Through
their eyes
We see the world
through the eyes
of our customers,
our people and our
communities…
…and as one of New Zealand’s
largest listed companies
we believe it’s important
to operate our business
in a sustainable way,
that considers the needs
of future generations.
Contents
4
Q&A with Sir Ralph
and Dennis
This Annual Report is dated 14 August 2017
and is signed on behalf of the Board by:
Sir Ralph Norris
Chairman
Sue Sheldon
Director
Our Board
8
10
11
Leadership Team
Our Tikanga
Contact at a glance14
18
Living our Tikanga
20 Focusing on what matters most
22 Delivering on our core business
30 People
36 Environment
41 Community
43
Disclosures and financials
44 Governance
47 Remuneration Report
51 Statutory Disclosures
55 Sustainability Reporting
61 Financial Statements
80
83 Corporate Directory
Independent Auditor’s Report
Q&A
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.
“Our Customer business is
about solving problems for
customers within a
fast‑paced environment.”
Sir Ralph Norris
In a rapidly changing industry,
what’s Contact’s strategy?
As a Board our focus is on ensuring we have
the right capabilities within Contact to deliver
on our Purpose and we work with the
Leadership Team to provide clarity on what’s
important so that they can focus on what
really matters. I expect a high level of
performance from Contact, but as a Board
we hold ourselves to the same standards,
and this year we conducted a fulsome,
independent review of the Board’s
performance, so that we too are clear about
areas for improvement.
A good mixture of people and diversity of
background, gender and culture are really
important to the composition of a board and
to the success of a company. During the year
Elena Trout joined the Contact Board – a
Board which is now one of the most diverse
among New Zealand listed companies and
which has significant experience across a
wide range of key disciplines, equipping us
well to navigate times of great change and
disruption in the energy sector and deliver
for shareholders and customers.
Contact’s challenge is to deliver
competitively priced products and services
to customers that they value, ensuring we
have the right amount of safe and reliable
energy supply, while managing our business
in an environmentally and financially
sustainable way.
I have a strong belief that success starts with
best-in-class engagement – with customers,
employees and stakeholders. For any
organisation to be successful it must
engender strong people and customer
engagement and Contact is no exception.
We must clearly communicate our key areas
of focus and why we’ve chosen these, and
position ourselves to be agile in all we do as
a company.
We have two distinct businesses with different
strategic drivers that are in different
phases. Our Generation business continues
to be about the efficient production of
electricity. As market conditions do not
require us to build any new plant in the
short term the team’s focus is on
continuous improvement, and looking at
opportunities for innovation in order to get
even better at what we do, to further reduce
the cost of energy and extend the life of our
generation assets. Our Customer business is
about solving problems for customers within
a fast-paced environment. This requires us
to leverage new technology and be more
agile in delivering a best-in-class
customer experience.
To provide greater transparency on the
relative performance of these two
businesses, both internally and externally,
we altered the structure of our reporting
approach during the year and we are starting
to see an increased focus on the key drivers
of profitability.
In terms of the broader industry, we continue
to advocate for the right regulatory settings to
ensure consumers obtain the maximum
benefit and competitive outcomes from new
and existing technologies.
How has Contact delivered for
shareholders this year?
From a financial point of view we have
delivered a dividend of 26 cents per share,
in line with the 26 cents per share declared
in 2016, while also reducing debt by $106
million during the year. This comes off the
back of a statutory profit of $150 million,
up from a $66 million statutory loss
reported last year, which contained
impairments. EBITDAF1 for the year was
$494 million, down $29 million as a result
of unfavourable hydrology.
We have also changed our distribution
policy. This is to target a distribution of
between 80% and 90% of operating free
cash flow2 on average over time once our
net debt to EBITDAF ratio is below 2.8x.
We will transition to the policy and for
financial year 2018 will target an ordinary
dividend of 32 cents per share, an
increase of 23% on financial year 2017.
We were able to make this change after
working with management and with the
support of respected strategy
consultants to confirm the strategy and
focus for the company.
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 66.
2. Operating 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.
Operating free cash flow is equal to cash flows
from operating activities less stay in business
capital expenditure and interest costs.
5
I’m most proud of the team’s achievements
in lifting employee engagement by 12
percentage points and improving the
experience we provide for customers. This
is evidenced by the 17 basis point
improvement in our customer advocacy
measure – Net Promoter Score (NPS). Of
course, diversity in its broadest sense is
also key to strong performance, and so I’m
pleased we have introduced a diversity
and inclusion policy that signals our intent,
as well as adopting greater transparency
in reporting relating to diversity. During the
year Contact was ranked fifth out of over
5,000 internationally publicly listed
companies in the Thomson Reuters
Diversity and Inclusion Index, making us
one of the most diverse and inclusive
workplaces globally.
Dennis Barnes
What were the key events in the
market this year?
The year has seen a sudden and
significant swing in hydrology with above
average hydro storage at the beginning of
the year giving way to record low hydro
inflows into the key South Island lakes
culminating in a ‘dry winter’. This clearly
illustrated the value of a diverse generation
portfolio, powered by a range of fuels, to
ensure flexibility and security of supply for
our customers.
There was plenty of activity in the
regulatory area, with the Commerce
Commission, the Electricity Authority and
the Ministry of Business, Innovation and
Employment all consulting on various
aspects of the regulatory framework. In
relation to all this activity I urge regulators
to put customers at the centre of their
world – in my view a customer-centric view
of regulation is likely to result in the best
market outcomes.
What were the highlights for
Contact’s Customer business?
