Contact Energy Annual Report 2016

FY2016 Annual Report · Contact Energy

Loading PDF…

The sum of small things

It’s smart
to sweat the
small stuff

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 15 August 2016
and is signed on behalf of the Board by:

Sir Ralph Norris
Chairman

Sue Sheldon
Director

Contents

Q&A with Sir Ralph
and Dennis

Our Board

8
10
12

Leadership Team

Contact at a glance
12 Our Tikanga
14 Contact from head to toe
16 Our business

Case studies
20 Keeping the Metallica playing
22 Lifting our performance
24 Leading with safety

Living our Tikanga
28 Making every dollar count
30
Inspired by our customers
32 Competitive, reliable supply,

responsibly delivered

34 Empowering safety
36 Powered by our people
38 Positively part of our neighbourhoods
40 Caring for our ecosystems

Disclosures and financials
44 Governance
48 Remuneration Report
50 Statutory Disclosures
55 Financial Statements
74
77 Sustainability Reporting
87 Corporate Directory

Independent Auditor’s Report

“My first eight months as
Chair have been focused
on setting up a new
Board and understanding
what Contact is good at
and where the gaps are.
I have been impressed
with what I have seen and
I am looking forward
to helping the company
realise its potential.”

Sir Ralph Norris

How has Contact performed
this year for its shareholders?

This year Contact has undergone
significant change, and set a course for the
future. Three new directors with diverse
skills and experiences have joined the
Board and we’ve seen the management
team and their people embrace their new
independent world. With a lot of focus and
hard work we are starting to see some
improvement in our customer experience.

From a financial point of view, Contact
reported a statutory loss for the year
ended 30 June 2016 of $66 million,
$199 million lower than the prior year.
This was primarily due to $204 million

of impairments, net of tax, relating to the
closure of the Otahuhu power station, an
assessment that the Taheke geothermal
resource is unlikely to be developed in
the foreseeable future, and a write-down
of inventory gas. Underlying profit and
EBITDAF1 were broadly in line with last year,
as we signalled in December; while our free
cash flow2 improved 17% to $403 million.

We have maintained our dividend at 26
cents per share, completed a $100 million
share buyback and we reduced debt by
$71 million. I believe these are all positive
signs for shareholders but I know there
is still much more work to be done.

1. EBITDAF and underlying profit are non-GAAP
profit measures. EBITDAF is earnings before
net interest expense, tax, depreciation,
amortisation, change in fair value of financial
instruments and other significant items.
Underlying profit is statutory profit excluding
significant items that do not reflect the ongoing
performance of the Group. The CEO monitors
EBITDAF and underlying profit 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 profit and from underlying profit
to Group statutory profit is provided in Note A2.
of Contact’s audited Financial Statements,
on page 60.

2. Free cash flow is a non-generally accepted
accounting practice (non-GAAP) measure
of the cash generating performance of the
business and represents cash available to repay
debt and to fund distributions to shareholders
and growth capital expenditure. Free cash flow
is equal to cash flows from operating activities
plus proceeds from assets sales less stay in
business capital expenditure and interest costs.

Sir Ralph Norris, Chairman,
and Dennis Barnes, CEO,
take us through their views
on Contact’s performance
in the past year and their
outlook for the company
going forward.

What changes have you
noticed in the past year?

How would you describe
Contact’s strategy?

I think the biggest change has been
around ownership and focus. The new
Board has an acute focus on performance
and the management team have really
enjoyed the opportunity to control their
own destiny. We have added significant
capability to our customer business and
I think the return to customer number
gains and improvements in our service
metrics in the second half of the year
are all positive signs.

We’ve made key decisions to maintain
shareholders value, including the closure
of Otahuhu power station and supporting
the electricity supply agreement with
the Tiwai Aluminium Smelter. Our share
register has stabilised over the past
three or four months, employee
engagement has improved and we are
working to appoint a sixth and final
director to the Board, who will bring
industry and engineering experience.
I am a firm believer that the quality of
a strategy comes down to execution,
identifying a small number of key areas
and going hard at them.

Contact produces strong
free cash flows, how do you
see these being used in the
coming years?

We have three choices for the cash flow:
distribute to shareholders, pay down
debt or reinvest capital in maintaining
and growing the business.

For the last two years we have returned
$847 million to shareholders through
a stable ordinary dividend of 26 cents
per share, a 50 cents per share special
dividend and a $100 million share
buyback. We understand that investors
are looking at Contact as a company with
a strong dividend yield and so we continue
to have a dividend policy that focuses
on returning cash to shareholders.

As a Board we are also very conscious
of maintaining a strong balance sheet
and our current gearing level of 36% is
higher than we would like, so I expect for
the next 18 months or so you will see a
bias to paying down debt with the free
cash flow available after paying ordinary
dividends. That said, we feel it is important
to continue to look at options that use
our skills to grow in an appropriate way.

I think the exciting thing for Contact
is that our open ownership structure
and refreshed Board provide us with
opportunities to grow and create value
for shareholders. We also understand
we are in a low growth domestic industry
and at the core of our investment
proposition we provide a strong dividend
yield for shareholders.

Our strategy remains centred on
leveraging the integrated customer and
generation business to deliver strong
cash flows and to provide our customers
with choice, certainty and control.
Over time we see consolidation in the
New Zealand retail market as a logical
step and I believe we are well positioned
to partake in that, but first we need
to prove we are a good retailer who can
capture the value for our shareholders.
Our investment in core systems and
capability is now providing us opportunities
to increase our digital connection to
customers, improve our insights through
analytics and presents a potentially
attractive offering for partners in home
services and new technologies.

Investments in our generation portfolio
have ensured a robust business and
we have a low-cost, long-life and flexible
generation portfolio with a focus on
safety, reliability and resource utilisation.
We have exceptional and unique skills
in this business, particularly in our
geothermal team, and we continue
to look for opportunities to use these
capabilities and add value for shareholders.

Dennis Barnes

What were some of the
highlights of the year?

Contact celebrated its 20th birthday in
November 2015 as a newly independent
company following Origin’s sale of its
majority shareholding. As I look back
on the year I believe there have been a
number of success stories. First, we have
smoothly managed the transition to a new,
independent era with new shareholders
and a stronger sense of ownership and
engagement amongst our employees.
The appointments of Sir Ralph Norris,

Victoria Crone and Rob McDonald
have brought significant skills and
experience to the Board, particularly
in transforming and operating
customer-centred businesses. Second,
it is pleasing to see initial signs that the
investment in customer systems and
capability are starting to come together
in products and services our customers
like. Flowing on from this, I have felt a lift
in the energy and excitement amongst our
employees as they become increasingly
customer-inspired. Third, I think the
closure and sale of the Otahuhu power
station was a positive step for Contact
and the market as we reduced costs
and improved the balance of the country’s
capacity. Finally, we have continued
to make progress in ensuring that all
of our people can return home safely
to their families. While it is disappointing
our Total Recordable Injury Frequency
Rate has increased slightly, the severity
of our incidents continues to decline
and the leadership position we are taking
on safety has been widely recognised.

The retail business continues
to appear challenging for
Contact with new competitors
and technologies coming to
market. What are your plans
for this business?

Yes, it is definitely a competitive market.
Annual retail customer switching rates
remain above 20% and we have seen
the average price customers pay for their
electricity reduced at a national level for
the first time as new competitors enter
the market and existing competitors
increase innovation and target multiple
offers to customers. This has resulted in
the netback calculation we use to measure
the financial performance of our retail
business declining by $11 per megawatt
hour (MWh) or 12% over the past four
years. With our system implementation
now behind us we have improved our
billing and debt management performance
to historically high levels and we are
responding to the increased competition
by resetting prices, launching new
products and enhancing the capability
of our team. For 19 of the last 20 weeks
of the financial year we gained more
customers than we lost. I expect with
the new products we are launching in
August, by making ongoing system
and service improvements and striving
to have the lowest cost to serve in the
industry we will become increasingly
competitive. In time I believe our large
customer base and systems investment

will provide an attractive opportunity
for partners to join us in providing value
for our customers beyond energy.

The uptake of new technologies in
New Zealand remains in the early stages
but electric vehicles, batteries and
solar, amongst other technologies, will
increasingly provide customers with
opportunities to change how they buy
and use electricity. Our focus on this is
threefold. First, we are testing technologies
to understand what benefits they can
provide consumers which includes
transitioning our vehicle fleet to electric
and conducting solar and battery trials.
Second, we are working to understand
what our customers want and how we can
meet their needs from a combination of new
technologies and with new and existing
products and services. Finally, we have
been proactive in conversations around
getting the right regulatory structure in
place to ensure consumers obtain the
maximum benefit from new technologies.

How would you describe the
generation and wholesale markets?

The closure of Contact’s Otahuhu and
Mercury’s Southdown power stations
combined with initial signs of demand
growth have reduced the amount of
surplus supply in the market. We have
continued to position our generation
portfolio for an increasingly renewable
future where the requirements for thermal
plant are moving from larger generation
units to flexible fast-start peaking
generation. In the last six months we have
seen the initial signs of some volatility
returning to the market, which we expect
will increase and provide greater returns
for fast-start peaking capacity.

The future of the Tiwai Aluminium Smelter
remains a risk for the industry and we will
increase our support for its continued
operation through our 80 megawatt (MW)
financial agreement with Meridian Energy
that starts on 1 January 2017. We continue
to not make any commitments to fuel
or maintenance that would increase our
exposure if Tiwai were to close, and for
that reason, we think the decision for
Genesis to keep their Huntly coal power
station open was a logical one.

The Electricity Authority’s Transmission
Pricing Methodology review that looks
at how approximately $900 million of
electricity transmission charges are
allocated has continued throughout
the year. The current proposal, planned
for implementation in 2019, is neutral

to slightly positive for Contact and is
supported by Contact and many in the
industry. The Government has announced
the phasing out of the transitional measures
for the Emissions Trading Scheme over
the next three years which will see the
costs of carbon emission increase, with
our expectation that this will be recovered
through wholesale prices.

How does Contact balance
its obligations for
long-term sustainability
with short-term profits?

I don’t think it is a case of choosing short
or long-term. For Contact, sustainability
is about building resilience, which requires
us to act in accordance with our Tikanga.
That means recognising the wider context
that we operate in, and proactively
positioning ourselves on key issues that
our stakeholders care about which impact
on our business.

There has been an increased focus on
the issue of climate change and reducing
greenhouse gas emissions, both
internationally and within New Zealand.

Contact’s investment into renewable
energy and flexible thermal assets has
allowed us to reduce our gas purchases
and carbon emissions, resulting in a 50%
reduction of greenhouse gas emissions
from generating electricity over the past
five years.

Water quality and access, and biodiversity
continue to be high priorities for
New Zealanders. We have now developed
a positioning statement on water that we
believe supports our near-term profitability
and longer term sustainability.

As part of our sustainability journey we
increasingly invest in the issues that are
important to our customers and in FY16
we reoriented our community investments
toward social and environmental issues,
and invested $475,000 into communities
across New Zealand.

We will continue to develop our sustainability
programme with near-term immediate
priorities being a programme of action
on climate change, biodiversity and access
to energy and implementing our water
programme starting with the development
of a stewardship plan for the Clutha River.

“Every day,
across all aspects
of our business
we are looking for
ways to improve the
service and choices
we are giving our
customers, the
performance of
our assets and
the engagement of
our people.”

6 Contact Annual Report 2016 | Q&A with Sir Ralph and Dennis

Our Board

Sir Ralph Norris KNZM
Chairman and Independent
Non-Executive Director

Term of office
Appointed director 12 November 2015,
last elected 2015 annual meeting.
Board committees
Chairman of the Remuneration
and Nominations Committee.

Sir Ralph Norris has over 40 years of business
and banking experience, having led large
organisations through transformational change
in both New Zealand and Australia. He is the
chairman of Fletcher Building Limited and
RANQX Holdings Limited, along with holding
directorships on the Advisory Boards of
New Zealand Treasury, Tax Management NZ
and SouthPark Corporation. He is a former
director of Fonterra Limited and Origin Energy
Limited. He was managing director and chief
executive of Commonwealth Bank of Australia
for six years until 2011, and prior to that served
as chief executive of Air New Zealand and
ASB Bank. Sir Ralph was made a Knight
Companion of the New Zealand Order of Merit
in 2009 and a Distinguished Companion of
the New Zealand Order of Merit for services
to business in 2006. In 2012 he had conferred
on him an Honorary Doctorate of Business
by the University of New South Wales.

8 Contact Annual Report 2016 | Our Board

Victoria Crone
Independent Non-Executive Director

Term of office
Appointed director 12 November 2015,
last elected 2015 annual meeting.
Board committees
Member of the Health, Safety
and Environment Committee
and member of the Remuneration
and Nominations Committee.

Victoria has over 20 years’ experience in
the communications and IT sectors. Her
experience spans from start-ups to mature
products across consumer, small business
and enterprise sectors. She is chair of
Figure.NZ, a director of Creative HQ and
Redshield Security, and a trustee of NZ
Hi-Tech Trust. A former managing director
of Xero New Zealand, Victoria also held
senior management roles in sales and
marketing at Chorus and Telecom. She is a
passionate kiwi and a member of NZ Global
Women. Victoria holds a Master’s degree in
Commerce and Administration (Marketing
and Management) from Victoria University.

Whaimutu Dewes
Independent Non-Executive Director

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 Audit Committee.

Whaimutu Dewes is of Ngati Porou and
Ngati Rangitihi descent and lives in
Rotorua. He is the chairman of Aotearoa
Fisheries Limited and Sealord Group
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 Maori Affairs. Whaimutu
has a Master’s degree in public
administration and degrees in arts
and law.

Rob McDonald
Independent Non-Executive Director

Sue Sheldon CNZM
Independent Non-Executive Director

Term of office
Appointed director 12 November 2015,
last elected 2015 annual meeting.
Board committees
Member of the Audit Committee
and member of the Health, Safety
and Environment Committee.

Rob’s finance career spans over
30 years, having worked overseas
before joining Coopers and Lybrand
in the corporate advisory and valuations
practice in 1985. He is currently the chief
financial officer with Air New Zealand,
a position held since 2004, prior to
which he was the group treasurer.
He is a former board member of the
Institute of Finance Professionals
New Zealand Inc. and the former vice
chairman of the IATA Financial
Committee. Rob has a Bachelor of
Commerce from Auckland University
and in 1999 completed the Programme
of Management Development at
Harvard Business School. He is a
Fellow of Chartered Accountants
Australia and New Zealand.

Term of office
Appointed director 16 March 2009,
last re-elected 2014 annual meeting.
Board committees
Chairman of the Audit Committee
and member of the Remuneration
and Nominations Committee.

Sue Sheldon is a professional company
director. She is the chairman of
Freightways Limited, chair of NZ Global
Women and a director of Real Journeys
Limited. Sue has previously held the roles
of chairman of Chorus Limited, Paymark
Limited, the board of trustees of the
National Provident Fund, deputy chairman
of the Reserve Bank of New Zealand and
Christchurch International Airport Limited,
and director of Smiths City Group Limited.
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.

Leadership
Team

Dennis Barnes
Chief Executive Officer

Graham Cockroft
Chief Financial Officer

“As a newly independent company, we
are now able to pursue a strategy that
we believe is right for Contact, focusing
on our strengths and targeting the
most appropriate opportunities in the
market. Greater clarity on our strategy
is leading to improved alignment of all
activities across the company.”

Venasio-Lorenzo Crawley
Chief Customer Officer

“Being customer-inspired ensures our
people have the knowledge, tools and
capabilities to make decisions and
suggest solutions that our customers
value most. By offering our customers
choice, certainty and control, our aim
is to help make every interaction they
have with Contact — easy.”

Annika Streefland
General Manager, People and Culture

“We are looking to elevate and stabilise
our performance through having the right
culture that is aligned to our Tikanga. As
part of this we look to make our people
journey hum. This is from when you first
consider joining Contact, the courtship,
the first 90 days of finding your feet,
bringing your human to work, making a
difference…and finally, saying goodbye.”

“After a long period of
significant capital investment
and as a newly independent
company we are now focused
on developing a culture that
improves the service and
choices we are giving our
customers, the performance
of our assets and the
engagement of our people.”

— Dennis Barnes

James Kilty
Chief Generation and Development Officer

“This year we’ve focused on delivering
improved performance from our recent
investments in both renewable and flexible
thermal generation assets. We’re focused
on continuously improving the safety,
reliability, and profitability of our activities
every day and are investing in our leadership
capability to build a generative culture that
will continue to support that.”

Tania Palmer
General Manager, Health,
Safety and Environment

“We’re continuing to advance our safety
culture and central to this has been to
put problem identification and solution
creation in the hands of our sharp-end
workers. This has delivered better
learnings and empowered our people.”

Mark Corbitt
General Manager, Information
and Communication Technology

“Investments we’ve made in
standardising our technology are
helping us reduce the time we need
to deliver the products, service and
choices we give our customers.”

Catherine Thompson
General Counsel

“I am proud to work for a company that
recognises the value that we can achieve
by encouraging a diverse and inclusive
environment to flourish. From the Board
table right across the company we
acknowledge the strength that comes
from diversity of thinking.”

Our Tikanga

Our purpose
is to help
New Zealanders
live more
comfortably
with energy.

What we believe in, 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

Our Commitments

These provide guidance for making
decisions every day

These define the sustainable outcomes that we
always strive to achieve for our key stakeholders

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.

We will add value to the resources
that come under our control.

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.

Deliver market-leading performance
for shareholders by identifying,
developing, operating and growing
value-creating businesses.

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.

Create a rewarding workplace for
our people by valuing everyone’s
contribution, encouraging personal
development, recognising good
performance, and fostering equality
of opportunity.

We encourage diversity and expression
of ideas and opinions but require
alignment with Contact’s Principles,
Commitments and the policies
established to implement them.

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.

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.

Respect the rights and interests
of our business partners, by working
collaboratively to create valued
and rewarding partnerships.

12 Contact Annual Report 2016 | Contact at a glance

Contact from
head to toe

Generation by type
for the year ended 30 June

Generation type

2016

2015

Hydro (GWh1)

4,091

4,119

Geothermal (GWh)

3,297

3,074

Thermal (GWh)

1,614

2,321

Total

9,002

9,514

1. GWh = Gigawatt hours.

Customer connections by energy type
as at 30 June

Energy type

Electricity

Natural gas

LPG

Total

2016

2015

425,000

430,000

62,000

61,500

75,500

70,500

562,500

562,000

Generation by station
North Island

Name

Output

Commissioned Type

Ahuroa

–

2011

Gas storage facility

Location

Taranaki

Capacity
(MW)1

2016
Generation
(GWh)

2015
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

Otahuhu B3 Thermal

1999

Combined-cycle gas turbine

Auckland

Poihipi

Geothermal

1996

Flash steam

Stratford

Thermal

Stratford

Thermal

1998

2011

Combined-cycle gas turbine

Peaker, gas turbine

Te Huka

Geothermal

2010

Binary cycle

Te Mihi

Geothermal

2014

Flash steam

Waikato

Taranaki

Taupo

Te Rapa

Thermal

1999

Open-cycle gas turbine cogeneration Waikato

Wairakei

Geothermal

1958, 2005

Flash steam/binary cycle

Taupo

Whirinaki

Thermal

2004

Diesel fuel, open-cycle turbine

Hawke’s Bay

400

377

210

166

132

155

337

553

407

334

506

196

1,282

221

1,075

–

327

1,326

298

329

477

204

1,159

189

1,086

–

South Island

Name

Output

Commissioned Type

Location

Capacity (MW)1

2016
Generation
(GWh)

2015
Generation
(GWh)

Clyde

Hydro

1992

Conventional

Roxburgh

Hydro

1956-1962

Conventional

Otago

432

320

2,289

1,802

2,300

1,819

1. Megawatts.
2. Petajoules.
3. Closed September 2015.

Legend

Head office

Power stations

Offices

Gas storage facility

LPG sales and distribution

LPG franchises

Lake Hawea control structure

Inputs

Source

Generate

Wholesale

Distribute

Sell & serve

Outputs

Outcomes

We purchase goods and
services from more than
2,000 suppliers. Our
biggest purchase is gas
which we use to run our
thermal power stations,
or on-sell to customers as
LPG. We also purchase
things like metering services,
geothermal engineering
and drilling services, office
supplies, and machinery.

We source fuel for electricity
generation. We buy gas and
diesel from producers; rain
and snow-melt fill hydro
storage lakes; drilling extracts
geothermal fluid and steam.

We generate electricity at our
11 power stations. 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 products
to manage our risk.

As a retailer we sell
electricity, gas and LPG
products and services to
residential, small business
and commercial and
industrial customers to
meet their energy needs.

Through our business we
produce a range of outputs
such as the 9,002 GWh
of electricity we generated
for the market in FY16,
and the products we’ve
developed for the retail
market, like our Home
and Bach plan, and fixed
term products.

Our outcomes deliver on the
commitments we make in our
Tikanga. From helping our
customers live comfortably, to
being a great business partner
and employer, and delivering
returns to shareholders.

Electricity is transmitted from
power stations by Transpower
to regional connection points
and is then distributed by local
lines companies to customers.
Gas is sourced from producers
and transported by gas network
companies to customers.
These distribution costs are
passed through to our customers
in their bills. Contact delivers
bottled LPG to customers via
our fleet of delivery trucks and
pipeline network.

