NZ) 3000’). To achieve limited
assurance the ISAE (NZ) 3000 requires that we review the processes, systems and competencies used to compile the information
on which we provide limited assurance. It does not include detailed testing of source data or the operating effectiveness of processes
and internal controls.
Our procedures included:
• A review of the materiality process followed and the list of topics chosen for inclusion in the Report;
–
Interviewing the group level sustainability team responsible for compiling the Annual Report to understand the process used
for determining the Annual Report content;
– Obtaining an understanding of the approach used for determining the material issues to be reported;
– Considering the results of stakeholder engagement, risk analysis and media searches to assess whether all potential material
issues have been considered;
• A review of the adherence to the report content and quality principles outlined in the GRI G4 Guidelines, which includes a
consideration of completeness and balance;
• Obtaining an understanding of the process of compiling and validating information received from data and issue owners for
inclusion in the Annual Report;
• Review of material quantitative indicators used to demonstrate performance against the material topics, including corroborative
enquiry and examination of selected supported documentation and calculations;
• Consideration of material qualitative statements and performing appropriate enquiries or seeking evidence to support
the statements;
• Comparing the GRI index table to the GRI G4 Guidelines and the GRI Electric Utilities Sector Supplement (EUSS); and
• Reviewing the contents of the Annual Report against the findings of our work and, as necessary, providing recommendations
for improvement.
Use of report
This report is provided solely to the directors of Contact Energy Limited in accordance with our letter of engagement dated 17 April
2015, for the purpose of attaching this report to your Annual Report. We agree that a copy of this report may be provided to the public
for their information in connection with this purpose but, the report must only be distributed as an attachment to the complete Annual
Report, and we do not accept any duty, liability or responsibility to any party other than you in relation to this report. This report is not to
be used for any other purpose, recited or referred to in any document, copied or made available (in whole or in part) to any other person
without our prior written consent. We accept or assume no duty, responsibility or liability to any party, other than you, in connection with
the report or this engagement including without limitation, liability for negligence in relation to the opinion expressed in this report.
Inherent limitations
Because of the inherent limitations of any limited assurance engagements, it is possible that fraud, error or non-compliance may occur
and not be detected. The opinion expressed in this report has been formed on the above basis.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
Other than in our capacity as assurance provider in relation to the sustainability content of the Annual Report and the provision
of tax advice and consulting services, we have no relationship with or interests in Contact Energy Limited or any of its subsidiaries.
Opinion
This conclusion has been formed on the basis of, and is subject to, the inherent limitations outlined elsewhere in this independent
assurance report.
Based on the evidence obtained from the procedures we have performed:
• Core option of the GRI G4 Guidelines – nothing has come to our attention that causes us to believe that management’s assertion
that the 2015 Annual Report content is in accordance with the GRI G4 Guidelines Core option has not been fairly stated, in all
material respects, for the year ending 30 June 2015; and
• GRI G4 Guidelines General and Specific Standard Disclosures – nothing has come to our attention that causes us to believe
that the information provided in the 2015 Annual Report to meet the requirements of the GRI G4 General and Specific Standard
Disclosures identified in the GRI Index on pages 76-77 has not been fairly stated, in all material respects, for the year ending
30 June 2015.
Chartered Accountants
3 September 2015
Wellington, New Zealand
This limited assurance report relates to the 2015 Annual Report of Contact Energy Limited for the year ended 30 June 2015 as presented on Contact Energy’s website.
Contact Energy Limited is responsible for the maintenance and integrity of their website. We have not been engaged to report on the integrity of Contact Energy’s website.
We accept no responsibility for any changes that may have occurred to the 2015 Annual Report since it was initially presented on the website. This limited assurance report
refers only to the Annual Report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the Annual Report.
If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the Annual Report
and related limited assurance statement dated 3 September 2015 to confirm the information included in the Annual Report presented on this website.
Sustainability ReportingContact Energy LimitedSustainability ReportingContact Energy Limited 80 Corporate Directory
Contact Energy Limited
Corporate
Directory
Board of Directors
Phil Pryke (Interim Chairman)
Bruce Beeren
Whaimutu Dewes
Sue Sheldon
Leadership Team
Dennis Barnes
Chief Executive Officer
Graham Cockroft
Chief Financial Officer
Mark Corbitt
General Manager – Information and Communication Technology
Venasio-Lorenzo Crawley
Chief Customer Officer
James Kilty
Chief Generation and Development Officer
Tania Palmer
General Manager – Health, Safety and Environment
Nicholas Robinson
General Manager – Corporate Affairs
Annika Streefland
General Manager – People and Culture
Catherine Thompson
General Counsel
www.linkmarketservices.co.nz
Share Registrar
Please provide your CSN/Holder number on any correspondence with
our registry.
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
New Zealand
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
2015 has been a year of significant
activity.Our ownership has changed and
the Board will be refreshed as a result.
We have integrated Te Mihi geothermal
power station and our new customer
service and billing system into our
business, improving our performance
while remaining competitive.We played
an important role in the ongoing operation
of the Tiwai Aluminium Smelter and
–
ta–huhu
announced the closure of the O
power station.On top of this we made
great strides in improving our safety
performance and culture.All this, while
operating in one of the most competitive
retail electricity markets in the world.
Electronic investor communication
Contact is committed to creating a better energy future and encourages
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.
Direct crediting of dividends/interest payments
To minimise the risk of fraud and misplacement of dividend/interest
payment cheques, shareholder/bondholders are strongly recommended
to have all payments made by way of direct credit to their nominated bank
account in New Zealand.
Email: investor.centre@contactenergy.co.nz
Phone: +64 4 499 4001
Fraser Gardiner
Head of Investor Relations and Strategy
Investor relations enquiries
NZSX trading code: CEN
NZDX trading codes: CEN020
Stock exchange listings
Company number
Registered office
Contact Energy Limited
Harbour City Tower
29 Brandon Street
Wellington 6011
New Zealand
Phone: +64 4 499 4001
Fax: +64 4 499 4003
contact.co.nz
facebook.com/contactenergy
twitter.com/contactenergy
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
660760
Sustainability
Sustainability enquiries
Simon Ngawhika
Sustainability Advisor
Simon.Ngawhika@contactenergy.co.nz
Assurer
Deloitte
P O Box 1990
Wellington 6140
New Zealand
This report is printed on an environmentally responsible paper produced using Elemental Chlorine Free (ECF) pulp sourced from Sustainable
& Legally Harvested Farmed Trees, and manufactured under the strict ISO14001 Environmental Management System. The inks used in printing
this report have been manufactured from vegetable oils derived from renewable resources, and are biodegradable and mineral oil free.
All liquid waste from the printing process has been collected, stored and subsequently disposed of through an accredited recycling company.
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Our 2015 Annual Report
Dear Shareholder
I believe we will look back
on this year as a turning
point, strongly positioning
Contact for the future.
We have seen change,
delivered new initiatives
and in November 2015
we will proudly celebrate
20 years in business as
Contact. While some things
change, our focus remains
on the fundamental drivers
that set our company apart.