We continued a relentless focus on
improving our customer experience and
value proposition, which is starting to be
evidenced in customer retention, advocacy
and innovation in the products and rewards
we are offering to our customers. I am
excited to see customers advocating for us
in greater numbers, with our Net Promoter
Score now at +14, up from -3 last year. This
has been achieved off the back of a refresh
of the range of products and services we
offer our customers and a new digital
experience. We have also introduced new
tools and training for our teams who
communicate directly with customers and
we work with customers on the development
of new offerings. We use the feedback
customers and our employees provide
every day to help us identify where to focus
our improvement efforts.
One of the success stories of the year
was the change we made to the rewards we
offer our customers. We are now proud
members of the AA Smartfuel programme
and over 50,000 customers are receiving
more instant rewards through this
partnership. Every day customers tell us
stories of their delight with this move and to
date our customers have benefited from
over $500,000 worth of savings back into
their pockets.
Improving the experience we provide
customers has also supported growth, with
our overall customer numbers for the year
across electricity, natural gas and LPG rising
from 562,500 to 567,000, in an extremely
competitive market. More customers are
choosing to stay with Contact, as we again
recorded a level of customer switching
below that of the overall market, and our
sales volume for the year was up slightly.
This year we also saw the results of further
enhancements we’ve made to the support
we provide to customers having difficulty
paying their bill. Early intervention and a
wider range of payment options have seen
the average value of retail customer debt at
the stage of disconnection drop.
A focus on working together with customers
to find solutions to concerns raised has also
seen us this year record an all-time low level
of customer complaints about Contact.
These now only account for 15% of the
market’s deadlocked complaints, even
though we supply over 20% of customers.
What were the highlights for your
Generation business?
Record low inflows to the South Island
lakes towards the end of the financial year
saw a significant reduction in our hydro
generation compared with prior periods,
but also demonstrated the importance of
our diverse and flexible generation
portfolio. During the final quarter of the
financial year our gas-powered plants ran
hard in order to meet New Zealand’s
electricity needs during the peak of winter
demand. However as a result of this
increase our percentage of generation
from renewable sources fell to 80% this
year, our greenhouse gas emissions
increased and our overall cost of energy
was higher.
Our focus on continuous improvement has
seen us further optimise the way we
operate and maintain our portfolio of
power stations, and progress our process
safety journey. Our Taranaki power station
for example, which has been a vital asset
during the ‘dry winter’, is now able to run
more flexibly when required by the market.
Our safety work has focused on
developing greater visibility and focus on
our performance in process safety. We are
striving for world-class performance and
this year have provided our expertise to
other energy businesses overseas who
recognise the work that we have done.
During the year we also conducted some
research and development into uses of
new technology that has the potential to
provide Contact with sustainable new
revenue in the future. Work in this area
involved collaborating with several
network companies, technology suppliers
and local authorities to trial a range of
solutions combining home solar
generation, battery energy storage and
“At Contact we
have a strong
focus on people
engagement,
and creating a
culture that
embraces
diversity.”
hot water diverters, all controlled via a
real-time mobile app. The combination of
this technology at scale has the ability to
avoid the need for large capital investment
by network companies that is ultimately
paid for by consumers. It will also allow
consumers and retailers to be rewarded
for time-shifting electricity load, as well as
offering resilience to households in the
event of natural disasters. We also
continue to support the adoption of
electric vehicles in New Zealand through
our involvement in various industry forums
and are on track to meet our target of
having 30% of our fleet electric by 2019.
How does Contact embrace
the concept of sustainability in
its operations?
We recognise the wider context we
operate in and consider the environmental,
social and economic drivers that impact
our business. Our actions are guided by
our Tikanga. My personal view is that it’s
important to truly understand what issues
matter to our stakeholders and to be
proactive and deliberate in the way we
work with them to address these,
considering the short-term factors
impacting our business as well as the
longer-term intergenerational context.
This year we created New Zealand’s first
corporate Green Borrowing Programme.
This provides our investors with an
opportunity to invest in certified green debt
issued by a New Zealand corporate for the
first time ever.
also saw our health and safety performance
improve. While unfortunately 10 of our
people were hurt during the year, most
of the injuries were less severe strains
or sprains.
In local communities where we operate we
continued to invest in initiatives that
support issues which they have told us are
important. This year we invested $346,144
across New Zealand and our employees
contributed 1,796 volunteer hours to help
community organisations.
We have a strong focus on people
engagement, and creating a culture that
embraces diversity. We are targeting
employee engagement of 82% or higher,
the AON Hewitt Best Employer level, and
this year we took another step towards our
target with a 12 percentage point increase
to take Contact’s overall engagement
score to 68%.
We will continue to operate sustainably
in the year ahead. A key priority is taking
the lead in decarbonisation of
New Zealand’s energy sector and working
with industrial companies to find
innovative ways for new technology and
operational efficiencies to help propel this
shift for their businesses and for
New Zealand.
An external audit highlighted our
continued improvement in our safety
culture this year. Our continued focus on
empowering frontline workers on safety
6 Contact Annual Report 2017
7
CEO and Chairman’s Review Our Board
Victoria Crone
Independent Non-Executive Director
Sue Sheldon CNZM
Independent Non-Executive Director
Term of office
Appointed director 12 November 2015,
last elected 2015 annual meeting.
Term of office
Appointed director 16 March 2009,
last re-elected 2016 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
chief executive of Callaghan Innovation
and chair of Figure.NZ. 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.