Our

business

16 Contact Annual Report 2016 | Contact at a glance

In living our purpose
we make things easier
for our customers,
more fulfilling for our
people, and better
for our communities
every day.

Listening to our people
is important. Here
are their stories…

18 Contact Annual Report 2016 | Case studies

Keeping the
Metallica playing

Bodie
Customer team member

There are amazing people out there
dealing with all sorts of challenges
in their lives. I’m talking to a lot of
them every day to help them with their
electricity use and payments. If I can
find a way to help them through tricky
spots, it makes my day.

One of the customers I work with is Ross. He got in
touch two years ago when he’d faced big losses in his
life and things were tough. We had a catch up over
a cuppa recently. I wanted to know what worked for
him and what we could do better.

The first time I talked to him he was bringing up three
children on his own and money was tight. We set up
a payment arrangement straight away.

“I was about ready to jump off a bridge, I seriously was.
I’d been left with three girls, an empty house and a
power bill. I thought I needed to physically try and to
do something about this and here we are,” he said.

It hadn’t always been like that for Ross. He’d started
his career as an apprentice in newspaper typesetting
and went on to work as a production manager for
several newspapers around New Zealand. When
circumstances change for people, it’s so important
we offer them choices and give them the flexibility
they need.

The flexible payment arrangements were a big help for
Ross, but he thinks the most important thing is actually
being able to contact us direct for a quick response.

“It’s just service and how you can actually talk to
someone. The Facebook thing’s been great — I can
get a reply back in minutes on your Facebook page.
I like the way you run.”

So what could we do better?

“One thing would be email letters so I can sort
it straight away and not stress. The way the mail
system works I might not get the letter for a few days
but on email I know straight away and I can sort it.”

I’ve now organised that for him. We also talked
about the option of fixed pricing and he liked the
idea of a one-year fixed price term to give him
a little more certainty.

My customers inspire me every day. Like Ross — he
doesn’t have a telly but as long as he’s got a stereo
to play his Metallica on he’s quite happy — and he’s
a pretty handy cook; in fact I’d be keen to get an
invite to his house for Christmas!

“It’s a tradition we haven’t broken. I started it. I’m up
at six in the morning. The night before I’ve frozen wine
glasses with fruit juice on the bottom. We have a chilly
bin full of bubbly and we have a bubbly and barbecue
breakfast. We have a cold afternoon lunch with the
ham and all the salads. I do all the cooking,” he said.

I love this job because it’s personal. We try really
hard to be flexible and find solutions that work for
our customers, not just things that might make it
smoother at our end. I like that.

“It’s just service and
how you can actually
talk to someone. The
Facebook thing’s been
great — I can get a reply
back in minutes on your
Facebook page. I like
the way you run.”

20 Contact Annual Report 2016 | Case studies

Natalie
Culture Manager

We need a culture that helps people perform at their
best and we need them to work together with the right
capabilities to bring that to life.

When we align capability and culture to strategy,
that’s when I think we get real performance. We want
every person to understand and feel comfortable with
the big picture, so they know what we’re doing and
how their role fits into that. But it’s the ‘why’ we do
what we do that really matters.

We’re looking at things that make up culture, like
purpose, capability, values, behaviours, identity,
actions and environment. Then we’re asking
ourselves, ‘where do we need a little more momentum
to really elevate Contact’s culture?’. We’re lucky
to have such a strong foundation with our Tikanga.
That really guides us to live our purpose at Contact.

You always need to work on these things. When I look
across Contact, what really stands out is that the sum
is greater than the parts. When I’ve seen Contact do
amazing things, it’s where people from different teams
have shared their capabilities and worked together.

We need to have the
courage to try new
things, test, learn and
fine tune. It’s early
days, but we’re
already seeing some
great results.

Lifting our
performance

We spend a lot of time at work,
so it’s really important our people
feel good about being here – to
feel they’re valued and achieving.
Two members of our team give their
thoughts on culture and capability.

Stephen
Head of Data Analytics, Innovation
and Performance

I head up the Data, Analytics, Innovation and
Performance Team and I’m a big believer in
personal development and the opportunity to
upskill. We’ve set up the team in a way that ensures
we have the right people and attitudes in place to
make some important breakthroughs, specifically
around better use of our data.

We now have a data science team. What we’re trying
to do is make better use of Contact’s data and
enrich this with external data, creating a more
accurate view of our customers so we can serve
them better. We’ve got smart people on board to
help us become a data driven organisation.

This has led to doing things like using advanced
analytical techniques to better understand why
customers leave us. We then use the insights to
make changes and improve.

We’re also working to enhance our digital capability.
Our customers have told us that choice, certainty
and control are really important to them and our
digital channels can help us provide that, and allow
us to personalise the service.

We’ve become a lot more agile and adaptive. Having
different viewpoints when we’re trying to solve a
problem creatively can help us come up with a
better, more robust solution.

22 Contact Annual Report 2016 | Case studies

Leading

with safety

Process Safety helps us monitor
and measure how well our
systems are performing at
keeping hazards away from
our people, our assets and the
environment. We call this
Safe to Run and it’s been a big
focus for us over the past year.
To help our leaders drive change
we’ve focused on personal
development and skills to lead
change. We asked Sarah and
Paul, two of our leaders, how
it’s changed their thinking and
the way they work.

How would you describe our
Safe to Run journey?

Sarah I think it’s been reflective, harrowing
at times, exciting and significant. It’s a lot
of things to me. I feel there’s been a big shift
in Contact in the past 18 months — there’s
optimism, there’s a little bit of goodness
— what a lot of change we’re going to have
to make. But because people believe in it,
there’s willingness from them to roll up their
sleeves and give it a go.

Paul I think it’s a bold step for Contact. Our
commitment to process safety and safety as
a whole is a ‘pace-setting’ decision. Process
industries globally have come a long way but
in spite of that, catastrophic events like the
Pike River tragedy still happen. Contact and
other industries need to challenge each other
in how we create a continuous improvement
safety culture.

Sarah We’re really putting ourselves out there
aren’t we? We’re saying ‘we believe in this’ and
watch us commit, watch us act, watch us do it.

What are the benefits for our people,
customers and communities?

Sarah The benefits are obvious aren’t they?
I think that’s why it’s quite easy for us to get on
board with Safe to Run. It’s about our people
getting home safely, our communities being
happy for us to be near-by and our customers
knowing that their electricity is provided to
them in the safest possible way.

How does the personal development
programme that supports Safe to Run
create change?

Sarah It’s helping our people grow together
and encouraging the behaviours from them that
are required to lead the change and be brave.

Paul And sustain the changes that have been
made to ensure they’re embedded.

Sarah For the 46 people involved, it’s been
monumental. The camaraderie and that deeper
understanding of each other that comes when
you collaborate together and get a bit vulnerable
is very enriching.

What’s been your greatest insight from
the personal development programme?

Paul For me it’s actually an acute sense of self
awareness. What I might do and how I might
behave and the impact this has on others. It’s
also the development of the trust with others,
through the work we’ve been doing with the
programme. The tools and the models have
helped me personally and I’m tested frequently
on that at home with my teenage kids being,
well teenagers! It’s about jazzing things up.

Sarah For me the personal significance is a real
belief that we’re all leaders — it’s not something
for the management team. It’s been recognising
the leadership qualities I have that I didn’t see
as leadership qualities.

What changes have you observed in others?

Paul I’ve seen a significant shift in how we
communicate with each other, how we behave,
which has led to a significant change in how
we operate as humans — whether inside or
outside work.

It’s the behavioural model that tests us all
from time to time…thinking about whether our
actions are ‘above the line’ — being positive and
orientated towards the future, or ‘below the line’
— things like blame, denial, living in the past, and
defensiveness.

Sarah I’ve seen that in a lot of participants in
the programme. They go through a period of a
bit of self-doubt, worry and concern. But then
through self-awareness and being honest with
themselves they come to a really exciting space
where they trust themselves to have a crack at
the task at hand. It’s a realisation that they’re
geniuses of their intent and it’s apparent that
they will be successful.

Sarah
Project Manager
Safe to Run

Paul
Head of
Generation
Taranaki

24 Contact Annual Report 2016 | Case studies

Living our
Tikanga

At Contact we strive to balance our
economic, environmental, cultural
and social responsibilities. We’ve looked
at how our activities impact and influence
New Zealand and we’ve come up with
seven themes to tackle the key issues.
To us, this is about delivering on our
purpose and living our Tikanga. So how
are we tracking? Let us tell you…

Making every
dollar count

With over 68,000 shareholders
and around 3,500 bondholders
across the world, Contact is
focused on providing financial
returns that meet investor
expectations and ensure our
long-term health. We focus
on smart investments and
careful control of costs.

Contact’s business is set up to deliver
strong cash flow to investors and our
recent investments have built more
flexibility and lowered our costs. In the
past year we have continued to focus
on our sales and customer service
performance with the significant
investment in systems and capability
beginning to deliver our customer
strategy. We will continue to develop
customer centric offers in-house and
with partners to improve customer
life time value while also targeting the
lowest cost to serve in the industry to
ensure our ongoing competiveness.

The transition to a lower cost fuel
portfolio is now largely complete and
has improved New Zealand’s energy
and capacity balance. The closure
and sale of our Otahuhu power station
and our 14-year agreement with
Meridian to support the continued
operation of Tiwai have contributed to
a competitive, reliable and sustainable
electricity supply.

The nitty gritty

We’re constantly reviewing how we apply
the cash we generate and seek to get
the right balance between distributions
to shareholders, debt reduction and
investment in the growth of our business.

Our distribution policy continues to target
an average ordinary dividend equivalent
to approximately 100% of our underlying
profit. Where free cash flow exceeds
ordinary dividends, we will look to make
additional distributions in the most tax
efficient way for our shareholders.
The $367 million special dividend paid
in June 2015 ensured we maximised the
value of the imputation credits we had
accumulated before they were lost on
the change of control when Origin sold
its shares in Contact. In line with our
distribution policy, in the 2016 financial
year we have maintained our ordinary
dividend at 26 cents per share (cps)
and also completed a $100 million share
buyback at an average price of $4.83
per share.

The payment of the special dividend
resulted in our debt levels increasing, and
following the completion of the buyback
we are now planning to reduce our debt
levels to support our BBB Standard and
Poor’s credit rating. In the past five years
we have sold $180 million of assets not
required for the ongoing operation of our
business in order to maintain the strength
of our balance sheet and in the second
half of FY16 we have reduced debt by
$71 million. Our funding approach ensures

we maintain diversity in both the source
and duration of funding and we have
seen our average cost of debt fall from
7.2% in FY12 to 5.3% in FY16.

Investment has been largely limited to
maintaining our current operations over
the past three years as we have bedded
in new assets following the $2 billion
investment programme we completed
in 2014. Our capital expenditure is now
focused on projects that maintain the
safe reliable and profitable operation
of our power stations and improving
our customer experience.

Total shareholder return for FY16

10%
56
$523

cps

Free cash flow

million

EBITDAF

s
t
n
e
C

Financial year

s
t
n
e
C

Financial year

A
D
T
B
E
/
t
b
e
D

3.5x

3.0x

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Financial year

Underlying profit per share
Measures performance of the underlying
business and is calculated by dividing
underlying profit by the weighted average
number of shares on issue during the year.
Underlying profit is calculated by adjusting
reported profit for the year to remove any
significant items that are not related to the
ongoing performance of our business.

2016
Underlying profit per share was stable in FY16
following the repurchase of $100 million shares
between October 2015 and March 2016.

Operating cash flow per share
Cash available to fund distributions to
shareholders debt repayments and growth
capital expenditure. Operating cash flow
per share is calculated as operating cash
flow divided by the weighted average number
of shares on issue over the year.

2016
Operating cash flow increased by $66 million
due to tax credits primarily relating to the closure
of the Otahuhu power station in September 2015.
A total of 52 cps cash flow allocated to dividends,
repayment of debt and share buyback.

Net debt to EBITDA ratio
Contact has had a BBB Standard and Poor’s
credit rating since 2002. The key financial metric
used to determine this rating is net debt divided
by EBITDA which is calculated based on a rolling
average across five years.

2016
Contact’s ratio increased following the payment of
the special dividend in 2015 and has since reduced
from 3.4x as at 30 June 2015 to 3.2x as at 30 June
2016. Contact is planning to further reduce debt
levels to support its BBB credit rating.

28 Contact Annual Report 2016 | Living our Tikanga

Inspired
by our
customers

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

Financial year

10
8
6
4
2
0
-2
-4
-6
-8
-10

Financial year

h
W
G

10,000

8,000

6,000

4,000

2,000

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). Over 30,000 residential electricity
customers change their supplier every month
in New Zealand.

2016
While overall market churn continues to increase,
Contact customer switching has continued to
trend down relative to competitors, and in the
second half of FY16 was 1.3% below the market
average. This reflects the growing focus on
customer retention and the success of our new
products and service in building customer loyalty.

Net promoter score (NPS)
NPS is a widely used metric that measures the
degree to which customers are willing to promote
our business to others. Measured monthly, scores
range between -100% and +100%, with positive
scores reflecting higher numbers of promoters
and negative scores representing higher levels
of detractors. We began using NPS in May 2015
because it provided us with better, more
actionable real-time insights compared to our
previous Customer Experience Monitor. It also
means we can benchmark our performance
against other companies in our industry.

2016
Our annualised FY16 NPS score was -3%, an
improvement of five points from our FY15 score.
Although we only measured NPS from May 2015,
we believe the slight increase reflects the
implementation of our new customer strategy,
which we introduced in November. Our long term
goal is to be the leading energy retailer.

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.

2016
Total retail electricity sales volume was down
502GWh as lower priced commercial and
industrial customer contracts ended (397GWh)
and mass market electricity customer gains in
the second half of the financial year did not offset
losses in the previous 18 months.

Many of Contact’s operating statistics
are now heading towards historical lows,
with our customer switching rate now
below that of the market (see graph on
page 30), our average speed to answer
customer calls improving 25% from FY15
to 180 seconds, and the number of late
customer bills down by 82% compared
with the prior year.

We’ve organised our
business for the new world

This year we’ve implemented our new
customer strategy to help us deliver the
things our customer’s value most. We
began by organising our team differently,
refreshing our customer leadership
and investing in new capability. Our new
specialist teams have a strong focus on
digital and sophisticated analytics, helping
us to better understand our customers.

We’ve made it easier for customers to
interact with us via digital channels,
launching two mobile apps and improving
what we offer via our website, including
the ability to pay online. We now have over
267,000 customers on e-billing and online
payment options, an increase of 11% since
June 2015, making us the largest online
energy retailer in New Zealand. We’re one
of New Zealand’s largest LPG retailers
and over 80% of all LPG customers now
order their LPG cylinders via our app.

Our improved offers saw us consistently
win new customers in the second half of
the financial year. We have also recognised
the needs of our existing customers,
offering them new services and rewarding
their loyalty with giveaways as part of our
20th birthday celebrations. During the
financial year we gifted more than 11.5
million Fly Buys points to customers.

Our customers are vital to the
success of our company. 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.

In a market facing intense competition,
fast paced technological change and
growing expectations, our customers told
us they value choice, certainty, control,
and us making it easy for them. Over the
past year we have started implementing
our customer strategy with early signs
of success, as our performance has
stabilised and then improved across
the key metrics we measure.

We’ve listened to our
customers and delivered

To us, consistently delivering is about
having a good grasp of the current and
evolving needs of our customers
and providing the right products and
services — at the right price, backed
by outstanding customer service
and technology to deliver the best
experience possible.

During the year we launched seven
new products and services including
a variety of fixed price and fixed term
plans for both residential and business
customers. These have proven popular,
with more than 24% of our customers
on fixed price plans as at 30 June 2016.
We’ve also introduced innovative new
products such as our Home and Bach
Plan, online self-service options, and
Power Fairy, which enables new customers
to choose when they’d like to be rewarded
with an account credit.

We’ve also introduced health check
calls which we use to confirm whether
customers are on the energy plan that
best suits their circumstances and to
understand what more we could be doing
to add more value for them. In the year
ahead we’ll continue to design new offers
and enhance the services we provide,
putting the needs of our customers at
the heart of everything we do.

We’ve improved how we operate

We’ve made real progress addressing the
issue of customer debt by significantly
improving our debt management
processes. By introducing credit checking,
early communication and introducing new
payment plan options we’re helping to
prevent debt escalating to the point where
it becomes unmanageable for customers.
The changes we’ve made have contributed
to a 35% reduction in the total amount
owed due to non-payment of bills (the
lowest in the past seven years) and a
$3 million reduction in the amount of
customer debt written off in FY16.

We recognise that getting into debt can
have a compounding effect on customers
facing hardship and affordability issues.
That’s why we’ve lowered our prepaid
pricing to align with our standard pricing
and strengthened relationships with social
service providers, allowing customers with
prior credit issues to still access the energy
they need. We’ve also started working on
a wider programme to understand how
Contact can assist further in addressing
access to energy. Part of our plan will
include developing measures and targets
to track our performance.

Our improved service has led to a 39%
reduction in customer complaints and a
significant fall in the number of complaints
going to the Electricity and Gas Complaints
Commissioner. We regularly seek feedback
from our customers on their experience
and we’ve seen an improvement in our
Net Promoter Score (see graph on page 30)
in FY16, an international measure of
customer advocacy. These results have
been supported by a 17 percentage point
improvement in employee engagement
within our Customer Business Unit.

Throughout the year we’ve focused on
providing transparent information and
giving customers more choice and control
so they can make decisions to suit their
circumstances. Since April 2016 we’ve
increased electricity prices in a number
of regions across the country to reflect
changes to network company charges, as
well as the energy component of the bill
which Contact controls. This year we gave
customers the option of moving to one of
our fixed term, fixed price plans prior to
the planned price increase, and provided
an online portal to make signing up easy.

30 Contact Annual Report 2016 | Living our Tikanga

Competitive,
reliable supply,
responsibly
delivered

To deliver reliable, renewable,
safe electricity to our
customers, we make sure
we have all the bases covered
every minute of every day.
This takes several critical
things working together.

Diverse portfolio big on renewables

We harness the power of steam, water,
gas and diesel so we can swiftly respond
to changing market needs. It also means
that when the weather doesn’t play ball,
or one of our power stations is out
for maintenance, we can still generate
enough electricity to meet the needs
of New Zealanders.

Our generation strategy is centred on
optimising the value of our renewable
assets, with thermal generation and
our gas storage facility providing daily
and seasonal wholesale market risk
management for Contact when renewable
fuel sources are not available.

In FY16, 82% of the electricity we
generated came from renewable sources
as we improved geothermal resource
management and plant availability
while reducing the amount of gas-fired
generation. This is an increase from
76% in FY15.

Cost of energy improved by $55 million
year on year as a result of increased
renewable generation, more flexible gas
contracts and reduced costs following
the closure of the Otahuhu power station
in September 2015.

During the year uncertainty around
the future of the Tiwai Aluminium
Smelter, the largest single electricity user
in New Zealand, along with speculation
about the future of the Huntly coal-fired
power station, continued to influence
forward prices in the New Zealand
electricity market.

In August 2015 we signed a long-term
financial contract with Meridian Energy
to support the continued operation of
the Tiwai Aluminium Smelter. We also
closed the Otahuhu power station and
intend to refurbish the Taranaki combined-
cycle power station in due course to
extend the life of that plant. We also
entered into a financial contract with
Genesis Energy for risk management
support from the Huntly power station.
These actions have improved
New Zealand’s energy and capacity
balance while enabling Contact to
switch to lower cost renewable fuel.

We forecast future electricity demand
using a range of data sources, including
a number of external forecasts. While
there are inherent uncertainties in
forecasts, there is a consensus that
near-term demand growth will be slow.
Contact is well positioned to meet any
additional demand with its consented
geothermal and thermal options were
significant demand growth to occur.

Our focus remains on leveraging the
flexibility in our fuel and generation
portfolio, while focusing on continuous
improvement in our operational activities.

82%

Electricity generated from
renewable sources

Boosting our process safety

Keeping our generation assets and LPG
business safe and reliable is critical to
our ongoing operations, so we constantly
look at ways to make our processes and
systems as robust as possible.

Last year we launched an improvement
programme to bolster our process safety
barriers to help prevent major accidents.
Process safety is all about keeping
the hazardous stuff we deal with, such
as steam or electricity, out of contact
with people and to prevent it damaging
our assets. To make it more meaningful
to our people we called the programme
Safe to Run and it is helping us to improve
our process safety systems and sharpen
the way we monitor and measure how
well those systems are performing.
As part of Safe to Run, and after lots
of feedback from our people, we are also
taking the opportunity to simplify the
Health, Safety and Environment (HSE)
management systems that we operate
under (see pages 34-35).

Over the year we made significant
progress in embedding systems that
seek to enhance process safety, including
launching a near real-time dashboard
to increase visibility of our process safety
barriers. This is a positive step in ensuring
we have the right controls in place to
protect our people, our assets and our
environment. The enhanced awareness
of our process safety barriers as a result
of Safe to Run and the dashboard have
resulted in an increase in process safety
issues being identified and recorded.

$55

million

Improvement on cost of energy

Financial year

Plant availability
Measures the reliability of our generation plants.
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.