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 and a director of Real
Journeys Limited. Sue has previously held
the roles of chairman of Chorus Limited,
Paymark Limited, NZ Global Women and
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.
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.
Whaimutu Dewes
Independent Non-Executive Director
Elena Trout
Independent Non-Executive Director
Rob McDonald
Independent Non-Executive Director
Term of office
Appointed director 22 February 2010,
last re-elected 2016 annual meeting.
Term of office
Appointed director 3 November 2016,
last elected 2016 annual meeting.
Term of office
Appointed director 12 November 2015,
last elected 2015 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
Gisborne. He is the chairman of Aotearoa
Fisheries Limited and Sealord Group
Limited, and is a 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.
Board committees
Member of the Health, Safety and
Environment Committee.
Elena is an experienced company director
and a professional engineer who has held
a number of leadership positions in the
transport, infrastructure and energy
sectors. She has over 30 years of
experience in the management, planning
and delivery of large projects. She is a
director of Energy Efficiency and
Conservation Authority, Harrison Grierson
Holdings Limited and Marsden Maritime
Holdings Limited. Her former directorships
include Electricity Authority and
Transpower New Zealand Limited. She is
the immediate Past-President of the
Institution of Professional Engineers
New Zealand (IPENZ) with membership
status of Fellow as well as Fellow of
Engineers Australia, and is a chartered
member of the Institute of Directors. Elena
holds a Master’s of Civil Engineering
degree from Canterbury University.
Board committees
Member of the Audit 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 Program of Management
Development at Harvard Business School.
He is a Fellow of Chartered Accountants
Australia and New Zealand.
8 Contact Annual Report 2017
9
Our Board Leadership
Team
Our Tikanga
Dennis Barnes
Chief Executive Officer
Tania Palmer
General Manager, People and Safety
James Kilty
Chief Generation and Development Officer
Catherine Thompson
General Manager, External
Relations and General Counsel
Graham Cockroft
Chief Financial Officer
Venasio-Lorenzo Crawley
Chief Customer Officer
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.
1
2
3
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.
4
We encourage diversity and expression of ideas
and opinions but require alignment with Contact’s
Principles, Commitments and the policies
established to implement them.
5
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.
1
Deliver market-leading performance
for shareholders by identifying, developing,
operating and growing value-creating businesses.
2
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.
3
Create a rewarding workplace for our people
by valuing everyone’s contribution, encouraging
personal development, recognising good
performance, and fostering equality of opportunity.
4
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.
5
Respect the rights and interests of our business
partners, by working collaboratively to create
valued and rewarding partnerships.
10 Contact Annual Report 2017
11
l
e
c
n
a
g
a
t
a
t
c
a
t
n
o
C
13
Every day New Zealanders
rely on energy to do the
things they care about as
they live, work and play in
this great country of ours.
12 Contact Annual Report 2017
Contact at a glance
80%
Electricity generated
from renewable
sources
Customer connections and volume sold by energy type as at 30 June
Energy type
Electricity
Natural gas
LPG
Total
1.
GWh = Gigawatt hours.
Connections
423,000
64,000
80,000
567,000
2017
Volume sold
7,808 (GWh)1
685 (GWh)
72,700 (Tonne)
Connections
Volume sold
2016
425,000
62,000
75,500
562,500
7,890 (GWh)
618 (GWh)
69,617 (Tonne)
Customer connections by account type as at 30 June
Generation by type for the year ended 30 June
Residential
Business
Other2
Total
2017
2016
Generation type
492,000
487,500
Hydro (GWh)
74,000
73,500
Geothermal (GWh)
1,000
1,500
Thermal (GWh)
567,000
562,500
Total
2017
3,562
3,233
1,742
8,537
2016
4,091
3,297
1,614
9,002
2.
Includes LPG connections where data on account type was unavailable.
Generation by station
North Island
Name
Output
Commissioned Type
Ahuroa
–
2011
Gas storage facility
Ohaaki
Geothermal
1989
Flash steam
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
Location
Taranaki
Waikato
Waikato
Taranaki
Taranaki
Taupo
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
South Island
Capacity
(MW)3
2017
Generation
(GWh)
2016
Generation
(GWh)
Ability to store
and extract gas
as conditions
require
Can store up to 18 PJ4
of gas – enough to run
our Stratford peakers for
12 months at full capacity
50
55
377
210
28
166
44
132
155
336
403
1,020
495
189
1,184
226
1,121
1
337
407
334
506
196
1,282
221
1,075
–
Name
Output
Commissioned Type
Location
Capacity (MW)3
2017
Generation
(GWh)
2016
Generation
(GWh)
Clyde
Hydro
1992
Conventional
Roxburgh
Hydro
1956-1962
Conventional
Otago
Otago
432
320
1,999
1,563
2,289
1,802
3. MW = Megawatts.
4.
PJ = Petajoules.
Legend
Head office
Power stations
Offices
Gas storage facility
LPG sales and distribution
LPG franchises
Lake Hawea control structure
14 Contact Annual Report 2017
15
Contact at a glance Our business
Our activity
helps us deliver
on our Tikanga
Inputs
Source
Generate
Wholesale
Distribute
Sell and serve
We purchase goods and
services from more than
2,000 suppliers. We purchase
things like metering services,
geothermal engineering and
drilling services, office supplies,
and machinery. Our biggest
purchase is gas which we use
to run our thermal power
stations. We also buy and
on-sell LPG to our customers.
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
purchase the electricity
needed for sales to our
customers. We also trade
a range of financial products
to manage our risk and
generate value.
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.
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 Tikanga is all about
delivering value to our broad
range of stakeholders.
This year we powered the
homes and businesses
of our 567,000 customers,
produced 8,537 GWh of
energy, delivered $346,144
dollars into the community
and employed 1,026 people.
We have also delivered a
dividend of 26 cents per share
to our investors.
16 Contact Annual Report 2017
17
Living our Tikanga
We strive to operate in
a way that balances
our economic,
environmental,
cultural and social
responsibilities and
each year in this report
we talk about our
approach to managing
these and how we’ve
performed.
As an energy company that runs both
a Generation and Customer business, we
have a large number of stakeholders
who are vital to our company’s success.
18 Contact Annual Report 2017
19
19
Living our Tikanga Focusing on
what matters most
To ensure that we’re reporting on the
things that our stakeholders care
about, we ask them what matters most.
We conduct interviews with representatives
from our key stakeholder groups, and also
hold an annual Stakeholder Council
meeting. We also draw on information
obtained through our regular stakeholder
engagement and consider this alongside
global trends and research and Contact’s
own strategy and risks.
What our stakeholders told us:
Customers
Investors
They’ve told us they want choice,
certainty and control. Customer
service, competitive pricing and value
for money are also very important to
them.
Earnings growth, efficient capital
management, and a strong dividend are
important to them.
Employees
Partners and suppliers
Our people have told us delivering on
our promises and being valued,
respected and safe are important.
They’ve told us that maintaining positive
relationships and ensuring that they
understand our evolving needs are key.
Communities
Tangata whenua
Government
Our communities want us to be a good
neighbour, to look after our natural and
shared resources, and to be an active
part of the communities in which we
operate.
Partnership, protection and
participation in the management of
natural resources alongside social,
cultural and economic development
are key issues for them.
A competitive retail market, secure
supply of electricity at reasonable
prices, fresh water, and delivering on
New Zealand’s energy and climate
change targets are important to our
government stakeholders.
We take this information and use it to identify the issues of highest
importance to stakeholders that Contact can influence. We then
review it for completeness, sustainability context, materiality and
stakeholder inclusiveness – to ensure that we are covering issues
across the economic, social, cultural and environmental spectrum.
While all the issues included in the graph are important, our
focus is on those that are most important. These issues are all
covered in our 2017 Annual Report, which we believe gives you,
our stakeholders, a balanced view of our performance.
Most important issues in 2017
H
G
H
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S
R
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D
L
O
H
E
K
A
T
S
O
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E
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N
A
T
R
O
P
M
I
MOST IMPORTANT
Financial
sustainability
Customer
experience
Emissions
Education
Resource
management
Biodiversity
Access to energy
Housing
Immigration
Leadership/
Issues championship
Jobs
Land management
Diversity
Water
Changing workforce
Public policy
Local communities
Tangata whenua
New technology
Value for money
Culture
Safety
Reliable,
renewable
energy supply
Technology/
IT systems
Leveraging
investments
Nimble
competitors
Changing
economic
structures
Customer
wellbeing
Waste
Noise
International
issues
Data
Oceans
IMPACT CONTACT HAS ON THESE ISSUES
HIGH
Performance highlights
DELIVERING
ON OUR CORE
BUSINESS
Customer experience
Access to energy
Reliable renewable
energy supply
Financial sustainability
• Customer advocacy (Net
• New website, digital
Promoter Score) up to +14
from - 3
• Total customer numbers up
4,500 to 567,000
• More customers choosing to
stay with Contact, with a lower
level of switching than the
market
experience launched and
AA Smartfuel customer
rewards introduced
• Earnings (EBITDAF)
$494 million, down 5.5%
• 26 cents per share full year
dividend declared
• Cost of energy $258 million
• 80% of electricity from
renewable sources
PEOPLE
Culture
Diversity
Safety
• Employee engagement –
• Contact ranked 5th on
up 12%, to 68%
• Safety performance
Thomson Reuters Global
Diversity and Inclusion Index
improved, with 10 people
hurt, 7 of which were strains
or sprains
• 98% pay equity ratio
between males and females
within salary bands
• Equal gender representation
on our Board
ENVIRONMENT
Emissions
Water
New technology
Biodiversity
• Obtained green certification
for our debt portfolio creating
New Zealand’s first Green
Borrowing Programme
• Our emissions from electricity
generation were up 3% on
prior year, as a ‘dry winter’
resulted in greater thermal
generation use. Overall,
emissions from generation
are down 53%1 since 2012
• 14,000 native trees planted
across our sites
• 15,231,064 megalitres of
water used to generate
electricity, 99% of this is
returned to rivers and
geothermal reservoirs
• 25% of our fleet are
electric vehicles
1. Restated. For more information see section 3 on page 56.
COMMUNITY
Local communities
• $364,144 invested in local
• 1,796 hours spent by
communities
• Over 5,000 people attended a
community open day at Clyde
power station
employees volunteering
in the community
• Contact’s 2017 Reputation
score (RepTrak) increased
by 3.9 to 64.2 out of 100
20 Contact Annual Report 2017
21
Delivering on our
core business
Building great
relationships with our
customers, business
partners and investors
is crucial to our success.
A great customer experience
We deliver a world-class experience,
attract new customers and ensure
more of our existing customers choose
to remain with Contact by
understanding their needs and
expectations, offering value through
the right products and services at a
competitive price, and providing
best-in-class customer service.
Customer feedback, combined with a
focus on developing and empowering our
people to drive change and act in the best
interests of our customers, has
contributed significantly to the increased
performance across our key measures.