2016
At 30 June 2016 our rolling 39 month availability
reduced slightly as higher availability periods
(recorded earlier that period) rolled off. In the
12 months of FY16, however, our availability
improved from 84% to 90% with improvements
across all fuel types, in particular geothermal
following extended outages at Poihipi and Te Mihi
during the previous year.

s
t
n
e
d
c
n

y
t
e
f
a
s
s
s
e
c
o
r
P

100

Financial year

Tier 1 – Major
Tier 2 – Significant
Tier 3 – Minor

Process safety incidents
This graph represents the number of process
safety incidents recorded across our operations.
We use the American Petroleum Institute’s
Recommended Practice 754 as the basis of our
process to identify and then classify process
safety incidents. Any incidents resulting in harm
to people are also recorded.

2016
We had 90 recorded process safety incidents
with all except one of these being at Tier 3 and
minor in nature. The increase in recording of
these minor process safety incidents is as a
result of enhanced awareness of process safety
barriers. There were no Tier 1 incidents in the
year and only one Tier 2; this is the lowest level
of the higher tier incidents since recording
began. All past Tier 1 incidents relate to third
party damage to our buried LPG pipelines.

32 Contact Annual Report 2016 | Living our Tikanga

R
F
R
T

Financial year

R
F
O

3,000

2,500

2,000

1,500

1,000

500

Financial year

Total Recordable Injury
Frequency Rate — Controlled
Our Controlled TRIFR looks at how many people
are hurt when working for us under Contact’s
HSE management systems, and includes
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.

�016
Our Controlled TRIFR was 3.3. Although this is
behind our target of 1.7 for FY16, the previous
year was well ahead of target for performance
against this measure. The trend of reducing
TRIFR has continued over the last five years.

Observation Frequency Rate (OFR)
We encourage all of our people (contractors,
customers and visitors too) to speak up about
safety, and we have operated an observation
programme for the last four years to embed the
habit of talking openly about safety — this
requires people to have safety conversations
and record them in a database. The Observation
Frequency Rate (OFR) measures the number
of these observations per million hours worked.

2016
During FY16 we set ourselves an OFR target
of 2,000, and have exceeded this, with an
OFR of 2,343, corresponding to 7,755 safety
conversations this year.

Shining the Light on Learning

A vital part of building our generative
culture is learning and improving —
and we have introduced Learning Teams
as a key enabler.

Rather than ‘investigating’ incidents in a
formal and traditional way, which tends
to focus on what went wrong and why,
Learning Teams provide a different focus.
This innovative Learning Team approach
brings all parties together soon after an
incident to discuss the event. One of the
team is appointed facilitator and questions
the group around the conditions at play
leading up to the incident, concentrating
on how the incident happened, rather
than why. It’s proving highly effective
in improving our defences and systems
and learning how to ‘fail safely’.

The Learning Team approach has been
very well received by our people and
contractors and has quickly spread
further afield. WorkSafe NZ invited us
to share the Learning Team innovation
with them so they could help others
improve safety culture at work. We did
that with a video and case study.

We’ve also recently been awarded the
Deloitte Energy Excellence Award for
Health and Safety Initiative of the Year,
which recognised Contact’s successful
culture and Learning Teams as an
important enabler.

“Learning Teams are empowering people
to own health and safety processes and
outcomes. Leaders support these actions
to happen rather than directing them.
By moving away from blame, to workers
and leaders problem-solving together,
everyone is working more constructively.”
Tania Palmer, General Manager, Health,
Safety and Environment

Empowering
safety

At Contact, just ticking the box on
safety isn’t good enough. Our people
deal with risks and hazardous
situations every day, and it’s our job
to keep them and our customers
safe. That’s why we’ve been working
relentlessly to improve our capacity to
fail safely, recover quickly and learn.

We’re closer than ever to our aspiration
of a generative safety culture, where we
have great leaders, effective systems and
all of our people contribute to health
and safety. We aspire to be well beyond a
culture that enforces unreasonable rules
and complicated procedures.

Our Health, Safety and Environment
(HSE) management system sets out our
commitments to our people, contractors,
customers, communities and the
environment we operate in. These
commitments are cascaded through all
of our procedures that provide guidance
on how to identify risks and undertake work
safely. We’re constantly evolving our HSE
management system to ensure continual
improvement in the way our business
operates, today and in the future. Our HSE
management system is supported by
verification and audit activities.

Safety’s been a focus for all of New Zealand
with the new Health and Safety at Work
Act 2015 coming into force this year. We’ve
been improving our HSE management
system to meet the new requirements.

Continually improving

We can’t improve if we don’t know what
to fix, so we measure our safety culture
every two years. Our next survey is
planned for November 2016. The insights
we gain from this will help guide consistent
changes to the way we lead safety and
empower our workers and contractors.

Our more traditional measures are
Total Recordable Injury Frequency Rate
(TRIFR — injuries to our people as a
rate of hours worked) and Observation
Frequency Rate (OFR — recorded safety
conversations as a rate of hours worked).
A recordable injury is any incident where
someone hurt has required medical
treatment, has had their duties at
work changed on a temporary basis,
has needed to stay home from work,
or has sustained a serious or fatal injury.
When it comes to TRIFR we monitor
and report on the basis of whether
the incident has occurred under
our own HSE management system
(Controlled) or under our partners’ HSE
systems (Monitored).

Our safety performance

The injuries in Controlled Activity involved
nine strains, trips and small falls, one
involved a vehicle rolling, and one involved
the partial amputation of the end of a
person’s finger. Nine of the eleven people
hurt were male, and two were female.
This equates to a TRIFR of 3.3.

In our Monitored Activity, ten people were
hurt this year (all male), equating to a
TRIFR of 16.6 (an improvement on the prior
year). Monitored covers activity where
we’ve requested work to be undertaken
on our behalf — it’s not on one of our sites
and our contracting partners use their own
HSE management system and procedures
(we agree on HSE standards to be met).
This includes activity like reading meters
and metering maintenance at our
customers’ homes or bulk distribution of
LPG by a specialised transport company.
The injuries in Monitored Activity included
four dog bites requiring medical treatment,
five sprains or strains, and one fractured
foot bone due to stepping in a hole.

These measures will evolve over time
as we move closer to our aspirational
generative culture goal.

Customer wellbeing

Customer safety is a priority for Contact
and we do our very best to ensure we
comply with all regulations and industry
standards. This includes industry
guidelines for disconnection of medically
dependent and vulnerable customers due
to non-payment, as well as privacy laws.

While we’ve had no incidences of
non-compliance resulting in a fine, warning
or penalty we have had three minor privacy
incidents involving emails being sent to the
wrong person, and one incident where an
LPG truck damaged a customer’s property,
injuring one of our drivers. We also had one
incident where a customer received an
electric shock from their meter box.
When an incident occurs our focus is on
immediately containing and remedying
the issue. We then investigate the causes,
and seek to learn from the experience
and improve our defences.

These incidents highlight why safety
is critical to our business, and why we
continuously work to foster a culture
that enables the safety of our people,
customers and assets.

34 Contact Annual Report 2016 | Living our Tikanga

We rely on a team of more
than 1,000 people to keep our
business running. We want
everyone at Contact to aim high,
achieve their very best and feel
supported in doing so. We want
to look after our people, and for
them to feel motivated to make
a difference.

One way to do that is by ensuring everyone
understands why we do what we do
— meaningfully connecting our team
to our purpose and strategy. We believe
that living our Tikanga is a key driver
of this, alongside recognising the value of
diversity, training, development, engagement
and creating a positive and supportive
workplace. When it’s right, then we’re
a team that really hums.

Upping the ante on culture
and connection

This year we are focusing on strengthening
our organisational culture. We’re not
starting from scratch but we have an
opportunity to further connect people to
our Tikanga, and ensure we are all working
together to achieve our strategic priorities,
recognising that a great culture elevates
and stabilises performance.

During the closure of the Otahuhu power
station in September 2015, we worked
hard to support our people and took
a values-based approach to this. All
people employed at Otahuhu were fully
supported to take the next step in their
career, whether it be internally or
externally. We established a programme
called Fresh Start, which incentivised
any of our employees thinking of leaving
Contact to let us know early, so that we
could identify potential opportunities for
the Otahuhu team to remain at Contact.
This scheme worked in conjunction
with the redeployment process and the
combination resulted in us retaining
15 highly skilled, committed people.

Another significant people change
project was Organising for Success so
we can better serve our customers.
We established a new operating model
and corresponding organisational structure
to put the right leadership, capabilities
and teams in place to be truly customer
inspired and have the capability and agility
for a data-connected and digital-driven
world. This is a major shift.

Checking our temperature

To measure engagement and gauge how
our employees are feeling about their roles
here at Contact, we conduct engagement
surveys. This provides us with a useful
benchmark and guides areas of focus
for the following 12 months and beyond.
Our overall score for 2016 was 56%, a
12 percentage point increase from 2015,
providing a solid foundation for us
to improve on. Our focus on leadership
and connection to our Tikanga has helped
drive this increase.

We’re continuing to evaluate our
programmes to ensure they are developing
our people in the right way and that
our people feel supported during their
learning. As well as our overall engagement
result, another statement we’re using to
help us measure success is: “My manager
has helpful conversations with me
which assist in developing and growing
my career”. Our score in 2016 was 59%
(62% for females, 56% for males), an uplift
from 49% in 2015.

Growing our people

To be a high performing company, we
need to recruit, develop and retain great
people with the right skills, who will continue
to learn and grow and help us perform.
We’ve improved the content and delivery
of the technical and professional training
and development already in place. We’ve
developed broader career opportunities
internally through new projects,
secondments and jobs, supporting this with
coaching and mentoring on the job.

Last year we undertook a Capability Needs
Assessment, assessing the capability we
currently have against the needs of the
future. We’ve since also focused on the
development of emotionally intelligent
leaders who can motivate, inspire and build
high performing teams.

At Contact, we know a diverse workforce
creates diversity of thought helping us to
innovate, solve problems and collaborate
to make better business decisions. We’re
proud of the diversity in our Leadership
Team and Board. We’re building an
inclusive culture which lays the foundation
for diversity to be accepted, recognised
and valued.

We’re monitoring our ethnic and gender
diversity on a six-monthly basis. We’ve
established aspirational targets for
the future, and our focus is currently
on achieving a 38% split of men and
women in leadership roles, increasing

diversity, especially Maori, Pasifika
and Asian, and retaining this diversity
through creating an inclusive and
supportive culture. Ultimately, we want
our team at Contact to reflect the wider
make-up of New Zealand.

As at 30 June 2016 44% of our
workforce were female, and 56% were
male. 67.7% of our workforce were
European and other, while 5.1% were
Maori, 1.7% Pacifica and 5.5% Asian.
We know there’s still work to be done
for us to become an even more diverse
company in order to be representative
of New Zealand’s population. We’re
constantly looking at how we can
further increase diversity and have
a number of initiatives in place, for
example, we have a Maori summer
internship programme which connects
to our tangata whenua strategy. We
use different recruiting channels to
attract skills from a range of ethnicities
and backgrounds. Our Chief Executive,
Dennis Barnes, is also involved in
Champions of Change, an initiative run
by Global Women to support gender
diversity in leadership.

Fair play on pay

We ensure that everyone at Contact,
regardless of their gender, is rewarded
fairly for their work which supports our
gender diversity goals. We report on pay
equity twice per year to our Remuneration
and Nominations committee. Our
annual remuneration tool recommends
an increase based on the employee’s
position within their salary range and
their performance rating. These factors
help ensure we take gender out of our
remuneration decisions.

We calculate the ratio of pay equity
difference by comparing male and female
wages within each salary band to assess
if equal pay is given for similar sized roles.
We’ve seen a big improvement in pay
equity over recent years, although we’ve
had a slight drop in our pay equity ratio
this year to 98%, down from 100%, as a
result of changes in our workforce.

Our focus remains on continuing to
create an environment where our people
feel recognised and supported through
strengthening our company culture and
new employee value proposition —
‘Humming at Contact,’ developing the
capability of our people and increasing
our diversity. We’ll continue to provide
flexibility in our working practices to ensure
everyone at Contact feels that they can
balance their life and career.

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

s
e
e
y
o
p
m
e
f
o
%

Financial year

Female

Male

Financial year

Employee engagement
We aspire to develop and challenge our people
and be recognised as a great place to work.
Each year we conduct an independent AON
Hewitt survey to assess our progress on
employee engagement and to identify areas
for development.

2016
Our overall engagement score for 2016 was
56%, an increase of 12 percentage points on
last year’s scores.

Gender diversity
We believe the inclusion of a diverse range
of perspectives and ideas are a key ingredient
for success for any business.

2016
In 2016 our gender diversity remained steady
with 44% of our workforce made up of women,
and 56% men. For more information on the
diversity of our workforce see pages 81-82.

36 Contact Annual Report 2016 | Living our Tikanga

Behind the Plug

We’ve been inspiring a community
of knowledge through our work with kids
in the Central Otago district.

Behind the Plug is a programme we’ve
created in Clyde to help teach local
school kids about our operations in their
community. It’s proven a popular resource
for kids and teachers alike, who have
enjoyed the opportunity to learn more
about what goes on inside our Clyde Dam,
a local landmark that many of them have
grown up with and see every day.

The project was partly inspired by
feedback from local stakeholders as part
of the Ecosystems Services Review in 2014
— they wanted to see more educational
opportunities offered around the dam.
We worked with a company called School
Kit to help us bring that vision to life, and
create resources that teach kids about
the mechanics and physics of the dam,
as well as the wider social, cultural,
environmental and economic impacts
of our operations. These resources are
currently available worldwide on iTunes U
— search for “Behind the Plug: Clyde”.

Positively
part of our
neighbourhoods

The nature of our business
means our operations
can sometimes impact on
the environment and the
people who live within it,
so we work hard to be a good
neighbour and a positive
part of the communities
we live and work in.

We manage a multitude of relationships
with a diverse set of community
stakeholders across all parts of our
business. While at times engagement with
our stakeholders is driven by consenting
processes, changes in regulation or
business priorities, at the end of the day it’s
about building trust over the long term and
ensuring our communities are comfortable
with us and what we do. It’s also essential
in maintaining access to the natural
resources we need to run our business.

In living our Tikanga, we take a consultative
approach and 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. It’s an approach that works,
and in 2016 we were the proud recipient
of a BACS Good Business Egg Award
for Community Empowerment. The
Awards are held annually, with recipients
nominated by the community.

Help on the ground

In some places like Levin, Ohaaki and
Taupo, we have community engagement
plans to guide how we support
positive community outcomes. We’ve
developed some great partnerships
with organisations such as Swim Well
Taupo, Greening Taupo and relationships
with iwi such as Ngati Tahu. These
engagement plans account for 23%
of our operational sites by region.

In other communities we have more
informal relationships in place such
as in and around Clyde and Stratford.
While we’re developing a stewardship
plan for the Clutha over the next
financial year, we also enjoy many
existing partnerships in the community,
having supported longstanding events
like the Alexandra Blossom Festival,
and helped to establish new ones such
as Contact Epic, and more.

A great example of responding to a
specific community need is a programme
we’ve started in Levin, home to one of
our contact centres. We’d received
feedback that opportunities for local
youth was a key issue for the community.
With more than 110 people based in
our office, Contact is one of the largest
employers in the region. To provide
pathways for youth who wished to
remain and work in the community,
in late 2015 we worked with three local
colleges — Horowhenua College,
Manawatu College and Waiopehu College
— to select two Year 13 school leavers
from each school to join the Contact
team in Levin. The initiative has been
a great success and has paved the way
for new roles to be offered each year
to school leavers from the region.

Last year we invested around $475,000
into regional and national organisations
and communities through sponsorships

and partnerships. We have developed
a partnership with neighbourly.co.nz,
created a community fund for Hawea
in partnership with Epic, and provided
support for Te Puea Memorial Marae
Manaaki Tangata programme. We also
have a Community Contact initiative that
enables our people to use one paid work
day per year to gift their time and skills
to a local cause of their choice.

$475

thousand

Invested into regional and national
organisations and communities
through sponsorships and partnerships

Making the tough calls

Because of the nature of our operations,
sometimes relationships can be tested.
When these situations arise we rely on
our Tikanga to guide our decision making.
For example, earlier this year we decided
not to extend an agreed deadline with a
business partner who was working to
meet consent requirements for a
proposed aquaculture venture in Taupo.
The proposed venture would have seen
a grass carp farm established on land
leased from Contact, resulted in around
20 jobs being created, with Contact
supplying geothermal energy for heating
purposes. There was significant opposition
to the development from the local
community, who felt the farm could impact
the biodiversity of the waterways in the
region. Our decision to not extend this
relationship was a difficult one to make,
but was the outcome we arrived at when
thoroughly reviewing the situation in
accordance with our Tikanga.

We’ve also had complaints from our
neighbours about noise from our Te Mihi
power station. Over the last year we’ve
worked through a process to monitor
the noise, and have undertaken works
to minimise it. While the noise is within
consented levels and we’re comfortable
that we’ve delivered beyond our
compliance requirements, we also want
to be a good neighbour and so we’re still
in dialogue with our neighbours about how
we can support them to be comfortable
with our operations.

38 Contact Annual Report 2016 | Living our Tikanga

Caring for our
ecosystems

Our operations are here for
the long term, so in line with
our Tikanga we’ve made a
commitment to take care of
the natural resources that
we rely on so that future
generations of New Zealanders
can continue to enjoy them
too. It’s all about balance,
and we’re working to maintain
that balance every day.

continual improvement. This process
is externally audited each year. We also
comply with district and regional council
monitoring frameworks, reporting
requirements, and audits.

We’ve had no significant environmental
incidents or breaches of resource
consents in FY16 which resulted in fines
or compliance action. However, a few
relatively minor incidents have been
reported promptly to the relevant councils
and addressed in line with our policies
and consent conditions. For a list of these
consent breaches please see page 80.

Our business impacts on natural resources
so we extensively monitor the effects our
operations have on the environment, and
work towards reducing these at all times.
We hold resource consents granted under
the Resource Management Act 1991.
Ensuring we comply with our consents
is critical in making sure we are sustainably
managing New Zealand’s resources,
operating within the law, and maintaining
relationships within the community.

This year we’ve managed the requirements
of 212 resource consents across the local
communities in which our power stations
and other operations are located. We
monitor our environmental impacts and
report to the local and regional councils
overseeing our consents. We use the
ISO14001 Environmental Management
System to help us manage our
environmental responsibilities and track
our objectives and progress towards

Improving our water stewardship

Water is a precious resource we all share
and need to maintain for current and
future generations. The growing range
of competing demands on water means
everyone needs to do their bit to look after
this shared resource. That includes us.

We rely on an on-going supply of good
quality water to generate electricity and
to run our business. Contact uses energy
from water in the Clutha River/Mata-Au
as the fuel source to generate electricity
at our Clyde and Roxburgh Dams, and
stores water in Lake Hawea for those
operations. Fresh water is used at our
thermal power stations to provide cooling
water and to lower air emissions. At our
geothermal plants, water is taken for
cooling and a limited amount of treated
geothermal fluid is discharged to the
Waikato River. Storm water is discharged
into local waterways at many of our sites.
Our resource consents set the limits
for water take, use and discharge of any
contaminants to water. They also and
outline our obligations to mitigate the
impact on the natural environment.

Last year we worked through a process
with a broad group of stakeholders to
establish a holistic and sustainable
commitment to water. Our commitment
to water outlines our intent to take a
collaborative approach to managing

this resource, recognising that access
to water is important for New Zealand’s
economic success, and that we have
a role to play. To see the position in
full visit www.contact.co.nz/water.

While we are at the beginning of a long
journey, the next steps are to create a
stewardship plan for the Clutha/Mata-Au,
to develop a dashboard for increased
visibility of our water usage, and
create environmental key performance
indicators for each of our sites.
Our previous work on building the
bio-reactor at Wairakei, which treats
geothermal fluid to remove hydrogen
sulphide (H2S) before discharging
it to the Waikato River, continues
to demonstrate how outcomes can
be improved with both commitment
and technology.

We take part in the Land and Water
Forum, a group that brings together
people from right across New Zealand
with an interest in fresh water. It exists
to develop recommendations towards
a shared and common approach to
water management. Our commitment
to water guides our approach to issues
raised in this forum.

We believe a proactive and inclusive
approach to water will be beneficial for
all of our stakeholders, and will position
Contact for the future.

Water usage for year ended 30 June 20161

Source / Water use

Withdrawal
(megalitres ML)

Discharge
(ML)

Geothermal Reservoir

107,504

69,055

Rivers & Streams

402,738

416,582

Estuary

Third Party

Council

Total

1,167

292

1,032

4,151

511,738

490,820

Non-consumptive water usage2

Turbine/Spillway (ML)

Clyde

Roxburgh

15,288,981

16,523,644

1. Contact has changed its
reporting timeframe for
geothermal water use from
calendar to financial years, and
revised its methodology for
calculating Council and office
water usage. Council water
usage has been estimated based
on a per-person flow allowance.
Geothermal fluid discharges to
rivers and streams fall within
consented limits for temperature
and mineral concentrations.
The quality of water reinjected
into the geothermal reservoirs
is unchanged. Third party water
use refers to water taken from,
and discharged for use by other
companies who utilise water
discharged for other purposes.

2. Non-consumptive use refers
to water that flows through
our dams.

Biodiversity, Conservation
and Resource Management

Contact recognises the importance of
the complex biodiversity that exists in
and around our operational sites and
we acknowledge our operations impact
on these ecosystems.