Our approach is to provide customers with
the right balance of choice, certainty and
control. The lack of rainfall near South
Island hydro generation storage lakes in
the winter of 2017 has increased the cost
of purchasing electricity for retailers like
Contact, but reinforced the strength of our
business and the service we offer.
We provide protection from these higher
wholesale market prices by offering
customers a fixed retail price as well as
a choice of ways to pay.
Greater choice, inspired by
our customers
While the everyday conversations we have
with customers help to inspire and shape
our products and services, the
introduction of our customer panel in 2016
has given us the opportunity to gain
customer insights on new initiatives before
these are fully launched to market.
In response to this insight, in August 2016
we introduced a completely refreshed
suite of electricity and gas plans based on
what customers told us they value. This
included the choice of open or fixed term
plans, a range of different rewards and
prompt payment discount options, as well
as innovative new plans for holiday home
22 Contact Annual Report 2017
23
Delivering on our core business Improving our
operational performance
We’re constantly looking for ways to
improve the experience we offer
customers by responsibly managing our
costs and refining how we undertake our
day-to-day work.
In the past 12 months we reduced the cost
of meter reading services by consolidating
to one supplier. Our bottled and piped LPG
business has also continued to experience
strong growth. During the year we reached
an agreement to undertake bulk
transportation of LPG on behalf of Ongas
to introduce additional efficiency into this
part of the market and reduce costs. We
remain number one in the LPG retail
market with 41% market share and annual
growth in customer numbers of 7%.
Access to energy
Energy is a critical service that impacts on
the quality of life and wellbeing of all
New Zealanders. We recognise that a
range of issues impact on people’s ability
to access energy and that as an energy
company what we do, and how we do it,
can influence this. Our focus on
constructively and efficiently resolving
customer issues has seen Contact’s
market share of complaints to Utilities
Disputes that reach ‘deadlock’ fall to a
historical low of 15%.
We continue to make improvements in the
way we support customers who are having
difficulty paying their bill. As part of our
Fresh Start initiative we have introduced
new processes which, along with a range
of flexible payment options recognising
their personal situation, help customers to
manage their debt and get back on track.
We also take steps to proactively ensure
customers are on the right plans for their
usage levels. We’ve checked in with over
27,100 customers this year to talk about
their plans, energy usage and experiences
with us to understand what more we could
be doing to add value.
We regularly review our pricing across the
country to ensure that we’re competitive
and in June 2017 we advised customers of
increases to the price of their electricity
and natural gas on 1 August 2017. The
changes are a result of increases to
charges by network companies (who
transport power along the lines, to homes
and businesses) and/or changes to the
energy price component that Contact
controls. Every customer’s electricity
usage is different; however the average
increase is just under $2 per week for our
residential customers. As part of the
communication, we offered customers the
choice of selecting a fixed term plan after
the change, to provide greater certainty
of their future energy costs.
Empowering our people
to delight customers
We know that if our team is empowered
with the right skills, support and
information to help them undertake their
roles, they’ll be best positioned to meet
the needs of our customers in a more
responsive manner.
This year we have increased employee
engagement within our Customer business
by 19 percentage points to 72%. We
achieved this by focusing on career
development, coaching conversations
around our Behaviours, better
communication, and refreshing and
enhancing the information tools and
processes that help support our team
members’ conversation with customers.
As an employer the safety of our people
and contractors is extremely important for
Contact. In our Customer business we
transport and deliver 73,000 tonnes of
LPG bottles a year, have meter reading
and service people out and about every
day and a sales team driving across the
country. While this provides lots of
opportunities for safety incidents, a great
deal of focus and hard work have seen our
overall safety performance improve 23%
in FY17 (TRIFR Monitored) with the safety
performance of our LPG cylinder delivery
business improving by 53% over the past
three years.
Net Promoter Score
Loyalty and market share
Reputation and trust
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
13
14
15
16
17
Financial year
e
s
a
b
r
e
m
o
t
s
u
c
f
o
%
25
20
15
10
5
0
13
14
15
16
17
Contact
Market excluding Contact
Financial year
80
60
40
20
0
13
14
15
16
17
Year
Net Promoter Score (NPS) is an internationally
used metric for customer advocacy, meaning we
can benchmark our performance against other
companies in our industry, as well as other leading
sectors across the globe. Measured monthly, NPS
reflects the degree to which customers are willing
to promote our business to other people.
2017
Customers are advocating for us in greater
numbers, with our Net Promoter Score now at +14,
up from -3 last year. This result has been achieved
off the back of a refresh of the range of products
and services we offer our customers and a new
digital experience.
Our performance relative to other retailers is
shown by comparing the percentage of customers
who switch away from Contact each year against
the level of switching for the industry (excluding
Contact). On average every month in New Zealand
over 30,000 residential electricity customers
change their supplier.
2017
More customers are choosing to stay with Contact
as we maintain a lower level of customer switching
than the market.
Each year in the first quarter of the calendar year
independent research company AMR calculates a
RepTrak reputation score for New Zealand’s top
corporates out of 100, by asking members of the
public a set of questions about the trust, respect
and admiration they have for companies they are
either somewhat or very familiar with.
2017
Contact’s RepTrak score increased by 3.9
this year to 64.2, placing Contact 20th among
New Zealand’s top corporates.
owners, renters or people who have
multiple properties. This year we trialled a
Contact broadband product with our
employees and, following the success of
this, are now offering it to selected
customer groups. We aim to expand the
range of products we offer as we find ways
to provide customers with greater choice,
certainty and control.