The creation of our hydro operations have
had significant impacts on the aquatic
habitat of the Clutha/Mata-Au. We have
a Native Fish Management Plan as part of
our consent conditions, the implementation
of which has been agreed with the
Department of Conservation. The plan
implements projects such as longfin eel
(tuna) and lamprey (kana kana) surveys,
whitebait (inanga) population monitoring
and habitat enhancement and fish passage.
Since 2012 we’ve moved elvers (juvenile
eels) upstream and over the Roxburgh Dam
with guidance from NIWA.

We also prepare a Sports Fish Management
Plan. In 2016 we released over 200,000
salmon smolt into the Clutha/Mata-Au as
part of our consent obligations to maintain
and improve the sport fishery.

Our geothermal operations can impact
on wetlands and thermotolerant vegetation
and surface features, issues which we
continue to manage and seek to improve
on. This year we carried out riparian
planting of 0.78ha along Te Kiri o Hinekai
Stream in partnership with Greening Taupo.
We also commenced the restoration and
management of 28ha of the Torepatutahi
wetland as part of the 2013 Ohaaki consent
renewal requirements. This work was
assured by an external assurer, and we
monitor this site twice a year.

Contact also has significant landholdings
around many of our operational sites and
we’ve undertaken a number of initiatives
to improve biodiversity, streamside
protection and pest control. In Stratford,
we undertook willow removal in preparation
for planting natives on land owned by
Contact. We’ve also replanted native plants
as part of ongoing maintenance around
the farmland that we own (various sites
ranging from 400m2 up to 1 hectare), and
at Lake Hawea, we undertook wilding pine
removal and native plantings.

All these activities are directed at mitigating
the effects that our operations have had
on the environment and implementing
a continuous drive towards improving
New Zealand’s precious native species
and biodiversity.

40 Contact Annual Report 2016 | Living our Tikanga

Governance,
Remuneration
Report & Statutory
Disclosures

O
C
s
e
n
n
o
t
n
o

i
l
l
i

2.5

2.0

1.5

1.0

0.5

0.0

Calendar year

Thermal
Geothermal
LPG

Greenhouse gas obligations
This graph shows our annual carbon dioxide CO2
emissions for which we have obligations under
the NZETS, over the last 5 calendar years. The
majority of our NZETS emissions came from our
natural gas operations.

2016
In the 2015 calendar year we surrendered
$10.1 million worth of carbon emission units
to the Government for 1.7 million tonnes of ETS
emissions, which is in line with the 2014 year.

Reducing greenhouse
gas emissions

Contact has reduced its direct (Scope 1)
greenhouse gas emissions 1 from
electricity generation by 22% (328,000
tonnes) on the prior financial year, and
by 50% since 2012 as a result of investing
around $1.7 billion to build more renewable
generation capacity and more flexible
thermal plant in order to reduce the use
of gas-fired generation.

50%

Reduction in greenhouse gas
emissions from electricity
generation over the last five years

Thermal and geothermal electricity
generation produces greenhouse gas
emissions, which contribute to climate
change. We monitor these and other
discharges to air in line with resource
consent and reporting requirements under
the New Zealand Emissions Trading
Scheme (NZETS), which has been
established to drive a reduction in
emissions and contribute to meeting
global climate change targets. Reducing
Contact’s greenhouse gas emissions not
only assists New Zealand to achieve these
targets, it also has positive implications
for our business and the environment.

Under the NZETS Contact purchases
carbon emission units and surrenders
units based on our calendar year
emissions2. Our costs cover the emissions
embedded in the natural gas and LPG
we purchase (including that used by our
customers), SF6 purchases (a synthetic
compound used to keep equipment
insulated against high voltages), and

the geothermal steam we utilise, which
emits some greenhouse gases into
the atmosphere. This represents the
most significant financial implication
of climate change to our business.

While over the last few years the
electricity sector has made substantial
progress in reducing its emissions,
our view is that without increasing the
cost of generation or creating security
of supply challenges, the electricity
sector’s ability to make further changes
is limited. This is because of the important
role gas-fired generation currently plays
in meeting electricity peak load periods
and at times of low hydro inflows and
when the wind isn’t blowing.

Contact’s submission on the recent
Government review of aspects of the
NZETS encouraged the Government
to find a way for all sectors and all gases
to play a role in reducing New Zealand’s
greenhouse gas emissions. That would
involve implementing appropriate
economic signals, and balancing any
move to a full surrender regime with
access to international units and/or an
auctioning mechanism to ensure the
market provides sustainable outcomes.

Under existing NZETS rules, companies
like Contact currently submit one
emissions unit per two tonnes of carbon
emitted. As announced in May this year,
companies with surrender obligations
will transition to surrendering one
emissions unit per one tonne of carbon
emitted (1 for 1) by 2019. Transitioning
from a 50% unit cost to full market
price for emissions from 1 January 2019
represents an increase in cost to Contact
and other emitters, and therefore a
financial incentive to optimise our
use of renewable resources available
and to continue to reduce our emissions
where we can.

1. See the emissions table on page 80

for more information.

2. See page 64 Note C1. of the Financial

Statements for our carbon emission costs.

Governance

44
48Remuneration Report
50

Statutory Disclosures

42 Contact Annual Report 2016 | Living our Tikanga

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 nine 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 and
policies referred to in this section, are available to view at contact.co.nz.

PRINCIPLE 1 – ETHICAL STANDARDS
Contact expects its directors, employees and contingent workers
to act legally, ethically and with integrity in a manner consistent with
Contact’s purpose, behaviours, principles, commitments and policies.

Code of Conduct
Contact has a Code of Conduct which sets out the ethical and
behavioural standards expected of its directors, employees and
contingent workers. Contact has established internal procedures to
monitor compliance with, and measures for dealing with breaches of,
the Code of Conduct. Whistleblowing procedures for reporting serious
wrongdoing are provided for in the reporting serious concerns directive.

Securities trading policy
Directors and employees who are likely to have knowledge of, or
access to, inside information 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.
They can only buy or sell Contact securities during permitted periods
and with the written consent of the General Counsel. 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 operations and strategic
direction. The Board encourages strong individual thinking and
rigorous discussion and analysis when making decisions.

At 30 June 2016, Contact’s Board consists of five directors, all 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 pages 8 and 9.

Director independence
The NZX Listing Rules and the company’s constitution require Contact
to have a minimum of two independent directors. To be an independent
director, a director must not be an executive 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)

For the purposes of NZX Listing Rule 3.3.2, all of the current directors
are considered by the Board to be independent directors.

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 meeting, as a standing item,
the CEO prepares a report to the Board that includes disclosure of
health and safety performance 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 may, in turn delegate authority to other employees
through various standard and non-standard delegations. These
authorisation levels are periodically subject to independent audit.

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 50) 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, including health and safety,
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 Remuneration and Nominations
Committee identifies and nominates candidates to fill director vacancies
for the approval of the Board. Each director receives a letter formalising
their appointment.

Directors who are Board appointed must stand for election at the next
annual meeting after their appointment. All directors are subject to
re-election by rotation at least once every three years. Directors who
retire each year are those who have been longest in 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 two years, and of reviewing the performance of those
directors standing for re-election at the next annual meeting every
year. In accordance with this practice:

•

in July 2015, Contact undertook a formal assessment of the Board
and the Audit Committee, and

in August 2016, the Board reviewed the performance of Whaimutu
Dewes and Sue Sheldon, being those directors required to retire
and stand for re-election at the 2016 annual meeting

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.

In December 2015, the Board reviewed its committee structure
factoring the skills and experience of its current directors, and made
the following changes:

• Disestablishment of the Independent Directors Committee as

the full board is comprised of independent directors

• Disestablishment of the Risk Committee

• Combined the Remuneration Committee and the Nominations

Committee to be the Remuneration and Nominations Committee.

At 30 June 2016, the standing Board committees are:

• Audit Committee

• Health, Safety and Environment Committee

• Remuneration and Nominations Committee

Audit Committee
Membership is restricted to non-executive, independent directors,
with at least three members. The chairman of the Committee must
not be the chairman of the Board. All members must have appropriate
financial experience and at least one member must have an
accounting or financial background. At 30 June 2016, the members
of the Audit Committee were:

• Sue Sheldon (chairman)

• Whaimutu Dewes

• Rob McDonald

Sue Sheldon is a Fellow Chartered Accountant and a former President
of the New Zealand Institute of Chartered Accountants. Rob McDonald
is a Fellow of Chartered Accountants Australia and New Zealand.

The Audit Committee meets a minimum of four times each year.
The Committee’s role is to assist the Board to fulfil its responsibilities
in relation to Contact’s:

• external financial reporting;

•

internal control environment;

internal audit and external audit functions; and

risk management practices

The CEO and the Chief Financial Officer (CFO) attend each Audit
Committee meeting at the invitation of the Committee. The Audit
Committee holds private sessions with each of the Head of Risk and
Assurance, Contact’s external auditors, the CEO and the CFO regularly
as required.

Health, Safety and Environment Committee
Membership shall comprise at least three members, and the majority
must be independent. At 30 June 2016, the members of the Health,
Safety and Environment Committee were:

• Whaimutu Dewes (chairman)

• Victoria Crone

• Rob McDonald

The Health, Safety and Environment Committee meets a minimum of
three times each year. The 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 reviews and
recommends to the Board targets for health, safety and environment
performance, assesses performance against those targets, assures that
the company has adequate resources to operate the business safely and
reviews serious incidents and audit results, evaluating responses and
being satisfied with the adequacy of management actions.

Remuneration and Nominations Committee
Membership shall comprise a minimum of three members, and the
majority must be independent. At 30 June 2016, the members of the
Remuneration and Nominations Committee were:

• Sir Ralph Norris (chairman)

• Victoria Crone

• Sue Sheldon

The Remuneration and Nominations Committee meets at least twice
a year and more frequently as required. The Committee’s role is to
support the Board on:

• matters relating to remuneration, including remuneration policy

and practices for employees, remuneration for the CEO, leadership
team and directors;

•

the appointment and performance of the CEO; and

the composition and performance of the Board

44 Contact Annual Report 2016 | Governance

PRINCIPLE 9 – STAKEHOLDER INTERESTS
Contact’s approach of dealing with its stakeholders is guided by
our Tikanga (pages 12 and 13). Contact’s key stakeholder groups, their
interests, and our responses to the issues they’ve raised are outlined
on page 78.

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.

Contact strongly values and supports diversity, ensuring that the
company and its leadership, management and employees reflect
the diverse range of individuals and groups within our society. While
Contact has not adopted a formal diversity policy, the company’s intent
is embedded in its principles, commitments and behaviours. For
Contact’s evaluation of its diversity performance see the ‘Powered
by our people’ section on pages 36 and 37.

For the gender composition of Contact’s workforce please refer
to page 82.

Sustainability
Contact’s sustainability programme aims to assess and address the
most material issues to the company so as to proactively manage
those issues for the long term. Transparency about our performance
on those issues is a cornerstone of this approach. The sustainability
performance using the Global Reporting Initiatives (GRI) sustainability
reporting framework is detailed on pages 78-84.

Board and committee meetings
The Board must meet a minimum of eight times per year and 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 2016.

Board

Audit Committee

Health, Safety
and Environment
Committee

Nominations
Committee (1)

Remuneration
Committee (1)

Remuneration
and Nominations
Committee

Independent
Directors
Committee (2)

Number of meetings

Sir Ralph Norris 3

Victoria Crone 3

Whaimutu Dewes

Rob McDonald 3

Sue Sheldon

Bruce Beeren 4

David Baldwin 5

Grant King 5

Karen Moses 5

Phil Pryke 4

3 (6)

3 (10)

2 (7)

2 (8)

2 (11)

1 (9)

Independent Directors Committee disestablished effective 1 January 2016.

1. Combined to become the Remuneration and Nominations Committee effective 1 January 2016.
2.
3. Sir Ralph Norris, Victoria Crone and Rob McDonald appointed to the Board effective 12 November 2015.
4. Phil Pryke and Bruce Beeren retired from the Board on 9 December 2015.
5. David Baldwin, Grant King and Karen Moses ceased to be directors effective 10 August 2015.
6. Sir Ralph Norris attended two Audit Committee meetings as a member and one meeting as an observer.
7. Sir Ralph Norris attended one Health, Safety and Environment Committee meeting as a member and one meeting as an observer.
8. Victoria Crone attended one Health, Safety and Environment Committee meeting as a member and one meeting as an observer.
9. Whaimutu Dewes ceased to be a member of the Nominations Committee and the Remuneration Committee effective 1 January 2016.
10. Rob McDonald attended two Audit Committee meetings as a member and one meeting as an observer.
11. Sue Sheldon ceased to be a member of the Health, Safety and Environment Committee effective 1 January 2016.

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 Audit Committee monitors the
effectiveness of the company’s internal financial controls.

Financial reporting
The Audit Committee oversees the quality and the integrity of
external financial reporting including the accuracy and completeness
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 present a true and fair view, in all
material respects, of Contact’s financial position at, and for the year
ended 30 June 2016, and that 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 NZX 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 48
and 49 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, including identification
and control of significant risks, reviewing and approving Contact’s
risk capacity and tolerance, ensuring appropriate risk management
systems are established and monitoring selected risks.

The Audit Committee ensures that management has established a
risk management framework in line with the Board’s expectations and
assesses the effectiveness of, and monitors compliance with, the risk
management framework.

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 Risk Management team and business managers 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 Audit Committee or, if considered
necessary, the chairman of the Board.

The Audit 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 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 Audit Committee requires the external auditor to confirm on
a six-monthly basis that it has:

•

remained independent of Contact at all times;

• complied with the provisions of all applicable laws and relevant

professional guidance in respect of independence, integrity and
objectivity; and

• adopted a best practice approach in relation to matters of

financial independence and business relationships

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.

Contact operates an investor relations programme, which includes
scheduled interactions with institutional investors, analysts and other
market commentators. Presentations are also disclosed on Contact’s
website and the NZX and ASX announcement platforms.

Contact currently keeps shareholders informed through:

• Periodic and continuous disclosure to NZX and ASX

•

Information provided to analysts and media during regular briefings

• 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.

46 Contact Annual Report 2016 | Governance

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 and
Nominations Committee. Those fees must be within the aggregate
amount per annum approved by shareholders.

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.

Details of the total remuneration received by each Contact director
for FY16 are as follows:

CHIEF EXECUTIVE OFFICER REMUNERATION

Employment arrangements
Dennis Barnes was appointed as the Chief Executive Officer (CEO)
in August 2015 following a secondment into the role by his previous
employer, Origin Energy Limited. A one-off lump sum of $200,000
was paid to reimburse Dennis Barnes for the benefits relinquished
as a result of leaving Origin Energy Limited.

During FY16, remuneration paid by Contact to Dennis Barnes until
August 2015 was processed by Contact reimbursing Origin Energy
for the cost of this remuneration, thereafter his remuneration was
provided directly by Contact.

Directors

Board fees Committee fees

Total
remuneration

Sir Ralph Norris (Chairman) 1

$178,031

–

$178,031

Victoria Crone 1

Whaimutu Dewes

Rob McDonald 1

Sue Sheldon

David Baldwin 2

Bruce Beeren 3

Grant King 2

Karen Moses 2

Phil Pryke 3

Total

$80,438

$12,000

$92,438

$126,500

$60,989

$187,489

$80,438

$21,750

$102,188

$126,500

$71,946

$198,446

$13,750

$55,688

$25,000

$13,750

$91,902

$2,554

$16,304

$19,149

$74,837

–

$25,000

$2,609

$16,359

$4,565

$96,467 (4)

$791,997

$195,562

$987,559

1. Appointed to the Board on 12 November 2015.
2. Ceased to be directors effective 10 August 2015.
3. Retired from the Board on 9 December 2015.
4. Phil Pryke also received $49,000 in consulting fees during FY16.

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, 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.

The following tables detail the nature and amount of the remuneration
paid to Dennis Barnes during FY16.

Cash remuneration

Year ended 30 June 2016

Year ended 30 June 2015

Fixed remuneration $

Variable remuneration $

Total cash remuneration paid $

928,500

417,825

281,645

1,346,325

1,210,145

1. Employer superannuation contribution of 3% is paid on top of total cash remuneration from 12 August 2015.

Equity rights issued (options, performance share rights and deferred share rights)1

Year ended 30 June 2016

Year ended 30 June 2015

Number of
options issued
during year

532,746

620,157

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 $

102,841

32,371

31,225

51,390

$215,297

$185,151

$853,591

$494,857

Number of
equity rights
exercised
during year

418,240

–

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. Details on the equity scheme are described on page 49.

48 Contact Annual Report 2016 | Governance

EMPLOYEE REMUNERATION
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.

The figures do not include amounts paid post 30 June 2016 that relate
to the year ended 30 June 2016. The remuneration (and any other
benefits) of the CEO, Dennis Barnes, is disclosed in the CEO
remuneration section on page 48.

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 2016 there were 105 participants in Contact’s equity
scheme. For further details on the equity scheme and 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 E.9 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 72); and additional benefits and offers
from retailers and services providers.

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 FY16 of at least $100,000.
At 30 June 2016, 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 FY15 performance but

paid in FY16

• The value of equity-based incentives expensed during FY16.

(Note, expensing values in FY16 were higher than previous years
as a result of Origin selling its shareholding in Contact triggering
vesting of equity due to the change of control)

• The value of Contact Share expensed during FY16

• Redundancy and other payments made on termination of

employment

Remuneration band

$100,001 – $110,000

$110,001 – $120,000

$120,001 – $130,000

$130,001 – $140,000

$140,001 – $150,000

$150,001 – $160,000

$160,001 – $170,000

$170,001 – $180,000

$180,001 – $190,000

$190,001 – $200,000

$200,001 – $210,000

$210,001 – $220,000

$220,001 – $230,000

$230,001 – $240,000

$240,001 – $250,000

$250,001 – $260,000

$260,001 – $270,000

$270,001 – $280,000

$280,001 – $290,000

$290,001 – $300,000

$300,001 – $310,000

$310,001 – $320,000

$320,001 – $330,000

$330,001 – $340,000

$340,001 – $350,000

$350,001 – $360,000

$360,001 – $370,000

$380,001 – $390,000

$390,001 – $400,000

$400,001 – $410,000

$430,001 – $440,000

$450,001 – $460,000

$460,001 – $470,000

$470,001 – $480,000

$510,001 – $520,000

$540,001 – $550,000

$550,001 – $560,000

$560,001 – $570,000

$590,001 – $600,000

$730,001 – $740,000

$790,001 – $800,000

$870,001 – $880,000

$1,000,001 – $1,010,000

Grand Total

Includes 42 former employees.

Number of employees

437 (1)

Statutory
Disclosures

DISCLOSURES OF INTERESTS BY DIRECTORS
The following are particulars of general disclosures of interest by directors holding office as at 30 June 2016, 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.

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.

Sir Ralph Norris

Advisory Board New Zealand Treasury

Advisory Board Tax Management NZ

Advisory Board SouthPark Corporation

Auckland Grammar School Foundation Trust

Fletcher Building Limited

RANQX Holdings Limited

The Parenting Place Board

University of Auckland

Victoria Crone

Creative HQ Limited

Figure.NZ

NZ Hi-Tech Trust

Redshield Security Limited

Whaimutu Dewes

Aotearoa Fisheries Limited

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

Sealord Group Limited

The Treasury Board

Whainiho Developments Limited

Rob McDonald

Air New Zealand Limited

Various Air New Zealand subsidiaries

Pratt & Whitney Air New Zealand Services T/A Christchurch Engine Centre

McDonald Family Trust

Sue Sheldon

Christchurch City Council

FibreTech New Zealand Limited

Freightways Limited

NZ Global Women

Real Journeys Limited

Sue Sheldon Advisory Limited

Director

Trustee

Chairman

Director

Member

Council Member

Director

Chair

Trustee

Director

Chairman

Director

Chairman

Director

Chairman

Director

Chairman

Director

Managing director/shareholder

Chief Financial Officer

Director

Trustee

Independent Chair of Audit and Risk Management Committee

Chairman

Chair

Director

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

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 required to hold a minimum of 20,000 shares within three years of appointment.

Securities of the company in which each director has a relevant interest at 30 June 2016

Director

Sir Ralph Norris

Whaimutu Dewes

Rob McDonald

Sue Sheldon

Number of ordinary shares

20,000

20,011

30,000

21,803

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

Date of purchase

Consideration per share

Number of ordinary shares acquired

Natural of relevant interest

Sir Ralph Norris

Rob McDonald

29/04/16

16/02/16

$5.06

$4.45

20,000

30,000

Beneficial

Subsidiary company directors
The following people held office as directors of Rockgas Limited during the year ended 30 June 2016. No director of Rockgas received
additional remuneration or benefits in respect of their directorships.

Company

Rockgas Limited

Directors

Dennis Barnes

Graham Cockroft

Peter Kane (resigned 18/03/16)

Jacqui Nelson (appointed 23/06/16)

Stock exchange listings
Contact’s ordinary shares are listed and quoted on the New Zealand Stock Market (NZSX) and the Australian Securities Exchange (ASX)
under the company code ‘CEN’. Contact has two issues of retail bonds listed and quoted on the New Zealand Debt Market (NZDX) under
the company code ‘CEN020’ (2014 series) and ‘CEN030 (2015 series).