Our customers also told us they wanted a
more instant, transparent and generous
rewards programme, one that provided
compelling discounts and cash back.
Responding to this feedback we
introduced AA Smartfuel rewards in April
2017, enabling our customers to choose
plans that offer between 10 cents and
50 cents per litre off a fuel purchase of up
to 50 litres every month, regardless of the
level of monthly energy spend. Customer
feedback has been overwhelmingly
positive and between launch in April and
mid August Contact customers have
received over $500,000 of savings as a
result of our involvement in the
programme, putting money back into their
pockets and helping with the weekly
budget.
In June this year we introduced a new
customer-inspired Contact website that
provides easier access to the most
common customer tasks, reduces the
time taken to complete them and
increases the number of tasks that can be
completed online. Visit our website at
contact.co.nz to take a look at the new site.
Our market is not standing still. We are
investing time and money in working with
our customers to understand the benefits
for them of new products and services.
24 Contact Annual Report 2017
25
25
Delivering on our core business
i
s
s
e
n
s
u
b
e
r
o
c
r
u
o
n
o
g
n
i
r
e
v
i
l
e
D
Meeting future demands
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. We are well
placed with our diverse and flexible fleet to
meet future demand in New Zealand.
whether to electrical supply or to
geothermal heat. Contact has a strong
track record of delivering efficient, low
carbon industrial energy solutions to large
industrial customers including at
Fonterra’s Te Rapa dairy plant, where
Contact provides electricity, steam and
energy resilience through a cogeneration
facility, and at the Tenon wood processing
plant in Taupo, where Contact provides
process heat from its renewable
geothermal resource. We also have
resource consents for the development of
the Tauhara geothermal field, which we
believe is New Zealand’s next most
attractive large-scale renewable
development.
We continue to trial and learn about new
technologies such as electric vehicles,
solar panels, batteries and more, which
are creating new markets and have the
potential to transform the energy sector.
We believe that electric vehicles will, over
time, play a material role in the
decarbonisation of New Zealand’s
transport sector. Contact is a key
supporter of electric vehicle uptake.
Distributed energy resources like solar PV,
battery storage and smart appliances are
proliferating as technology costs fall,
giving customers greater choice and
control over their energy usage. Contact’s
demand flexibility platform can help
maximise the value of these distributed
energy resources for the optimisation of
the wider electricity system, enabling
more rapid electrification of the
New Zealand transport and industrial
sectors.
The development of competitive markets
is key for the efficient uptake of these new
technologies – advocating for competitive
markets has been a key focus for Contact
through the last financial year.
$258m
Cost of energy
Te Mihi power station
Reliable renewable
energy supply
Contact’s diverse generation
portfolio delivers a high level of
renewable generation backed by
thermal plant and stored gas that
ensures a sustainable supply of
electricity to our customers.
Our generation strategy is centred
on maximising production of our
renewable hydro and geothermal assets,
with our thermal generation and gas
storage facility providing daily and
seasonal risk management when
renewable fuel sources are not available.
Over the year our focus on continuous
improvement drove further efficiencies
across our renewable assets and
increased flexibility in our thermal assets.
The first half of the financial year was
marked by favourable hydrological
conditions, low electricity use and above
average temperatures across the country,
meaning that most of our production was
renewable. The flexibility in our generation
played an important role in the second half
of the year, particularly in the final quarter,
as historical low inflows in the Clutha/
Mata-Au catchment required us to run our
thermal power plants more.
We were able to generate 80% of our
electricity from renewable sources but the
lower hydro production in the final quarter
resulted in our cost of energy increasing to
$258 million. This is up on the prior year
due to unfavourable hydrological
conditions in the final quarter of the
financial year. The variability exhibited in
hydro production showed once again the
value to New Zealand of maintaining
sufficient thermal plant.
Decarbonising energy
in New Zealand
We see decarbonising New Zealand’s
energy sector as an important opportunity
for Contact and New Zealand. This is not
at odds with our use of thermal plant.
Thermal plant is critical to a sustainable
shift to a low carbon energy sector as it
will be required to support intermittent
renewable technologies for a long time yet.
The winter of 2017 is a prime example as
Contact’s thermal plant, backed by stored
gas at Ahuroa, supported New Zealand
through an exceptionally dry period. The
challenge for New Zealand is to ensure
that thermal plant is rewarded sufficiently
to continue to play that role while lower
carbon technologies slowly replace it.
We are well placed with our deep
knowledge of energy projects to support
industrial fuel conversion activities,
26 Contact Annual Report 2017
Clyde power station
27
i
s
s
e
n
s
u
b
e
r
o
c
r
u
o
n
o
g
n
i
r
e
v
i
l
e
D
The last five years in review
For the year ended 30 June
Unit
Revenue
Expenses
EBITDAF
Profit/(loss)
Underlying profit
Underlying profit per share
Operating free cash flow
Operating free cash flow per share
Dividends declared 1
Total assets
Total liabilities
Total equity
Gearing ratio 2
$m
$m
$m
$m
$m
cps
$m
cps
cps
$m
$m
$m
%
2013
2,526
1,985
541
199
202
27.7
312
42.7
25
6,197
2,660
3,537
28
2014
2,446
1,859
587
234
227
31.0
293
40.0
26
6,186
2,604
3,582
27
2015
2,443
1,918
525
133
161
21.9
338
46.6
76
6,089
2,918
3,171
36
2016
2,163
1,640
523
(66)
157
21.7
352
48.5
26
5,652
2,829
2,823
38
2017
2,080
1,586
494
150
141
19.7
300
41.9
26
5,429
2,654
2,775
36
1. FY15 included a special dividend of 50 cents per share.
2. The gearing ratio calculation has changed from prior period to align with the gearing definition in Contact’s Deed of Negative Pledge and Guarantee.