50 Contact Annual Report 2016 | Governance

SHAREHOLDER STATISTICS

Twenty largest shareholders at 30 June 2016

JP Morgan Chase Bank – NZCSD 1

HSBC Nominees (New Zealand) Limited – NZCSD 1

Citibank Nominees (NZ) Limited – NZCSD 1

National Nominees New Zealand Limited – NZCSD 1

Accident Compensation Corporation – NZCSD 1

J P Morgan Nominees Australia Limited

Cogent Nominees Limited – NZCSD 1

FNZ Custodians Limited

Tea Custodians Limited – NZCSD 1

New Zealand Superannuation Fund Nominees Limited – NZCSD 1

Guardian Nominees Limited No.2 Ltd – NZCSD 1

BNP Paribas Nominees NZ Limited – NZCSD 1

Forsyth Barr Custodians Limited

Custodial Services Limited

Premier Nominees Limited – NZCSD 1

National Nominees Limited

RBC Investor Services Australia Nominees Pty Limited

Investment Custodial Services Limited

Private Nominees Limited – NZCSD 1

Total for top 20

Number of ordinary shares

% of ordinary shares

71,099,379

62,185,186

61,483,426

46,121,418

39,145,937

36,524,727

20,533,835

19,914,133

15,829,366

14,271,968

13,081,826

11,822,340

10,971,987

9,993,541

8,997,331

8,204,883

8,203,322

6,092,432

6,036,068

5,800,374

9.94

8.69

8.59

6.45

5.47

5.10

2.87

2.78

2.21

1.99

1.83

1.65

1.53

1.40

1.26

1.15

0.85

0.84

0.81

476,313,479

66.56

1. New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to members. As at 30 June 2016,

total holding in NZCSD were 425,011,813 or 59.40% of shares on issue.

Distribution of ordinary shares and shareholders at 30 June 2016

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

30,513

32,232

3,513

2,051

135

103

68,547

44.51

47.02

5.13

2.99

0.20

0.15

100.00

20,275,746

57,503,250

24,729,530

38,376,310

9,259,120

565,381,800

715,525,756

2.83

8.04

3.46

5.36

1.29

79.02

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 2016:

Substantial product holder

Accident Compensation Corporation 1

AustralianSuper Pty Ltd

Number of ordinary shares
in which relevant interest is held

Date of notice

36,945,940

8 December 2015

37,327,277

1 October 2015

1. Contact also received a substantial product holder notice in respect of Jason Familton. Mr Familton is not, individually, a substantial product holder. The notice was

submitted on the basis of the aggregation of interests in securities held by him personally and held by Accident Compensation Corporation (ACC) given the qualified
powers he may have to exercise voting rights and acquire or dispose of Contact shares beneficially owned by ACC.

The total number of voting securities of Contact at 30 June 2016 was 715,525,756 fully paid ordinary shares.

BONDHOLDER STATISTICS

Retail fixed rate bonds (CEN020) at 30 June 2016

Size of holding

1,001 – 5,000

5,001 – 10,000

10,001 – 50,000

50,001 – 100,000

100,001 and over

Total

Number of bondholders

% of bondholders

Number of bonds

% of bonds

209

527

1,496

220

123

2,575

8.11

20.47

58.10

8.54

4.78

1,043,334

5,078,500

42,580,500

18,662,666

154,635,000

0.47

2.29

19.18

8.40

69.66

100.00

222,000,000

100.00

Retail fixed rate bonds (CEN030) at 30 June 2016

Size of holding

1,001 – 5,000

5,001 – 10,000

10,001 – 50,000

50,001 – 100,000

100,001 and over

Total

Number of bondholders

% of bondholders

Number of bonds

% of bonds

147

507

104

911

6.70

16.14

55.65

11.42

10.09

305,000

1,417,000

14,580,000

8,524,000

125,174,000

100.00

150,000,000

0.20

0.95

9.72

5.68

83.45

100.00

AUDITOR FEES
KPMG has continued to act as auditors of the company. The amount payable by Contact and its subsidiaries to KPMG as audit fees in respect of
FY16 was $483,000 and $4,500 for scrutineering at the Annual Meeting. There was no non-audit work undertaken by KPMG during the year.

DONATIONS
In accordance with section 211(1)(h) of the Companies Act 1993, Contact records that it donated $5,600 in FY16. 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 WAIVER
On 4 August 2015, NZX Regulation granted Contact a waiver from NZX Listing Rule 5.2.3 (for a period of twelve months from 4 September 2015)
in respect of Contact’s September 2015 issue of $150 million of unsecured, unsubordinated, fixed rate debt securities (“CEN030 Bonds”).
Listing Rule 5.2.3 provides that a class of securities will generally not be considered for quotation unless those securities are held by at least
500 members of the public, holding at least 25% of the number of securities in the class issued, with each member holding at least a minimum
holding. The effect of the waiver from Listing Rule 5.2.3 is that the CEN030 Bonds may not be widely held and there may be reduced liquidity in
the CEN030 Bonds.

EXERCISE OF NZX DISCIPLINARY POWERS
NZX did not exercise any of its powers under Listing Rule 5.4.2 in relation to Contact during FY16.

CREDIT RATING
Contact Energy Limited has 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.

The $150 million unsubordinated, unsecured fixed rate bonds issued in September 2015 are rated BBB by Standard & Poor’s.

52 Contact Annual Report 2016 | Governance

The last five
years in review

Financial
Statements

For the year ended 30 June

Revenue

Expenses

EBITDAF

Profit/(loss)

Underlying profit

Underlying profit per share

Free cash flow

Free cash flow per share

Dividends declared1

Total assets

Total liabilities

Total equity

Gearing ratio

Unit

cps

2012

2,701

2,192

509

190

176

25.0

269

38.1

6,112

2,695

3,418

2013

2,526

1,985

541

199

202

27.7

367

50.3

6,197

2,660

3,537

2014

2,446

1,859

587

234

227

31.0

366

49.9

6,186

2,604

3,582

2015

2,443

1,918

525

133

161

21.9

345

47.0

6,089

2,918

3,171

2016

2,163

1,640

523

(66)

157

21.7

403

55.5

5,652

2,829

2,823

1. FY15 included a special dividend of 50 cents per share.

About these Financial
Statements

Statement of
Comprehensive Income

Statement of
Cash Flows

Statement of
Financial Position

Statement of
Changes in Equity

Notes to the Financial Statements

60 A. OUR PERFORMANCE
60 A1. Segments
60 A2. Earnings
61

A3. Free cash flow

62
62
62
62
63
63

B. OUR FUNDING
B1. Capital structure
B2. Share capital
B3. Distributions
B4. Borrowings
B5. Net interest expense

64 C. OUR ASSETS
64 C1. Property plant & equipment

and intangible assets

66 C2. Goodwill and asset
impairment testing

67
D. OUR FINANCIAL RISKS
D1. Market risk
67
68 D2. Credit risk
68 D3. Liquidity risk

69
69
69
69
69
70
70
70
71

71
72
73
73

E. OTHER DISCLOSURES
E1. Tax
E2. Operating expenditure
E3. Inventory
E4. Trade and other receivables
E5. Provisions
E6. Profit/(loss) to operating cash flows
E7. Financial instruments at fair value
E8. Financial instruments at
amortised cost
E9. Share-based compensation
E10. Related parties
E11. Contingent liabilities
E12. New accounting standards

Independent
Auditor’s Report

54 Contact Annual Report 2016 | Financial Statements

About these
Financial Statements

FOR THE YEAR ENDED 30 JUNE 2016

Statement of
Comprehensive Income

FOR THE YEAR ENDED 30 JUNE 2016

These Financial Statements are for Contact, a group made up of Contact Energy Limited and the entities over which
it has control or joint control.

Contact Energy Limited is registered in New Zealand under the Companies Act 1993. It is listed on the New Zealand
stock exchange (NZX) and the Australian Securities Exchange (ASX) and has bonds listed on the NZX debt market.
Contact is an FMC reporting entity under the Financial Markets Conduct Act 2013.

Contact’s Financial Statements are prepared:

•

In accordance with New Zealand generally accepted accounting practice (GAAP) and comply with New Zealand
equivalents to International Financial Reporting Standards (IFRS) and IFRS as appropriate for profit-oriented entities

In millions of New Zealand dollars (NZD) unless otherwise noted

• On an historical cost basis except for debt and derivatives held at fair value, and assets held for sale reported at

fair value less costs to sell

• Using the same accounting policies for all reporting periods presented with no changes in those policies from

previous periods.

Estimates and judgements are made in applying Contact’s accounting policies. Areas that involve a higher level of
estimation or judgement are:

• Useful lives of property plant and equipment (PP&E) and intangible assets (note C1)

•

Impairment testing of cash-generating units (CGUs) and future development capital work in progress (note C2)

• Net realisable value of inventory gas and classification between current and non-current (note E3)

• Unbilled retail electricity and gas revenue and provision for impairment of receivables (note E4)

• Provision for future restoration and rehabilitation obligations (note E5)

• Fair value measurement of financial instruments (notes D1 and E7).

The Financial Statements were authorised on behalf of Contact’s Board of Directors on 12 August 2016.

Sir Ralph Norris
Chairman

Sue Sheldon
Director

56 Contact Annual Report 2016 | Financial Statements

Revenue and other income

Operating expenses

Significant items

Depreciation and amortisation

Net interest expense

Profit/(loss) before tax

Tax (expense)/credit

Profit/(loss)

Items that may be reclassified to profit/(loss):

Change in cash flow hedge reserve

Deferred tax relating to cash flow hedges

Other comprehensive income

Comprehensive income/(loss)

Profit/(loss) per share (cents)

Statement of Cash Flows

FOR THE YEAR ENDED 30 JUNE 2016

Receipts from customers

Payments to suppliers and employees

Tax received/(paid)

Liquidated damages received

Dividends received

Operating cash flows

Purchase of assets

Proceeds from sale of assets

Interest received

Investing cash flows

Dividends paid

Share buyback

Proceeds from borrowings

Repayment of borrowings

Interest paid

Gas sale and repurchase arrangement

Financing cash flows

Net cash flow

Add: cash at the beginning of the year

Cash at the end of the year

Bank overdraft

Cash and cash equivalents

Note

2016

2,163

(1,640)

(327)

(201)

(101)

(106)

(66)

(3)

(64)

2015

2,443

(1,918)

(61)

(204)

(98)

162

(29)

133

(2)

143

(9.1)

18.2

2016

2,172

(1,620)

556

(122)

(94)

(189)

(100)

360

(426)

(94)

(7)

(456)

(6)

–

(5)

2015

2,495

(1,970)

(45)

490

(129)

(121)

(558)

–

455

(192)

(90)

(2)

(387)

(18)

(6)

(10)

Statement of
Changes in Equity

FOR THE YEAR ENDED 30 JUNE 2016

Balance at 1 July 2014

Profit

Change in cash flow hedge reserve (net of tax)

Lapsed share scheme awards

Share-based compensation expense

Dividends paid

Balance at 30 June 2015

Loss

Change in cash flow hedge reserve (net of tax)

Lapsed share scheme awards

Change in share capital

Share-based compensation expense

Dividends paid

Balance at 30 June 2016

Note

Share
capital

1,605

–

1,605

–

(90)

–

1,515

Retained
earnings

1,968

133

–

(558)

1,546

(66)

–

(189)

1,294

Other
reserves

Shareholders’
equity

–

(3)

–

(3)

(10)

–

3,582

133

–

(558)

3,171

(66)

–

(100)

(189)

2,823

Statement of
Financial Position

AT 30 JUNE 2016

Cash and cash equivalents

Trade and other receivables

Inventories

Intangible assets

Derivative financial instruments

Tax receivable

Assets held for sale

Total current assets

Inventories

Property, plant and equipment

Intangible assets

Goodwill

Derivative financial instruments

Other non-current assets

Total non-current assets

Total assets

Trade and other payables

Borrowings

Derivative financial instruments

Provisions

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

Note

2016

201

–

302

4,699

318

182

5,350

5,652

223

305

562

1,391

736

2,267

2,829

2,823

1,515

1,294

2015

217

336

5,078

314

182

5,753

6,089

214

531

781

1,219

792

2,137

2,918

3,171

1,605

1,546

2,823

3,171

58 Contact Annual Report 2016 | Financial Statements

A. Our Performance

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

A1. SEGMENTS
Contact’s operating segments for internal reporting purposes are
Integrated Energy and Other.

Integrated Energy is our core business of generating electricity
and selling energy to New Zealand customers. Integrated Energy’s
performance is measured as the difference between retail netback
and cost of energy:

• Retail netback is the revenue from delivering energy to customers

less costs to service customers, network charges and metering costs

• Cost of energy is the cost to generate and/or purchase the

energy we sell.

The Other segment is mostly made up of our LPG business, Contact
Rockgas, which purchases and sells LPG to New Zealand customers.
It also includes some revenue and expenses not allocated to Integrated
Energy or LPG.

A2. EARNINGS
The table below provides a breakdown of Contact’s revenue and
expenses, earnings before interest, tax, depreciation and amortisation
and significant items (EBITDAF) by segment and a reconciliation from
EBITDAF and underlying profit to profit/(loss) reported under NZ GAAP.

Mass market electricity

Commercial & Industrial (C&I) electricity

Wholesale electricity

LPG

Gas

Steam

2016

2015

Retail
netback

Cost of
energy

Note

Integrated

Energy Other

903

520

–

539

–

903

520

539

–

– 117

–

Total

903

520

539

117

Retail
netback

Cost of
energy

Integrated

Energy Other

951

563

–

693

–

951

563

693

–

118

–

Total

951

563

693

118

Total revenue

1,510

540

2,050 117 2,167

1,596

713

2,309

118

2,427

Other income (including liquidated damages)

–

Total revenue and other income1

1,510

546

2,056 122 2,178

1,596

722

2,318

125

2,443

Electricity purchases

Gas and LPG purchases

Electricity networks, transmission,
levies & meter costs

Gas networks, transmission, levies
& meter costs

Other operating expenses

Carbon emissions

Total operating expenses1

EBITDAF

Depreciation and amortisation

Net interest expense

Tax on underlying profit

Underlying profit

Significant items

Change in fair value of financial instruments

Otahuhu power station closure and sale

Write-down of inventory gas

Asset impairments

Transition costs

Tax on significant items

Reinstatement of tax depreciation
on powerhouses

Profit/(loss)

Underlying profit per share (cents)

(674)

(253)

(665)

(57)

(263)

(6)

–

(15)

(1)

–

(528)

(122)

(528)

–

(122)

(68)

(528)

(190)

–

(674)

(183)

(674)

(183)

–

(70)

(596)

(41)

(637)

(619)

(46)

(665)

(33)

(112)

–

(12)

(121)

(7)

(45)

(233)

(14)

(247)

(7)

(1)

(8)

(31)

(118)

–

(26)

(130)

(5)

(57)

(248)

(5)

–

(741)

(831)

(1,572)

(83)

(1,655)

(768)

(1,064)

(1,832)

(86)

(1,918)

769

(285)

484

523

828

(342)

486

525

(201)

(101)

(64)

157

(21)

(217)

(43)

(36)

(10)

100

(66)

21.7

(204)

(98)

(62)

161

(37)

–

(24)

133

21.9

EBITDAF and underlying profit are used to monitor performance
and are non-GAAP profit measures.

EBITDAF is commonly used in the electricity industry so provides
a comparable measure of performance. It is profit/(loss) before tax
excluding interest, depreciation, amortisation and significant items.

A3. FREE CASH FLOW
Free cash flow is a non-GAAP cash measure that shows the amount of
cash Contact has available to distribute to shareholders, reduce debt
or reinvest in the business. A reconciliation from EBITDAF to GAAP
operating cash flow and to free cash flow is provided below.

Underlying profit provides a consistent measure of our ongoing
performance. It excludes the effect of significant items from reported
profit/(loss).

Significant items are excluded from EBITDAF and underlying profit
when they meet criteria approved by the Board of Directors in our
non-GAAP financial information policy. The significant items in this
reporting period are:

• Change in fair value of financial instruments: Movements in the
valuation of interest rate and electricity price derivatives that are
not accounted for as hedges, hedge accounting ineffectiveness
and the effect of credit risk on the valuation of hedged debt and
derivatives. Refer note E7 for a breakdown

• Otahuhu power station closure and sale: The Otahuhu power

station was closed and the site was sold during the reporting period.
The amount recognised of $217 million includes an asset impairment
of $250 million and a gain on sale of assets of $33 million

• Write-down of inventory gas: At 30 June 2016 inventory gas was
written down by $43 million to net realisable value of $90 million.
Refer note E3 for more information

Note

EBITDAF

Tax received/(paid)

Change in working capital
net of non-cash, investing and
financing activities

Non-cash items included in EBITDAF

Significant items, net of
non-cash amounts

Operating cash flows

Net interest paid

Stay in business capital expenditure

Proceeds from sale of assets

Free cash flow

Free cash flow per share (cents)

2016

523

(10)

556

(93)

(87)

403

55.5

2015

525

(45)

(23)

490

(89)

(63)

345

47.0

• Asset impairments: Contact’s development of the Taheke

geothermal resource was fully impaired as Contact is unlikely to
develop the resource in the foreseeable future

Stay in business capital expenditure is required to maintain our
business operations and includes major plant inspections and
replacements of existing assets and IT systems.

• Transition costs incurred as a result of:

– Origin Energy Limited’s (Origin’s) sale of its majority shareholding
in Contact in August 2015 mostly made up of ASX listing costs
and incremental share-based compensation expense ($2 million)

– The Retail Transformation project mostly comprising temporary

staffing and infrastructure costs ($4 million)

– ICT Change and Transition programme that will significantly

change Contact’s ICT infrastructure and service delivery. While
most of the programme relates to asset replacements it also
includes consultancy costs while the transition is occurring and
the accelerated depreciation on assets being replaced ($4 million).
The programme will be completed in FY17.

1. For internal reporting purposes the fixed price agreed for contracts for differences (CfDs) sold to C&I customers is treated as C&I electricity revenue

while the settlement price component is classified as electricity purchases. This grosses up revenue and expenses by $15 million compared to that reported
in the Statement of Comprehensive Income.

60 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016

B. Our Funding

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

B1. CAPITAL STRUCTURE
Contact’s capital includes equity and net debt. Our objectives when
managing capital are to ensure Contact can pay its debts when they
are due and to optimise the cost of our capital.

To adjust the capital structure, the Board of Directors may adjust the
amount and nature of distributions to shareholders, issue new shares
and increase or repay debt.

Contact manages its capital structure to maintain an investment grade
credit rating and a gearing ratio suitable to the nature of our business.

B3. DISTRIBUTIONS
Contact targets an average ordinary dividend equivalent to
approximately 100% of our underlying profit. When free cash flow
exceeds this amount and there are no new growth opportunities or
adverse market events, Contact may choose to make additional
distributions to shareholders and/or repay debt.

Earnings per share and free cash flow per share

cents

Profit/(loss) per share – basic

2015

Profit/(loss) per share – diluted

(1,702)

Underlying profit per share – basic

Free cash flow per share – basic

(1,698)

Weighted average

2016

(9.1)

(9.0)

21.7

55.5

2015

18.2

21.9

47.0

(3,171)

Number of shares – basic

725,446,379

733,345,281

Number of shares – diluted

736,016,721

733,793,826

Face value of borrowings

Cash and cash equivalents

Net debt

Shareholders’ equity

Remove fair value of financial
instruments after tax

Adjusted equity

Total capital funding

Gearing ratio

2016

(1,631)

(1,626)

(2,823)

(50)

(2,873)

(4,499)

36.1%

(38)

(3,209)

(4,907)

34.6%

B2. SHARE CAPITAL
Share capital is comprised of ordinary shares listed on the NZX and
ASX. Certain ordinary shares are held on trust on behalf of employees
under the Contact Share scheme (note E9). Shares held under Contact
Share are purchased on market and reduce the value of Contact’s
share capital. All shareholders are entitled to receive distributions
and to make one vote per share.

Balance at 1 July 2014

Share capital issued

Balance at 30 June 2015

Share capital issued

Share capital repurchased
and cancelled

Balance at 30 June 2016

Comprised of:

Ordinary shares

Contact Share

Note

Number

733,308,762

50,110

733,358,872

2,871,844

(20,704,960)

715,525,756

715,123,326

402,430

1,605

–

1,605

(100)

1,515

1,516

(1)

Share issues
As a result of Origin’s sale of its majority shareholding in Contact all
awards outstanding under Contact’s Equity Scheme at August 2015
became exercisable, and all Performance Share Rights (PSRs) and
Deferred Share Rights (DSRs) were exercised between August 2015
and October 2015 (note E9).

The basic calculation uses the weighted average number of shares
actually on issue over the period.

The diluted weighted average number of shares takes into account
the number of share options, PSRs and DSRs that are currently
exercisable or will become exercisable because vesting depends
only on an employee staying with Contact.

Dividends

Paid during the year ended

2014 final

2015 interim

2015 special

30 June 2015

2015 final

2016 interim

30 June 2016

Cents
per share

15.0

11.0

50.0

15.0

11.0

110

367

558

110

189

On 12 August 2016, the Board resolved to pay a final dividend of
15 cents per share on 23 September 2016. On 12 August 2016,
Contact held 3.3 million imputation credits.

Share buybacks
As well as paying dividends, Contact completed a $100 million on market
share buyback programme during the reporting period. A total of
20,704,960 shares were purchased at an average of $4.83 per share.
Repurchased shares were immediately cancelled.

B4. BORROWINGS
Borrowings are recognised initially at fair value less financing costs and
subsequently at amortised cost using the effective interest rate method.
Some borrowings are designated in fair value hedge relationships, which
means that any change in market interest and foreign exchange rates
result in a change in the fair value adjustment on that debt (note E7).

Maturity

Coupon

2016

Bank overdraft

< 3 months Floating

Commercial paper

< 3 months Floating

Bank facilities

Finance lease liabilities

Various

Floating

Various Various

Wholesale bonds

Apr 2017

7.86%

USPP notes – US$40m

Mar 2018

5.55%

USPP notes – US$25m

Apr 2018

7.13%

Wholesale bonds

May 2018

4.80%

165

223

100

2015

100

639

100

Retail bonds – CEN020

May 2019

5.80%

222

Wholesale bonds

May 2020

5.28%

USPP notes – US$56m

Dec 2020

3.46%

Retail bonds – CEN030

Nov 2021

4.40%

USPP notes – US$22m

Dec 2023

4.19%

USPP notes – US$51m

Dec 2023

4.09%

USPP notes – US$42m

Dec 2023

3.63%

USPP notes – US$58m

Dec 2025

4.33%

USPP notes – US$43m

Dec 2025

3.85%

Export credit agency facility

Nov 2027 Floating

USPP notes – US$15m

Dec 2027

3.95%

USPP notes – US$23m

Dec 2028

4.44%

USPP notes – US$30m

Dec 2028

4.50%

150

–

Total borrowings at
face value

Deferred financing costs

Total borrowings at
amortised cost

Fair value adjustment
on hedged borrowings

Carrying value of
borrowings

Current

Non-current

1,631

1,702

(8)

1,623

1,694

1,696

1,750

305

531

1,391

1,219

Short-term funding
Contact uses bank facilities to manage its liquidity risk (note D3).
These facilities provide a buffer that can be drawn at short notice. While
drawings under our bank facilities are typically for periods of three months
or less, the amounts drawn down can be rolled for the term of the facility.
Drawn facilities are classified as current when the facility will expire or the
debt is expected to be repaid within one year of balance date.

Contact’s total bank facilities have a range of maturities:

Maturity $m

Less than 1 year

Between 1 and 2 years

Between 2 and 3 years

More than 3 years

2016

115

240

155

140

650

2015

430

145

150

175

900

Finance lease liabilities
Contact’s finance leases are mostly for connections to the national
electricity grid. These assets are included in the carrying values of
generation plant and equipment (note C1).

Security
Contact’s Deed of Negative Pledge and Guarantee and its United
States Private Placement (USPP) note agreements restrict Contact
from granting security interest over its assets, subject to certain
permitted exceptions. Because of these restrictions Contact’s
borrowings are all unsecured, except for finance leases secured over
the leased assets. The Deed of Negative Pledge and Guarantee and
the USPP note agreements contain various debt covenants, all of
which Contact complied with during the reporting period.

Cash and cash equivalents
Contact trades electricity price derivatives on the ASX market using
a broker who holds collateral on deposit for margin calls. At 30 June
2016, this collateral was $3 million (2015: $4 million) and is included
within cash.

B5. NET INTEREST EXPENSE
Interest expense on borrowings is made up of interest on drawn debt
and interest rate swaps, and the unwind of deferred financing costs.

Interest expense on borrowings

Unwind of discount on provisions

Note

2016

(98)

(6)

(101)

2015

(93)

(6)

(98)

For disclosure purposes, the fair value of all borrowings is $1,707 million
(2015: $1,763 million). This fair value is derived from market data.

Interest income

Net interest expense

62 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016C. Our Assets

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

C1. PROPERTY, PLANT & EQUIPMENT AND
INTANGIBLE ASSETS
Contact’s property, plant and equipment (PP&E) and intangible
assets include:

• Generation plant and equipment: hydro, geothermal and thermal
power stations, geothermal wells and pipelines, the Ahuroa gas
storage facility and cushion gas in the Ahuroa reservoir

• Other plant and equipment: LPG reticulation networks in the
South Island, bulk tanks, cylinders and meters used to deliver
LPG to our customers

• Computer software: our SAP system that is used for customer
service, finance functions and generation asset management
which has a value of $256 million (2015: $264 million) and a
remaining life of 13 years.

Depreciation and amortisation
The cost of Contact’s assets is spread evenly over their useful lives
(straight line method) or, for certain thermal assets, over the equivalent
operating hours (EOH) those assets are expected to be of benefit
to Contact.

Management estimates an asset’s useful life or EOH. These estimates
are reviewed annually for triggers that may indicate the need for a
revised estimate. The asset useful life review completed in the current
reporting period resulted in an increase in generation plant and
equipment depreciation of $6 million. The useful life changes are
expected to increase depreciation in 2017 by approximately $1 million.

Land, capital work in progress, cushion gas and carbon emission units
are not depreciated or amortised. The depreciation and amortisation
rates for all other assets are:

All assets are recognised at cost less accumulated depreciation or
amortisation and impairments.

Assets

Generation plant and equipment:

– Straight line

– EOH

Other buildings, plant and equipment

Computer software

Gas storage rights

Rate/hours

1 – 33%

8,000 – 100,000

2 – 33%

6 – 33%

Capital commitments
At 30 June 2016, Contact is committed to $33 million of capital
expenditure, with all payments due within one year of the reporting
period end (2015: $32 million).

Cost
Contact capitalises the costs to purchase and bring assets into service.
When Contact develops an asset, it also capitalises employee time and
other directly attributable costs, these are carried as capital work in
progress until the asset is commissioned.

Contact capitalises costs to obtain resource consents and to drill
geothermal exploration wells. These costs are expensed if the
exploration area that they relate to is unsuccessful or abandoned.
All other geothermal exploration costs are expensed.

Cushion gas is the level of gas required to maintain pressure in the
Ahuroa reservoir so that Contact can inject and extract gas to use in its
thermal power plants. Cushion gas of $52 million (2015: $52 million)
is classified as generation plant and equipment.

Carbon emission units are purchased to offset our emissions under the
New Zealand Emissions Trading Scheme (ETS). The units are measured
at weighted average cost. They are classified as current assets when
they will be used to offset Contact’s ETS obligations at balance date or
obligations expected to be incurred within 1 year of balance date.

64 Contact Annual Report 2016 | Notes to the Financial Statements

Property, Plant & Equipment
$m

Cost

Balance at 1 July 2014

Additions

Transfers from capital work in progress

Transfers to assets held for sale

Disposals

Balance at 30 June 2015

Balance at 1 July 2015

Additions

Transfers from capital work in progress

Transfers to assets held for sale

Disposals

Balance at 30 June 2016

Depreciation and impairment

Balance at 1 July 2014

Depreciation charge

Transfers to assets held for sale

Disposals

Balance at 30 June 2015

Balance at 1 July 2015

Depreciation charge1

Impairment

Disposals

Balance at 30 June 2016

Carrying amount

At 30 June 2015

At 30 June 2016

Generation plant
and equipment

Other land and
buildings

Other plant and
equipment

Capital work in
progress

5,966

(2)

–

6,076

–

(471)

5,683

(1,191)

(166)

–

(1,355)

(161)

(250)

470

(1,296)

4,721

4,387

–

(3)

–

(3)

–

(11)

(2)

–

(13)

(2)

–

(15)

233

–

(1)

252

–

(19)

243

(158)

(10)

–

(167)

(12)

–

(161)

380

(105)

–

318

(47)

–

(102)

216

(66)

–

(66)

–

(37)

102

(1)

252

215

1. $2 million of the depreciation charge is classified as a significant item as part of the transition costs for the ICT Change and Transition programme (note A2).

Intangible Assets
$m

Cost

Balance at 1 July 2014

Additions

Disposals

Balance at 30 June 2015

Balance at 1 July 2015

Additions

Disposals

Balance at 30 June 2016

Amortisation

Balance at 1 July 2014

Amortisation charge

Balance at 30 June 2015

Balance at 1 July 2015

Amortisation charge

Disposals

Balance at 30 June 2016

Carrying amount

At 30 June 2015

At 30 June 2016

Current

Non-current

Computer software
and capital work
in progress

Gas
storage rights

Carbon
emission units

341

–

370

(1)

405

(67)

(25)

(92)

(27)

(118)

278

287

–

287

–

(3)

(1)

(4)

(1)

–

(5)

–

(2)

(10)

–

Total

6,606

–

(5)

(1)

6,679

–

(3)

(592)

6,172

(1,426)

(178)

(1,601)

(175)

(287)

590

(1,473)

5,078

4,699

Total

397

(2)

425

(11)

456

(70)

(26)

(96)

(28)

(123)

329

333

318

For the year ended 30 June 2016For the year ended 30 June 2016A change in future wholesale electricity prices used to determine
Generation CGU cash flows could affect the amount Contact receives
for its generated electricity. A systemic reduction in wholesale
electricity prices may result in an impairment of the Generation CGU.

Wholesale electricity prices are influenced by a number of factors that
are difficult to predict. In particular, weather can impact short term
prices. Wholesale electricity prices may also be adversely affected by
a reduction in demand, the availability of fuel and generation capacity
in the wholesale electricity market, competitor and transmission system
availability. This could affect both the volume of energy Contact can
generate as well as the price it receives for generation. Whether Contact
is adversely affected will depend on the specific circumstances and
how those circumstances impact Contact’s portfolio.

The future generation development valuations use the same key inputs
as the Generation CGU plus an estimate of plant commissioning costs.

During the reporting period, an impairment was recognised when
the Otahuhu power station was classified as held for sale (note A2).
The Taheke geothermal development was fully impaired (note A2).

No impairments were recognised in the prior period.

C2. GOODWILL AND ASSET IMPAIRMENT TESTING
Contact has three cash-generating units (CGUs): Generation, Retail
and LPG. The Retail and LPG CGUs include goodwill of $179 million
and $3 million respectively, which is unchanged from the prior
reporting period. Capital work in progress (CWIP) includes $95 million
(2015: $129 million) related to future generation developments not
allocated to a CGU.

Every reporting period management estimates the value expected
to be recovered from Contact’s CGUs and future generation
development in CWIP. If this recoverable value is lower than the CGU or
asset’s carrying value an impairment must be recognised. An impairment
is also recognised when an asset is classified as held for sale and the
expected net sale proceeds are lower than its carrying value.

Determining value in use involves estimating future cash flows for each
CGU. The cash flows are adjusted for future growth based on historical
inflation and discounted at a post-tax discount rate of 7 – 9% to arrive
at the present value, or recoverable amount, of each CGU.

The key inputs to each CGU’s cash flows are:

Retail and LPG CGUs

Customer numbers
and churn

Actual customer numbers adjusted for historical
churn data and expected market trends

Margin per
customer

Actual margin per customer adjusted for
expected market changes

Cost of purchased
energy

ASX future electricity prices adjusted for location
and seasonal shape
Contracted and/or market LPG prices

Generation CGU

Generation volume
and mix

Generation strategy based on expected demand,
hydro volumes and expected market pricing

Amount received
for generated
electricity

ASX future electricity prices adjusted for location
and seasonal shape for periods quoted on the ASX
market, or prices estimated based on an analysis
of expected demand and cost of new supply for
periods not quoted on the ASX market

Gas price

Contracted gas prices otherwise Contact’s best
estimate of future prices

D. Our Financial Risks

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

Contact’s financial risk management system mitigates the exposure
to market, credit and liquidity risks by ensuring that material risks are
identified, the financial impact is understood and tools and limits are in
place to manage exposures. Written policies provide the framework for
Contact’s financial risk management system.

Sensitivities
The table below summarises the impact on derivative valuations 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)
$m

Impact on cash flow hedge reserve
(CFHR)

Forward electricity and LPG prices

Forward foreign exchange rates

Impact on post-tax profit/(loss)

Forward interest rates

Forward electricity prices

2016

2015

+10%

-10%

+10%

-10%

+100bps

-25bps

+10%

-10%

(16)

(2)

(6)

(8)

–

(1)

(2)

(6)

(2)

Fair value of derivatives
The fair value of derivatives used to hedge risk, categorised by
accounting treatment, is provided below:

Fair value hedges

CCIRS

IRS

Cash flow hedges

CCIRS – margin

Foreign exchange derivatives

Electricity and LPG price derivatives

Derivatives not designated in hedge
relationships

IRS

Electricity price derivatives

Current

Non-current

2016
Asset

2016
Liability

2015
Asset

2015
Liability

–

(17)

–

(4)

–

(79)

(2)

110

(106)

(24)

(82)

(12)

–

(5)

–

(2)

(58)

(4)

(81)

(28)

(53)

D1. MARKET RISK

Interest rate risk
Contact has issued fixed and floating rate debt so is exposed to
movements in interest rates. For fixed rate debt the exposure is to falling
interest rates as we could have secured that funding at lower rates, while
for floating rate debt there is uncertainty of future cash flows.

Contact manages these risks through the use of interest rate swaps
(IRS) and cross currency and interest rate swaps (CCIRS) to ensure
that the total debt portfolio has an appropriate amount of fixed and
floating rate debt. The risk is monitored by assessing the notional
amount of debt on a fixed and floating basis and ensuring this is in
accordance with set policies.

Foreign exchange risk
Contact is exposed to movements in foreign exchange rates through
its commitments to pay offshore suppliers and USPP note holders.

To mitigate the risk, forward foreign exchange contracts are used to
secure a foreign exchange rate and fix future cash flows in NZD terms.
Foreign debt is hedged through the use of CCIRS, which converts the
foreign currency principal and interest payments to NZD at a fixed
foreign exchange rate.

Commodity price risk
Contact is exposed to electricity price risk through the sale and
purchase of electricity on the wholesale electricity market. Contact’s
integrated generation and retail business provide a natural hedge for
most of this exposure. Derivatives may be used to fix the price at which
Contact buys or sells any residual exposure to electricity price risks.
The hedged residual exposure is measured as the aggregate notional
volume of outstanding fixed volume electricity price derivatives. In
addition, Contact is party to fixed price, variable volume electricity
price derivatives to provide cover in extreme price situations.

Contact is also exposed to LPG price risk on its LPG purchases and
may use derivatives to fix the price of LPG.

Summary of exposures
A summary of Contact’s notional market risk exposure at the reporting
period end is provided below:

Derivative used

Unit

Maturities

CCIRS

Foreign exchange
derivatives

$m 2017 – 2029

$m 2017 – 2018

IRS – floating exposure

$m 2017 – 2020

IRS – fixed exposure

$m 2017 – 2024

Electricity price
derivatives

GWh 2017 – 2031

2016

560

472

1,131

8,544

2015

560

673

994

4,533

LPG price derivatives

tonnes

n/a

–

29,960

The notional exposure for electricity price derivatives in the table
above does not include fixed price, variable volume contracts.

66 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016The change in fair value of derivatives is provided below:

CCIRS

IRS

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

IRS

Electricity price derivatives

Derivatives not designated
in hedge relationships

Total fair value movement

2016
Profit/
(loss)

(17)

–

(22)

(1)

(23)

(21)

2016
CFHR

–

(3)

(7)

(3)

–

2015
Profit/
(loss)

164

(181)

(7)

–

(32)

(30)

(37)

2015
CFHR

–

(3)

(2)

–

Further information on fair value and accounting for derivatives is
provided in note E7.

D2. CREDIT RISK
Total credit risk exposure is measured by the notional amount
of financial instruments in an asset position of $314 million
(2015: $303 million).

To minimise credit risk exposure, we have a policy to only transact with
credit worthy counterparties and do not exceed internally imposed
exposure limits to any one counterparty. Where appropriate, collateral
is obtained. Further information on customer related credit risk is
provided in note E4.

D3. LIQUIDITY RISK
To reduce liquidity risk, Contact maintains a diverse portfolio of
funding, debt maturities are spread over a number of years and any
new financing or refinancing requirements are addressed with an
appropriate lead time. In addition, Contact maintains a buffer of
undrawn bank facilities over its forecast funding requirements to
enable it to meet any unforeseen cash flows.

Contact monitors the available liquidity buffer by comparing forecast
cash flows to available facilities to ensure a liquidity buffer is
maintained in accordance with internal limits.

Information on contracted cash flows in the tables below is presented
on an undiscounted basis.

2016
$m

Trade and other payables

Borrowings

Finance lease liabilities

Electricity price derivatives – net settled

IRS – net settled

Foreign exchange derivatives – inflow

Foreign exchange derivatives – outflow

CCIRS – inflow

CCIRS – outflow

2015

Trade and other payables

Borrowings

Finance lease liabilities

Electricity price derivatives – net settled

IRS – net settled

Foreign exchange derivatives – inflow

Foreign exchange derivatives – outflow

CCIRS – inflow

CCIRS – outflow

Total contractual
cash flows

Less than
1 year

1 – 2 years

2 – 5 years

More than
5 years

(220)

(2,088)

(220)

(369)

–

(408)

(478)

(46)

(134)

(56)

803

(749)

(4)

(31)

(55)

(24)

(2,398)

(611)

(4)

(30)

(1)

(136)

(543)

(8)

(63)

–

126

(129)

(538)

(212)

(2,140)

(212)

(538)

–

(397)

(551)

(50)

(24)

(29)

943

(1,015)

(2,492)

(4)

(6)

(26)

169

(178)

(766)

(4)

(3)

(37)

(413)

(9)

–

(11)

–

160

(212)

(623)

–

(833)

(30)

–

(10)

–

627

(460)

(706)

–

(654)

(33)

–

(3)

–

588

(588)

(690)

E. Other Disclosures

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

E1. TAX
Tax expense is made up of current tax expense and deferred tax
expense. Current tax expense relates to the current financial reporting
period while deferred tax will be payable in future periods.

Tax is recognised in profit, except when it relates to items recognised
directly in other comprehensive income (OCI).

Profit/(loss) before tax

Tax at 28%

Tax effect of adjustments:

– Non-taxable sale of land

– Reinstatement of tax depreciation
on powerhouses

– Other

Tax (expense)/credit

Current tax expense

Deferred tax expense

2016

(106)

(3)

(19)

2015

162

(45)

–

(29)

(7)

(22)

Contact’s deferred tax liability is calculated as the difference between
the carrying value of assets and liabilities for financial reporting
purposes and the values used for taxation purposes.

PP&E and
Intangible
assets

Derivative
financial
instruments

Balance at 1 July 2014

Recognised in profit/(loss)

Recognised in OCI

(791)

(31)

–

Balance at 30 June 2015

(822)

Recognised in profit/(loss)

Recognised in OCI

–

Balance at 30 June 2016

(778)

(2)

(3)

Other

(2)

–

Total

(768)

(22)

(2)

(792)

(3)

(736)

E2. OPERATING EXPENDITURE

Operating leases
Operating leases relate to the rental of buildings, plant and equipment
and vehicles on normal commercial terms and conditions. Rental
expenses of $5 million (2015: $6 million) are included in other operating
expenses (note A2).

Less than 1 year

Between 1 and 5 years

More than 5 years

Total operating lease commitments

2016

2015

Other operating expenses
Other operating expenses (note A2) include contributions to KiwiSaver
of $3 million (2015: $3 million).

Audit fees paid to Contact‘s auditors (KPMG) of $483,000 for
review of the interim and audit of the year end Financial Statements
(2015: $564,723) and $4,500 for scrutineering at the Annual meeting
(2015: $3,850 for tax compliance).

E3. INVENTORY
Contact’s inventories include gas in storage at the Ahuroa gas storage
facility for use in thermal generation. At 30 June 2016, Contact wrote
inventory gas down by $43 million to net realisable value (NRV). This
write down is excluded from underlying profit (note A2).

Inventory gas NRV is based on the value Contact expects to realise
for the gas through electricity production. This is estimated as thermal
generation revenue (based on ASX futures prices) less forecast
operating, transmission and carbon costs.

Inventory gas

Consumables and spare parts

LPG

Diesel fuel

Current

Non-current

2016

2015

148

104

163

Consumables and spare parts for power stations, LPG fuel for sale and
diesel fuel for use in the Whirinaki power plant are stated at cost and
are all classified as current assets.

Inventory gas is split between current and non-current based on
expected future and past actual gas usage. At 30 June 2016, Contact
expects to use 40% of the gas held in storage within 1 year of the end of
the reporting period (2015: 30%).

E4. TRADE AND OTHER RECEIVABLES

Trade receivables

Unbilled receivables

Provision for impairment

Net trade receivables

Prepayments

Other receivables

2016

101

(5)

187

201

2015

110

115

(10)

215

–

217

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.

Contact recognises a provision for impairment of trade receivables
for each category of aged debt based on historical delinquency rates
across the customer base. When Contact has been unable to recover
aged debt it is written off.

Not past due

0 – 30 days past due

30 – 90 days past due

Over 90 days past due

2016

161

2015

177

187

215

Bad debts net of recoveries of $9 million (2015: $12 million) were
recognised during the reporting period.

68 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016E5. PROVISIONS
Contact has restoration and environmental rehabilitation provisions that
represent the expected costs to abandon and restore geothermal wells,
generation and LPG sites and to remove asbestos from properties.