“We have more
than 66,000
shareholders and
3,600 bondholders
around the world
who rely on us to
deliver sustainable
financial returns
now, and into
the future.”
$494
Million
EBITDAF
Financial
sustainability
We have over $2.7 billion in net assets,
more than 66,000 shareholders and
3,600 bondholders around the world
who rely on us to deliver sustainable
financial returns now, and into the
future. These investors include
New Zealand families, investment
firms, professional investors and
superannuation funds that people are
relying on for their financial security
during retirement. Delivering on the
expectations of our investors is vital to
our sustainability as a business.
With no large-scale, capital-intensive
investments planned in the short term, our
business is able to focus on delivering
strong cash flows for the benefit of
investors. Over the past year we have
continued to focus on improving
performance for our customers, while
seeking to unlock additional value for our
shareholders through a focus on cost and
efficiency across all of our operations.
Contact has had a BBB Standard and
Poor’s (S&P) credit rating since 2002.
Following a period of significant
investment in building generation assets
and updating our systems, our focus has
been on reducing debt levels to ensure the
rating is maintained. This investment grade
credit rating provides a solid foundation
for the management of operational and
financial risks, allows an efficient capital
structure and ensures we can access
diverse and cost effective sources of
funding markets around the world.
Consistent progress has been made on
reducing the net debt to EBITDAF ratio
since its peak in our 2015 financial year.
During the year we reduced debt by a
further $106 million to bring the ratio down
to 3.14x as at 30 June 2017.
In February 2017 we issued $100 million of
fixed rate retail bonds to replace wholesale
debt maturing in the period. Strong market
interest from a broad range of investors
saw the bond offer oversubscribed with
the debt refinanced at lower interest rates
than the maturing debt.
Members of the wholesale
market trading team
This year we obtained certification from the
Climate Bonds Initiative that enables
current and future investors the opportunity
to invest in certified green debt instruments,
recognising our significant level of
renewable generation. Achieving this
certification will allow green investment
funds globally to consider making
investments in Contact for the first time.
In August 2017 Contact’s Board approved a
change to our distribution policy to provide
greater clarity for investors on expected future
returns. The revised policy targets distributions
to shareholders at the level of between 80%
and 90% of operating free cash flow, on
average over time once our net debt to
EBITDAF ratio, as assessed by S&P, falls
below 2.8x. This year the Board declared a
full-year ordinary dividend of 26 cents per
share (cps), which will be paid in September
and is unchanged from the prior period. We
will transition to the new distribution policy and
for financial year 2018 will target an ordinary
dividend of 32 cents per share, an increase of
23% on financial year 2017.
28 Contact Annual Report 2017
Cents per share26TOTAL DIVIDEND DECLARED
People
Our people are the
lifeblood of our business.
Ensuring that they are
engaged, happy and safe
is important in driving
world‑class performance.
From customers to employees,
business partners, or members of the
community, people are vital to the
success of our business.
To deliver for our customers, shareholders
and communities we do our best to recruit,
develop and retain great people who have
the right skills and are passionate about
helping make Contact a high performing
organisation. Diversity and inclusion are a
priority for us to ensure we have the right
mix of ideas, skills, thinking and
perspectives within our organisation in
order to succeed.
Engaging our people
So our people can deliver for our
customers and stakeholders, we need to
build an organisational culture that keeps
our people engaged and motivated to do
their very best. We strive to clearly
communicate our strategy and priorities
so our employees feel personally
connected to what we’re trying to achieve.
Team members are required to have key
performance indicators and development
plans that outline their expected
contribution to Contact’s success. This is
supported by regular performance
conversations so people have the
coaching and support needed to help
them succeed.
30 Contact Annual Report 2017
30 Contact Annual Report 2017
l
e
p
o
e
P
31
31
People 5th
In the 2017
Thomson Reuters Global
Diversity and Inclusion
Index
During the period we reviewed our
supporting central corporate functions, in
order to enhance the efficiency of work
undertaken to support our Generation &
Development and Customer businesses
to be successful and enable a more agile
approach.
In the year ahead our efforts will continue
to focus around our Tikanga and building
leadership capability to motivate, inspire
and develop our people.
Within the Generation & Development
business this year the team has focused on
a programme supporting continuous
improvement in a range of areas,
empowering team members to be involved
in identifying problems and creating
solutions, as well as progressing operational
improvements.
Within our Customer business the team has
focused on coaching conversations, better
communication and career development,
including a specific focus on developing
future leaders. Creating a better experience
for our people has helped them to be more
responsive to our customers with the right
products and services.
Employee engagement
d
e
g
a
g
n
e
s
e
e
y
o
p
m
e
f
o
%
l
70
60
50
40
30
20
10
0
13
14
15
16
17
Financial year
Each year we undertake an employee engagement
survey, independently facilitated by AON Hewitt,
to pin-point what employees believe we’re doing
well and where we need to improve. Contact’s
long-term engagement target is a Best Employer
level of above 82%.
2017
This year we achieved a substantial 12% point
increase, taking overall employee engagement at
Contact to 68%.
Embracing diversity
We want to attract and retain the best mix
of diverse-thinking employees – including
Maori, Asian and Pasifika people, from
millennials to those with decades of
experience, and the full spectrum of
genders. We believe having diverse people
and teams and an inclusive culture leads
to diversity of thought, fosters better
decision making and drives improved
business performance, creating a stronger
economy and better outcomes for
New Zealand. Diversity is also critical to
navigating the change and disruption
affecting the energy sector.