Balance at 1 July 2015

Created

Utilised

Released

Unwind of discount

Balance at 30 June 2016

Current

Non-current

Restoration/
environmental
rehabilitation

Other

Total

(4)

(9)

–

(4)

(9)

These provisions are based on estimates of future cash flows to make
good the affected sites at the end of the assets’ useful lives. The expected
future cash flows are discounted to their present value using a pre-tax
discount rate equivalent to a post-tax rate of between 7 and 9%.

E6. PROFIT/(LOSS) TO OPERATING CASH FLOWS

Profit/(loss)

Depreciation and amortisation

Change in fair value of financial instruments

Asset impairments

Write-down of inventory gas

Otahuhu power station closure and sale

Gain on sale of assets

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

Trade and other receivables

Inventories

Trade and other payables

Tax

Operating cash flows

2016

(66)

201

217

–

101

(59)

(7)

556

2015

133

204

–

(2)

(4)

(45)

(37)

490

E7. FINANCIAL INSTRUMENTS AT FAIR VALUE
All derivatives are shown gross by instrument in the Statement of
Financial Position (and in note D1) because Contact does not have a
legally enforceable right to set off its assets and liabilities with the same
counterparty, except in the event of default. The fair values of
derivatives netted by counterparty are:

CCIRS

CCIRS – margin

Foreign exchange derivatives

IRS

Electricity and LPG price derivatives

2016
Asset

2016
Liability

2015
Asset

2015
Liability

(12)

–

(3)

(4)

(76)

(1)

(9)

(5)

–

(54)

(4)

100

(96)

(72)

Fair value
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, and wholesale
electricity and LPG prices) and discount rates.

All inputs are sourced or derived from market information except
for forward wholesale electricity prices which are:

• derived from ASX market quoted prices adjusted for Contact’s

estimate of the effect of location and seasonality, or

• estimated based on an analysis of expected demand and cost

of new supply for periods not quoted on the ASX market.

The following table provides a breakdown of derivatives by the source
of key valuation inputs:

Sourced from market data

Derived from market data

Electricity price estimates

2016

–

(5)

The electricity price derivatives most affected by estimates are
reconciled below:

Opening balance

Gain/(loss) in profit/(loss):

– wholesale electricity revenue

– change in fair value of financial instruments

Gain in OCI

Instruments issued

Closing balance

2016

(2)

(1)

2015

(1)

2015

–

Initial recognition difference
Contact has an agreement in place with Meridian Energy Limited for
the supply of 80MW of electricity, which forms part of the electricity
required by New Zealand Aluminium Smelters to operate its Tiwai
smelter. This agreement is for a period of up to 14 years and is
recognised as an electricity price derivative at fair value.

The fair value of this agreement takes into account management’s
estimate of future electricity prices and other quoted information,
e.g. future carbon and aluminium prices.

An initial recognition difference arises when the fair value of the
derivative differs from its transaction price. The difference is
accounted for by recalibrating the fair value by a fixed percentage
to arrive at a value at inception equal to the transaction price.

The calibration adjustment is applied to future valuations and reflects
the estimated future gains or losses yet to be recognised in the
Statement of Comprehensive Income (SOCI) over the remaining life
of the agreement. The change in calibration adjustment is provided in
the table below:

Opening difference

Initial differences in new hedges

Changes for future prices and time

Closing difference

2016

(24)

(17)

2015

–

Fair value hedges
The interest rate swaps Contact enters into to manage its interest rate
risk meet the criteria for hedge accounting where they directly relate to
issued debt and the terms of the derivative match the debt. The hedge
is against future fair value movements in the debt and can be for a
portion of the debt. Contact has designated all its USPP notes, $100
million of wholesale bonds and $174 million of retail bonds in fair value
hedge relationships.

Both the hedging instrument (IRS) and the hedged risk are recognised
at fair value. The change in the fair value of both items offset in change
in fair value of financial instruments in the SOCI to the extent the
hedging relationship is effective.

Cash flow hedges
The derivatives used to manage commodity price risk and foreign
exchange risk usually qualify for cash flow hedge accounting.

Only the derivative is recognised at fair value with the effective portion
of all changes in fair value recognised in the cash flow hedge reserve.
Any ineffective portion is recognised immediately in profit/(loss).
Amounts recognised in the cash flow hedge reserve are reclassified
to profit /(loss) or Statement of Financial Position according to the
nature of the hedged item.

Refer below for a reconciliation of the movement in the cash flow
hedge reserve.

Opening balance

Effective portion of cash flow hedges

Transferred to revenue

Transferred to deferred tax

Closing balance

2016

(6)

2015

(5)

(1)

Derivatives not in hedge relationships
These include IRS not attached to specific debt and electricity price
derivatives purchased as part of a requirement to participate in the ASX
futures electricity market. All changes in fair value of these derivatives are
recognised directly in profit/(loss).

E8. FINANCIAL INSTRUMENTS AT AMORTISED COST
The value of financial instruments carried at amortised cost is
provided in the table below.

Cash and cash equivalents

Trade and other receivables

Trade and other payables

Borrowings

2016

199

(220)

2015

215

(212)

(1,623)

(1,694)

E9. SHARE-BASED COMPENSATION

Equity Scheme
Contact provides an equity award made up of options, performance
share rights (PSRs) and deferred share rights (DSRs) to certain eligible
employees. If performance hurdles are met, the awards vest and
become exercisable. 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 awards lapse if the performance
hurdles are not met, if they are not exercised by the lapse date or if
an employee voluntarily leaves Contact. The scheme continues on
redundancy but the entitlements are adjusted.

The table below provides a reconciliation of the number of outstanding
options and their weighted average exercise price.

Balance at 1 July 2014

Granted

Exercised

Lapsed

Balance at 30 June 2015

Balance at 1 July 2015

Granted

Exercised

Lapsed

Balance at 30 June 2016

Options

Number outstanding

14,752,055

1,263,498

(12,458)

(2,539,672)

Price

$5.41

$5.94

$5.46

$5.54

13,463,423

$5.44

13,463,423

1,012,408

$5.44

$4.92

–

(3,474,844)

$5.61

11,000,987

$5.34

70 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016Members of the Leadership Team purchase electricity and gas from
Contact for domestic purposes on normal commercial terms and
conditions with staff discount.

Contact wholly owns Rockgas Limited, which holds 50% of Rockgas
Timaru Limited. Both entities are LPG retailers.

During the reporting period Contact Wind Limited and Contact Aria
Limited, both wholly owned dormant subsidiaries, were amalgamated
into Contact Energy Limited.

E11. CONTINGENT LIABILITIES
Contact has identified potential non-compliance with the Holidays
Act 2003 in respect of payments to current and previous employees.
Management is in the process of investigating and quantifying the
extent of the non-compliance.

E12. NEW ACCOUNTING STANDARDS
Contact has chosen not to early adopt NZ IFRS 15 Revenue from
Contracts with Customers, NZ IFRS 9 Financial Instruments (both
effective for the year ending 30 June 2019) and NZ IFRS 16 Leases
(effective for the year ending 30 June 2020). The standards are likely
to have an impact on our Financial Statements when adopted but this
has not yet been assessed.

2016

0.61

3.16

4.51

4.92

2016

22%

2015

0.57

3.64

5.24

5.93

2015

19%

The table below provides a reconciliation for the number of
outstanding PSRs and DSRs. The exercise price of these awards is nil.

Number outstanding

Balance at 1 July 2014

Granted

Exercised

Lapsed

PSRs

2,724,916

219,108

(37,652)

DSRs

–

417,483

–

(430,042)

(21,969)

Share-based compensation expense
The current reporting period’s expense was $5 million (2015: $4 million),
of which $1 million was excluded from underlying profit as part of
transition costs (note A2).

The share-based compensation expense is based on the fair value of the
awards granted adjusted to reflect the number of awards expected to
vest. The fair values of awards granted during the reporting period are:

Balance at 30 June 2015

2,476,330

395,514

Share options

Balance at 1 July 2015

Granted

Exercised

Lapsed

2,476,330

314,660

395,514

341,861

PSRs

DSRs

(2,476,330)

(395,514)

(20,344)

(27,691)

Contact Share

Balance at 30 June 2016

294,316

314,170

Key inputs in determining the fair values are:

At 30 June 2016, 10,028,742 share options were exercisable.
The exercisable share options have a weighted average exercise
price of $5.38.

Share options had a weighted average remaining life of 2 years
(2015: 2 years and 2 months), PSRs had 4 years and 4 months
(2015: 2 years) and DSRs had 1 year and 5 months (2015: same).

Contact Share
Contact Share is Contact’s employee share ownership plan that
enables eligible employees to acquire a set number of Contact’s
ordinary shares. The shares are acquired on market and legally held
by a trustee company for a restrictive period of three 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.

Number outstanding

Balance at 1 July 2014

Granted

Exercised

Balance at 30 June 2015

Balance at 1 July 2015

Granted

Exercised

Balance at 30 June 2016

Restricted Shares

157,056

127,968

(10,320)

274,704

148,277

(20,551)

402,430

At 30 June 2016, none of the awards were exercisable.

Risk-free interest rate

Expected dividend yield

Expected share price volatility

E10. RELATED PARTIES
Contact’s related parties include Directors, the Leadership Team
and Rockgas Timaru Limited. In August 2015, Origin sold its majority
shareholding in Contact. Transactions with Origin up to that point, and
all other related party transactions are disclosed in the table below.

Received/(paid) $m

Origin and its subsidiaries

Purchase of LPG

SAP infrastructure and data services costs

Sale of electricity

Rockgas Timaru Limited

Sale of LPG

Key management personnel

Directors’ fees

Leadership Team – salary and other
short-term benefits

Leadership Team – share-based compensation
expense

Balances payable at end of the year

Origin and its subsidiaries

Key management personnel

2016

2015

(6)

(1)

–

(1)

(5)

(2)

–

(1)

(24)

(6)

(1)

(6)

(1)

(2)

(1)

72 Contact Annual Report 2016 | Notes to the Financial Statements

For the year ended 30 June 2016For the year ended 30 June 2016Independent
Auditor’s Report

TO THE SHAREHOLDERS OF CONTACT ENERGY LIMITED

REPORT ON THE AUDIT OF THE CONSOLIDATED
FINANCIAL STATEMENTS

Opinion
We have audited the consolidated Financial Statements of Contact
Energy Limited (the Company) and its subsidiaries (the Group), which
comprise the consolidated statement of financial position as at 30 June
2016, consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash
flows for the year then ended, and notes to the consolidated Financial
Statements, including significant accounting policies.

In our opinion, the accompanying consolidated Financial Statements
present fairly, in all material respects, the consolidated financial
position of the Group as at 30 June 2016, and its consolidated financial
performance and its consolidated cash flows for the year then ended in
accordance with New Zealand equivalents to International Financial
Reporting Standards (NZ IFRS) and International Financial Reporting
Standards (IFRS).

This report is made solely to the shareholders as a body. Our audit
work has been undertaken so that we might state to the Company’s
shareholders those matters we are required to state to them in the
auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company’s shareholders as a body, for our audit work,
this report or any of the opinions we have formed.

Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (New Zealand) (ISAs (NZ)). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
section of our report. We are independent of the Group in accordance
with the Professional and Ethical Standard 1 (Revised) Code of Ethics
for Assurance Practitioners issued by the New Zealand Auditing and
Assurance Standards Board and the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants
(IESBA Code) and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code. We believe
that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.

Our firm has provided other assurance services in relation to trustee
reporting and annual meeting scrutineering to the Company and
Group. Subject to certain restrictions, partners and employees of our
Firm also 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. The firm
has no other relationship with, or interest in, the Group.

Audit Approach and Scoping
The context for our audit is set by the Group’s major activities in 2016. The
Group had a continued focus on realising benefits from its investments in
its retail customer business and strategic reviews of its generation
portfolio in light of sector changes and any associated risk exposures.

The scope of our audit is designed to ensure that we perform adequate
work to be able to give an opinion on the consolidated Financial
Statements as a whole, taking into account the structure of the Group,
the financial reporting systems, processes and controls, and the
industry in which it operates.

Audit Materiality
The scope of our audit was influenced by our application of materiality.
Materiality helped us to determine the nature, timing and extent of our
audit procedures and to evaluate the effect of misstatements, both
individually and on the consolidated Financial Statements as a whole.
The materiality for the consolidated Financial Statements as a whole
was set at $12.5 million determined with reference to a benchmark of
Group profit before tax adjusted for certain significant non-recurring
items. We chose adjusted profit before tax as the benchmark as the
Group is a profit oriented business and we consider this represents a
key measure of its performance.

In identifying the non-recurring items to be excluded we reviewed the
significant items reported by the Company considering the magnitude
and nature of these items. On that basis we excluded the Otahuhu power
station closure and sale of $217 million (refer note A2 of the Financial
Statements) from profit before tax in determining materiality.

Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the consolidated
Financial Statements in the current period. We summarise below those
matters, our key audit procedures to address those matters and our
findings from those procedures in order that the Group’s shareholders
as a body may better understand the process by which we arrived at
our audit opinion. Our findings are the result of procedures undertaken
in the context of and solely for the purpose of our statutory audit
opinion on the consolidated Financial Statements as a whole and we
do not express discrete opinions on separate elements of the
consolidated Financial Statements.

Key audit matter: Carrying value of cash-generating units
(inclusive of $182 million of goodwill). Note C2 of the Financial Statements.

The Group splits its business into three cash-generating units (CGUs)
for the purpose of asset impairment testing. The value of each CGU,
including any allocated goodwill, is supported by a discounted cash
flow model which is inherently subjective.

The key judgements in that model are future electricity prices and
volumes, forecast operating and asset costs, terminal growth rate and
the discount rate applied to the future cash flows.

We focused primarily on the Generation CGU due to the significance
of the assets to the statement of financial position.

Our procedures to address the key audit matter and findings:
Our work to assess whether the Group should recognise any impairment
to the CGUs included ensuring the methodology adopted in the model is
consistent with accepted valuation approaches. We also assessed
whether the modelled cash flows appropriately reflect the Group’s
strategy and budget.

We reviewed and tested the significant judgements in the modelled cash
flows supporting the Generation CGU, including comparing future prices
to external market projections, comparing future volumes to historical
volumes and comparing operating costs and asset renewal costs to
budget and external analysts’ expectations. We also compared the
discount rate used to our own independently determined rate.

We challenged the assumptions by performing a sensitivity analysis,
considering a range of likely outcomes based on various scenarios.

As an overall test we compared the Group’s net assets at 30 June 2016
of $2,823 million to its market capitalisation of $3,706 million at 30 June
2016 and noted an implied headroom of $875 million.

Based on our analysis, the future prices, and volumes, forecast operating
and asset costs, terminal growth rate and the discount rate assumptions
used by management were within an acceptable range and in line with
the current market view. We did not identify any material issues with the
carrying value of CGUs, the accuracy of the impairment assessment and
the disclosures in the Financial Statements.

Key audit matter: Net realisable value of inventory gas
($43 million impairment) Note A3 of the Financial Statements.

The Group determines the value of its inventory gas based on it being
a cost or input to electricity production.

The net realisable value of inventory gas is considered to be a key
audit matter due to the reliance on management’s strategy for using
inventory gas to support its carrying value and its significance to the
Group’s consolidated statement of financial position.

The key judgements that have the largest impact on determining
net realisable value are, management’s intended strategy for usage,
forward electricity prices, and the operating costs of thermal
generation plants.

Our procedures to address the key audit matter and findings:
To assess the value of inventory gas through electricity production our
work included ensuring whether management’s cash flow forecasts are
consistent with the Group strategy and budget; comparing the modelled
forward electricity price to external price paths and comparing operating
costs of thermal generation plants to prior periods.

We also compared the carrying value to the historical realised and
observed usage and benchmarked the assessed net realisable value
to prices of other material sources of gas supply.

We are satisfied with the overall assessment of net realisable value of
inventory gas and that the assumptions used in calculating write-down
were within an acceptable range.

Key audit matter: Capital work in progress carrying value
($215 million) Note C1 and ($38 million impairment) Note A3 of the
Financial Statements.

We focused on the capitalisation of costs and recoverability of capital
work in progress, with a focus on geothermal projects that are held for
future development.

We consider this a key audit matter because of the significance of the
assets to the Group’s Statement of Financial Position, and due to the
level of judgement involved, principally, the initial capitalisation or
expensing of costs and the assumptions modelled to determine future
economic feasibility of major projects; management’s intention for
continued investment in the project and consistency with the Group’s
current investment strategy.

Our procedures to address the key audit matter and findings:
In assessing the recoverability of the Group’s capital work in progress
our audit procedures included, examining the controls surrounding
application of accounting policies to capitalise or expense project
spend, testing expenditure on a sample basis to assess whether asset
additions were capital in nature, ensuring that carrying value of capital
work in progress is supported by appropriate valuation models and
reviewing underlying valuation assumptions.

As an overall check we reviewed minutes of board and executive
management meetings to ensure there is continued support for
development of future generation development projects.

We found the impairment of the Taheke project to be appropriate and
are satisfied with the judgments and assumptions supporting the
recoverability of capital work in progress.

Key audit matter: Revenue recognition – estimation of unbilled
revenue and receivables
($101 million) Note E4 of the Financial Statements.

As customer billing cycles are not aligned to the end of reporting
period management is required to estimate the unbilled receivable
in relation to electricity and gas revenue.

The estimation of revenue that has not been billed to customers is
considered a key audit matter due to its significance to profit and the
judgment involved in estimating each customer’s electricity and gas
consumption since their last bill.

Our procedures to address the key audit matter and findings:
Our audit procedures to assess the estimate of unbilled revenue and
receivables included ensuring the unbilled revenue reconciles to the
underlying billing system, assessing the methodology used to calculate
the unbilled revenue and recalculating a sample of the unbilled
receivables at the individual customer level, performing trend analysis
and comparing the unbilled receivable to forecasted expectation; and,
comparing the purchased gas and electricity volumes to the sold gas
and electricity volumes assumed in the unbilled sales accrual and
comparing the unbilled sales accrual to revenue.

We found the estimate of unbilled revenue and receivables to be
balanced.

74 Contact Annual Report 2016 | Auditor’s Report

For the year ended 30 June 2016Sustainability
Reporting

Information other than the Consolidated Financial
Statements and Auditor’s Report
The directors are responsible for the other information. The other
information comprises the directors’ report, statutory information,
sustainability reporting, five year summary and statistics and corporate
governance policies.

Our opinion on the consolidated Financial Statements does not cover
the other information and we do not express any form of audit opinion
or assurance conclusion thereon.

In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the
Financial Statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have
nothing to report in this regard.

Directors’ Responsibilities for the Consolidated
Financial Statements
The directors are responsible on behalf of the entity for the preparation
and fair presentation of the consolidated Financial Statements in
accordance with NZ IFRS, 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.

In preparing the consolidated Financial Statements, the directors are
responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters relating to going concern
and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.

Auditors’ Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (NZ) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated Financial Statements.

A detailed description of the auditors’ responsibilities including those
related to assessment of risk of material misstatement, evaluation of
appropriateness of going concern assumptions and determining key
audit matters are available on the External Reporting Board website:
https://www.xrb.govt.nz/Site/Auditing_Assurance_Standards/
Current_Standards/Page1.aspx

David Gates (Partner)
For and on behalf of KPMG
Wellington
12 August 2016

Report Content

Sustainability Data

78
79
83
85

GRI Content Index

Independent Accountant’s
Assurance Statement

76 Contact Annual Report 2016 | Auditor’s Report

Corporate Directory

Report
Content

Contact’s 2016 Annual Report is an integrated sustainability report which has been developed in accordance with the core GRI-G4 guidelines.
Contact took a stakeholder led approach to define the non-financial content reported. For the purpose of this report we spoke to people who
represented each of our key stakeholder groups to ask what mattered to them. We then considered their feedback alongside the potential risks,
opportunities and priorities for Contact, and undertook a thematic analysis, and reviewed it for completeness, sustainability context, materiality
and stakeholder inclusiveness. We believe the content of this report reflects the most material issues for Contact.

STAKEHOLDER ENGAGEMENT
Contact’s stakeholder groups have been identified as the major groups who are impacted by our operations, or who have a stake in how
we run. There is regular ongoing dialogue with our stakeholders, we also have a Stakeholder Council with whom we meet twice per year.

Our key stakeholder groups, their issues and our responses are outlined in the following table.

Stakeholders

Customers

Investors

How they talk to us

Key issues

Contact’s response

• Through our contact centres, email,

phone, website, social media and post

• Surveys and market research
• Conversations with employees

• Choice, certainty and control
• Customer service
• Competitive pricing
• Value for money

Investor meetings

•
• AGM
• Email, phone, website, social media

• Earnings growth
• Efficient capital management
• Delivering a strong dividend

Our approach to these issues is outlined
on pages 30 and 31.

Our approach to these issues is outlined
on pages 28 and 29.

and post enquiries

• Contact with our registry

Employees

• Email, meetings, conversations

and intranet

• Surveys such as our annual

engagement survey, and regular
PING surveys

• Delivering on our promises
• Being valued, respected and safe
• Training and development

opportunities

Our approach to these issues is outlined
on pages 36 and 37.

Partners and
suppliers

• Emails, meetings, phone calls,

• Maintaining positive relationships

and conversations

with Contact

• Understanding our needs as

a customer

Each business unit manages their external
supplier relationships, supported by our
team of procurement specialists. We work
hard to build enduring relationships with our
suppliers and take an honest approach to
communication.

Local communities • Local meetings and hui

Tangata whenua
(iwi and hapu)

• Letters, emails, social media and

phone calls

• Consultation relating to consents
• Conversations with our people

• Hui
• Letters, emails and phone calls
• Relationship meetings/conversations
• Consultation relating to consents

Government,
regulatory and
political

• Letters, emails and phone calls
• Meetings
• Consultation processes
• Stakeholder sessions

• Early, open and clear communication
• To be a good neighbour, and to be

Our approach to these issues is outlined
on pages 38 and 39.

accountable

• Building relationships based on trust

• Resource management, stewardship

and ownership
• Treaty of Waitangi
• Sustainability of resources
• Rights and relationships recognised

• Competitive retail market
• Efficiently operating market
• Secure supply of electricity at

a reasonable price

• Assisting delivering on NZ’s

energy targets

• Freshwater reform and NZETS

We have developed a tangata whenua
engagement plan to support our work
towards improving our relationships with
iwi and hapu.

Our approach to these issues is outlined
on page 79.

The sustainability aspects reported in this annual report cover the operations of Contact Energy Limited and its subsidiary Rockgas within
New Zealand for the period 1 July 2015 – 30 June 20161.

Contact does not have a policy on the assurance of non-financial or sustainability data. This report has been assured by Deloitte on behalf
of the Board, and their Independent Assurance Report can be found on pages 85 and 86.

1. On 30 June 2016, Contact Wind and Contact Aria were amalgamated into Contact Energy.

Sustainability
Data

1. Customer numbers

Connections by account type

Residential

Business

Other

Total

FY16

487,500

73,500

1,500

562,500

FY15

482,500

77,000

2,500

562,000

2. Public policy
Changes to legislation and regulation can have a significant impact on Contact, our customers, shareholders and stakeholders. We have a
Government and Regulatory Affairs team who work hard to represent Contact’s views to policy makers and regulators, and seek to influence
legislation, regulation or policy being developed. This table outlines our key positions on issues that we engaged with regulators on in this
financial year.

Issue

Distribution pricing

These are the prices that
distributors charge for delivering
electricity to consumers.

Input methodologies

These are the building blocks used
by the Commerce Commission
in their review of how the monopoly
electricity distribution businesses
recover their costs.

Policy position

Contact made a submission to the Electricity
Authority on its review of the implications of evolving
technologies on the pricing of distribution services.

Contact wants to see a more standardised and
simplified approach to distribution pricing that is fit for
the future and a shift towards more cost-reflective
pricing (e.g. pricing that reflects the costs of providing
electricity at different times of the day).

A review of input methodologies for regulated lines
companies is currently being undertaken by the
Commerce Commission. Contact’s submission
focused on the emergence of new technologies and
whether the current input methodologies remain fit
for purpose for the adoption of these technologies,
and whether the current weighted average cost of
capital settings (WACC) provides a fair balance of
risk and return/cost for consumers and regulated
service providers.

Recognising that such a change will impact on customers
we recommended rolling out any changes in a way that
keeps customers informed, supports customers to
transition safely to a new pricing structure, and has in
place a support programme for vulnerable customers.

Contact’s view is that regulatory settings for investment
in new technology should promote the best long term
outcome for consumers and ensure that there is a level
playing field and open access for the provision of new
technologies like battery services. In other words
networks, retailers and third parties should all be able to
provide battery services on the same basis and be able to
access market prices for all related services they provide.

Transmission pricing

This is the methodology used
by Transpower to allocate
transmission costs.

In May 2016 the Electricity Authority released its
second issues paper on the Transmission Pricing
Methodology (TPM). The TPM determines which
parties pay, and how much they pay for New Zealand’s
transmission services. Currently, the costs are around
$900 million per year for New Zealand.

The paper proposes changes to the way TPM charges
are recouped, with the proposal focusing on a move to
a beneficiary pays type approach. In late July Contact
made a submission supporting the Electricity Authority’s
proposal at a principled level as well as setting out some
of the issues we believe need to be worked through.

Emissions
Trading Scheme

Fresh water

Contact made a submission to the NZETS Review in
February 2016. Our position is outlined on page 42.

Contact’s position on fresh water can be found at
www.contact.co.nz/water. This position formed the
basis of our submission to the Waikato Regional
Council to assist in the development of their “Let’s talk
water” document, available on the Waikato Regional
Councils website.

78 Contact Annual Report 2016 | Sustainability Reporting

3. Memberships of associations or advocacy organisations

6. Workforce by gender and employment type

Holds a position on the governance body

The Electricity and Gas Complaints Commissioner Scheme

Electricity Retailers’ Association of New Zealand

Gas Industry Company

Participates in projects or committees

Retailers Working Group Forum

Business New Zealand Energy Council

The Sustainable Business Council

Land and Water Forum

4. Resource consents
This table outlines our resource consent breaches in FY16, all of which were minor. See page 40 for more information.

Description of breach

Non-toxic spill

Short term river temperature consent exceedence

Property damage from geothermal output test

Spill of hazardous substance

Pond leakage

Small discharge of oil to river

Scale

Minor

Location

Reported to Council

Penalty

Taranaki – Patea Stream

Wairakei

Te Huka

Ohaaki

Wairakei

Yes

Nil

5. Contact’s direct (Scope 1) emissions
This table reports on greenhouse gas emissions (tCO2e) directly emitted through our operations (on an operational control basis), including from
our power stations, vehicles and use of SF6, and includes all gases as per the most recent Intergovernmental Panel on Climate Change (IPCC)
report. The emissions factors used were from the Ministry for the Environment (2015) Guidance for Voluntary Corporate Greenhouse Gas
Reporting and the Emissions Trading Scheme (for geothermal). We have used FY12 as the base year to show our emission reductions over time.

Emissions (tCO2e)

Thermal Generation
Emission Intensity
(tCO2 per MWh)

Total Generation
Emission Intensity
(tCO2 per MWh)

FY16

FY15

FY121

FY16

FY15

FY12

FY16

FY15

FY12

1,167,091

1,494,819

2,341,574

0.504

0.4752

0.433

0.128

0.1562

0.234

809

654

900

–

Fuel used for electricity
generation

Fuel used in vehicles
Fugitive emissions – SF6

Total

1,168,554

1,495,719

2,341,574

1. Vehicle emissions were not recorded in FY12.
2. FY15 data for emissions intensity restated as incorrectly calculated.
3. SF6 is used 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.

FY16

Leadership Team

Corporate

Customer

Generation
& Development

Total

FY15

Leadership Team

Corporate

Customer

Generation
& Development

Total

7. Employee diversity

Total
Headcount

168

526

336

1038

Total
Headcount

183

510

364

1066

Female

Male

Fixed term Permanent

Permanent
part-time

Permanent
full-time

307

461

219

281

577

158

466

316

948

145

414

304

871

Female

Male

Fixed term Permanent

Permanent
part-time

Permanent
full-time

107

303

473

207

304

593

118

169

435

336

948

156

389

325

878

Gender

Age

Ethnicity1

FY16

Female

Leadership Team

Corporate

Customer

Generation
& Development

Total

38%

57%

58%

16%

44%

Gender

FY15

Female

Leadership Team

Corporate

Customer

Generation
& Development

Total

33%

58%

59%

16%

44%

Male

62%

43%

42%

84%

56%

Male

67%

42%

41%

84%

56%

<30

30 – 49

50 – 59

60+

European

26%

17%

<30

25%

11%

16%

38%

18%

32%

23%

50%

69%

46%

45%

49%

Age

12%

10%

15%

11%

75%

40%

34%

41%

38%

30 – 49

50 – 59

60+

European

57%

73%

50%

44%

52%

43%

18%

20%

31%

24%

13%

67%

41%

38%

41%

40%

Other
inc. NZer

50%

38%

24%

35%

30%

Other
inc. NZer

56%

40%

26%

37%

32%

Maori

Asian

Pasifika AMELA2 Undisclosed

13%

Ethnicity1

25%

37%

23%

30%

Maori

Asian

Pasifika AMELA2 Undisclosed

11%

19%

30%

22%

25%

1. Employees can indicate more than one ethnic group, therefore percentages do not equal 100%.
2. AMELA: Latin American, Middle Eastern, or African.

80 Contact Annual Report 2016 | Sustainability Reporting

8. Board and Leadership diversity

FY16

Male

Female

Board of Directors

Leadership Team

Board of Directors1

60%

62%

FY15

Male

Female

Total

40%

100%

38%

100%

71%

66%

Total

29%

100%

34%

100%

1. Board ethnicity data was not recorded in FY15. Leadership Team ethnicity data is included with employee diversity statistics on page 81.

9. Employee absentee rate1

Total scheduled days

Total absence days

Lost days as a percentage

1. Measures days lost as a percentage of total scheduled work days for employees.

10. Safety data

Occupational Disease Rate – Controlled1

Lost Time Injury Frequency Rate – Controlled2

Lost Time Injury Frequency Rate – Monitored2

1. Measures occupational disease as a rate of hours worked for employees and contractors working under our HSE management systems.
2. Measures the rate of days lost by employees and contractors relative to hours worked.

11. Gender pay ratio by business group1

Corporate

Customer

Generation & Development

Total

1. We measure pay equity difference within salary bands using the average compa-ratio between males and females.

FY16

NZ European
/Pakeha

60%

Maori

Total

40%

100%

FY16

Females

Males

All
employees

113,365

148,489

261,854

4,335

3,052

7,387

FY16

1.5

5.0

FY15

0.3

11.0

FY16

FY15

96.70%

98.40%

98.50%

99.80%

96.70%

95.60%

98.30%

99.50%

GRI Content
Index

General standard disclosures

Disclosure

Description

Strategy and analysis

Page

G4-1

Statement from the most senior decision maker

CEO & Chairs Q&A pp.4-7

Organisational profile

G4-3

G4-4

G4-5

G4-6

G4-7

G4-8

G4-9

G4-10

G4-11

G4-12

G4-13

Name of the organisation

Brands, products, and/or services

Headquarter location

Countries in operation

Nature of ownership

Markets served

Scale of the organisation

Contact Energy Limited

Our business pp.16-17

Contact at a glance p.14

Contact operates only in New Zealand

Listed New Zealand Limited Liability Company

Contact at a glance pp.14- 17

Total employees p.81, contractor workforce data not available
Number of operations p.15
Net revenue p.60
GWh sold p.30

Employee statistics

Sustainability data pp.81-82, contractor workforce data not available

Employees covered by collective bargaining agreements

11% of total Contact Energy employees were covered by collective
bargaining agreements as at 30 June 2016. Contractor data not collected

Organisation’s supply chain

Our business pp.16-17

Significant changes regarding size, structure, or ownership

In August 2015 Origin Energy sold its 53% shareholding in Contact.
See CEO & Chairs Q&A for other changes

Not specifically addressed. Potentially adverse environmental impacts are
addressed through adaptive management including official (often publicly
notified) resource consent assessments

G4-14

Precautionary approach

G4-15

G4-16

G4-EU1

G4-EU2

G4-EU3

G4-EU4

G4-EU5

External charters, principles, or other initiatives

None noted

Memberships in associations and advocacy organisations

Sustainability data p.80

Installed capacity

Net energy output broken down by primary energy source
and by region

Number of customer accounts

Contact at a glance p.15

Sustainability data p.79

Length of transmission and distribution lines by region
Allocation of CO2 emissions permits

Not applicable

Zero allocations

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

Financial statements p.56

Report content p.78

GRI index – specific standard disclosures p.84

The boundary of almost all material topics is within Contact Energy, apart
from occupational health and safety and customer safety where there are
impacts created by companies in our supply chain as well as ourselves

Restatements of information

FY15 Thermal generation emission intensity data p.80

Significant changes in the scope, and aspect boundaries
compared to previous years

No significant changes

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.78

Report profile

G4-28

G4-29

G4-30

G4-31

G4-32

Reporting period

Financial year

Date of most recent previous report

The previous report was dated 3 September 2015

Reporting cycle

Contact point for questions

Chosen ‘In accordance’ option, GRI index and external
Assurance Report

G4-33

External assurance for the report

Annual

Corporate Directory p.87

Report content p.78

Letter of Assurance, pp.85-86

82 Contact Annual Report 2016 | Sustainability Reporting

Disclosure

Description

Governance

Page

G4-34

Governance structure

Governance, Principle 3 p.45

Ethics and integrity

G4-56

Organisation’s values, principles, standards
and norms of behaviour, and codes of ethics

Our Tikanga p.12-13

Specific standard disclosures

Material Aspect Description

Category: Economic

DMA

Economic Performance

G4-EC2

Financial implications of climate change

Availability and Reliability (Sector specific)

DMA

EU10

Page

Omissions and explanations

pp.28-29, p.42

p.42

pp.32-33

Planned capacity against projected electricity demand

pp.32-33, p.15

Category: Environmental

DMA

Water

G4-EN8

Total water withdrawal by source

DMA

Effluents and Waste

G4-EN22

Total water discharge by quality and destination

DMA

Biodiversity

G4-EN13

Habitats protected or restored

DMA

Emissions

G4-EN15

Direct (Scope 1) Greenhouse gas emissions

DMA

Environmental compliance

G4-EN29

Non-compliance with environmental laws and regulations

Category: Social

DMA

Occupational Health and Safety

G4-LA6

Workplace injuries

DMA

Training and Education

Own indicator Performance and career development reviews

DMA

Diversity and Equal Opportunity

G4-LA12

Gender and ethnic diversity

DMA

Equal remuneration for men and women

G4-LA13

Gender pay ratio

DMA

G4-SO1

DMA

Local Communities

Community engagement and development

Public policy

G4-S06

Total value of political contributions

DMA

Customer health and safety

G4-PR2

Incidences of non-compliance

DMA

Product and Service Labelling

G4-PR5

Customer satisfaction

DMA

Access (Sector specific) – socio-economic

Own measure Reduction of customer debt expressed as a percentage

p.41

p.42

p.80

p.40

pp.34-35

pp.34-35, p.82

pp.36-37

pp.81-82

pp.36-37

pp.36-37, p.82

pp.38-39

p.79

p.84

pp.34-35

pp.30-31

Contractor data not available for
Absentee Rate, Occupational Disease
Rate and fatalities.

Employee category data not available

Leadership Team data not reported.
We measure pay equity within salary
bands which is not applicable to the
Leadership Team.

No donations or in kind contributions
were made to any political party. In line
with our Gifts and Gratuities policy,
donations to any political party should
not be made without the approval of
the Board.

Independent Accountant’s
Assurance Statement

TO THE DIRECTORS OF CONTACT ENERGY LIMITED

REPORT ON THE SUSTAINABILITY CONTENT OF THE
2016 ANNUAL REPORT
We have been engaged by the Directors to conduct a limited
assurance engagement relating to the sustainability content of Contact
Energy Limited’s (the “Company’s”) 2016 Annual Report (the “Annual
Report”) for the year ending 30 June 2016.

Board of Director’s Responsibility
The Board of Directors of Contact Energy Limited is responsible for
ensuring that the Annual Report is presented fairly in accordance
with the “Core” requirements of the Global Reporting Initiative’s G4
Sustainability Reporting Guidelines (“the GRI G4 Guidelines”). This
responsibility includes the design, implementation and maintenance of
internal control relevant to the Company’s compliance with the GRI G4
Guidelines, as well as:

• 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.

Independent Accountant’s Responsibility
Our responsibility is to express an opinion whether, based on the
procedures performed:

• Core requirements of the GRI G4 Guidelines — anything has come
to our attention that causes us to believe that the 2016 Annual
Report content has not been prepared, in all material respects, in
accordance with the Core requirements of the GRI G4 Guidelines;
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 2016 Annual Report to meet the
requirements of the GRI G4 Guidelines General and Specific
Standard Disclosures identified in the GRI Index on pages 83-84
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”) issued by the New Zealand
Auditing and Assurance Standards Board, to provide limited assurance
that the 2016 Annual Report complies with the Core requirements of
the GRI G4 Guidelines against which the 2016 Annual Report has been
assessed in all material respects. 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.

These procedures have been undertaken to form a conclusion that
nothing has come to our attention that causes us to believe that the
2016 Annual Report does not comply, in all material respects, with
the Core requirements of the GRI G4 Guidelines for the year ending
30 June 2016.

A limited assurance engagement is substantially less in scope than
a reasonable assurance engagement in relation to both the risk
assessment procedures, including an understanding of internal control,
and the procedures performed in response to the assessed risks.

The procedures performed in a limited assurance engagement vary
in nature and timing from, and are less in extent than for, a reasonable
assurance engagement. Consequently, the level of assurance obtained
in a limited assurance engagement is substantially lower than the
assurance that would have been obtained had a reasonable assurance
engagement been performed. Accordingly, we do not express a
reasonable assurance opinion about whether the Company’s Annual
report has been prepared, in all material respects, in accordance with
the Core requirements of the GRI G4 Guidelines.

84 Contact Annual Report 2016 | Sustainability Reporting

Inherent Limitations
Because of the inherent limitations of any limited assurance
engagement, it is possible that fraud, error or non-compliance may
occur and not be detected. A limited assurance engagement is not
designed to detect all instances of non-compliance with the Core
requirements of the GRI G4 Guidelines as it generally comprises
making enquiries, primarily of the responsible party, and applying
analytical and other review procedures. The conclusion expressed
in this report has been formed on the above basis.

Our Independence and Quality Control
We have complied with the independence and other ethical
requirements of Professional and Ethical Standard 1 (Revised): Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing
and Assurance Standards Board, which is founded on fundamental
principles of integrity, objectivity, professional competence and due
care, confidentiality and professional behaviour.

Other than in our capacity as independent accountant 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.

The firm applies Professional and Ethical Standard 3 (Amended):
Quality Control for Firms that Perform Audits and Reviews of Financial
Statements, and Other Assurance Engagements issued by the New
Zealand Auditing and Assurance Standards Board, and accordingly
maintains a comprehensive system of quality control including
documented policies and procedures regarding compliance with
ethical requirements, professional standards and applicable legal and
regulatory requirements.

Use of report
This report is provided solely for your exclusive use and solely for the
purpose of attaching this report to your Annual Report. Our 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 express consent. We accept or
assume no duty, responsibility or liability to any other party in
connection with the report or this engagement including without
limitation, liability for negligence in relation to the opinion expressed
in this report.

Conclusion
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 2016 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 2016; 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 2016 Annual Report to meet the
requirements of the GRI G4 General and Specific Standard
Disclosures identified in the GRI Index on pages 83-84 has not
been fairly stated, in all material respects, for the year ending
30 June 2016.

Chartered Accountants
15 August 2016
Wellington, New Zealand

This limited assurance report relates to the 2016 Annual Report of Contact Energy Limited for the year ended 30 June 2016 as presented on Contact Energy Limited’s
website. Contact Energy Limited’s Board of Directors is responsible for the maintenance and integrity of Contact Energy Limited’s website. We have not been engaged to
report on the integrity of Contact Energy Limited’s website. We accept no responsibility for any changes that may have occurred to the 2016 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 15 August 2016 to confirm the information included in the
Annual Report presented on this website.

Corporate
Directory

BOARD OF DIRECTORS
Sir Ralph Norris (Chairman)

Victoria Crone

Whaimutu Dewes

Rob McDonald

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

Annika Streefland
General Manager — People and Culture

Catherine Thompson
General Counsel

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

COMPANY NUMBERS
NZ Incorporation 660760
ABN 68 080 480 477

AUDITOR
KPMG
PO Box 996
Wellington 6140
New Zealand

REGISTRY
Link Market Services Limited is Contact’s registrar for shares and
bonds. To view your investment portfolio, supply your email address,
change your details, or update your payment instructions relating to
Contact, please contact Link Market Services Limited.

New Zealand
Email: contactenergy@linkmarketservices.co.nz
Online: investorcentre.linkmarketservices.co.nz
Mail: Link Market Services Limited, PO Box 91976, Auckland 1142
Office: Level 11, Deloitte Centre, 80 Queen Street, Auckland 1010
Phone: +64 9 375 5998
Fax: +64 9 375 5990
Web: linkmarketservices.co.nz

Australia
Email: contactenergy@linkmarketservices.com.au
Online: investorcentre.linkmarketservices.com.au
Mail: Link Market Services Limited, Locked Bag A14,

Sydney South, NSW 1235

Office: 680 George Street, Sydney, NSW 2000
Phone: +61 2 8280 7111
Fax: +61 2 9287 0303
Web: linkmarketservices.com.au

Electronic investor communication
We encourage investors to elect to receive investor communications
electronically as it keeps costs down, delivery of our communication to
you is faster and it is better for the environment. You can manage your
holding online or contact our registry directly to update your information.

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

INVESTOR RELATIONS ENQUIRIES
Fraser Gardiner
Head of Investor Relations and Communications
Email: investor.centre@contactenergy.co.nz
Phone: +64 4 499 4001

SUSTAINABILITY

Sustainability enquiries
Kaapua Smith
Sustainability Manager
Email: kaapua.smith@contactenergy.co.nz

Assurer
Deloitte
P O Box 1990
Wellington 6140
New Zealand

86 Contact Annual Report 2016 | Sustainability Reporting

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.

n
g
s
e
D