We are committed to achieving pay equity
and enabling flexible working practices to
help us attract talented people, retain and
develop our existing talent and achieve our
business goals.
During the year we have taken positive
steps towards becoming a more diverse
and inclusive business. In June 2017 our
Board approved a new diversity and
inclusion policy that embraces our
Tikanga and encourages our people to
own and lead an inclusive culture. It
encourages people to be authentic by
‘bringing their human to work’ and to use
flexible work practices. We are developing
leadership skills to manage and develop
diverse people and teams, and seeking
opportunities to lead diversity and
inclusion outside of Contact. Our policy is
available on our website.
Gender pay ratio by business group
Corporate
Customer
Generation & Development
Overall
Leadership on this issue starts at the top
and our Chief Executive, Dennis Barnes, is
part of the Global Women Champions for
Change group. And this year we have
elected to be part of an initiative to provide
greater transparency through more
detailed diversity reporting by larger
organisations in New Zealand.
Contact’s Board of Directors is one of the
most diverse among New Zealand listed
companies. Our six person Board
comprises a 50% gender split, with two
members also of Maori descent. Contact
was ranked fifth in the Thomson Reuters
Global Diversity and Inclusion Index this
year. Thomson Reuters ranks over 5,000
companies, using publicly available
environmental, social and governance
data to compile the index, focusing on
metrics that indicate a diverse and
inclusive workplace.
In the year ahead we will continue with our
diversity and inclusion initiatives, educate
our people about the benefits of diversity,
develop inclusive leaders who have the
skills to lead diverse individuals and teams,
and include diversity goals as a key
consideration in recruitment and
succession planning.
Contact employee diversity
Gender
Male (57%)
Female (43%)
Age group
<30 (20.8%)
30-49 (45.6%)
50-59 (24.2%)
60+ (9.5%)
Ethnicity
FY17
97.1%
98.3%
96.8%
98.0%
FY16
96.7%
98.5%
96.7%
98.3%
European (38.6%)
Other inc. New Zealander (29.3%)
Maori (5.8%)
Asian (6.1%)
Pasifika (2.0%)
Undisclosed (29.3%)
African, Middle Eastern,
or Latin American (0.6%)
We measure and track pay equity difference within salary bands using the average
compa-ratio between males and females.
2017
98% of our female employees are earning the same average salary as males within the same
salary band. This is a slight decrease on the prior year.
32 Contact Annual Report 2017
33
People
Improved
safety
performance
Keeping our
people safe
Our Tikanga guides us, and our Health,
Safety and Environment (HSE)
management system sets out our
commitments to our people, contractors,
customers, communities and the
environment we operate in and how we
deal with risks and hazards.
Our approach to managing the health,
safety and wellbeing of our people, our
plant and the environment is more than
having policies and procedures. It’s about
how well we lead and how our people feel
– it’s broader than compliance alone. We
have continued to evolve how we support
our people in managing risks every day.
Our aspiration of a generative safety
culture continues to progress through
empowering our frontline workers to solve
problems and work safely, simplifying
guidance and procedures and trusting our
people to make the right decisions for the
right reasons. We have used this approach
over the past year to refine many of our
procedures for high risk activities such as
Safe Working at Height and Lift and Load.
Another big step this year involved
simplifying our HSE management system
– this system describes our goals and
commitments. Our people told us our
previous HSE management system was
overly prescriptive, disengaging and no
longer relevant to our current approach.
As a result we’ve moved to a management
system that is more aligned with our
Tikanga, is integrated into the way our
business actually runs and provides
helpful guidance rather than just being
words on paper. Our people have told us
that they have a better understanding of
how their roles and activities fit into the
management system, as the language
connects them and the system and gives
them flexibility in the way they approach
their tasks.
We’ve been building on the previous years’
success with learning teams, where we
moved away from traditional incident
investigation processes that focused on
finding fault to a more collaborative
approach focused on how to improve. This
year we engaged with a broad group of
people across the business to help evolve
learning teams – they are now using these
to build on successful work and learn
from work that hasn’t gone according to
plan. Improving how we share and embed
learnings across the organisation is a
current focus.
We surveyed our progress towards a
generative safety culture again this year
using an independent company. The HSE
culture report showed improvement with
respect to empowerment of our people
and a noticeable shift towards a ‘just
culture’ enabled by better leadership. The
findings highlighted that we’ve still got work
to do but the clear message was to “keep
doing what you are doing until the changes
become fully embedded”.
We are proud of what we have achieved
by taking a different approach to health
and safety. Our people and our
contractors see the benefits first hand and
we’ve also come to the attention of the
wider health and safety community –
collaborating and participating in a much
larger discussion, and sharing our stories
and learnings with many other
organisations and industry groups.
Total Recordable Injury
Frequency Rate – Controlled
Total Recordable Injury
Frequency Rate – Monitored
Injuries
d
e
l
l
o
r
t
n
o
C
–
R
F
R
T
I
5
4
3
2
1
0
13
14
15
16
17
Financial year
d
e
r
o
t
i
n
o
M
–
R
F
R
T
I
30
25
20
15
10
5
0
13
14
15
16
17
Financial year
r
e
b
m
u
N
7
6
5
4
3
2
1
0
Controlled
Monitored
Sprain or strain
Poisoning or toxic effects
Bruising or crushing
Foreign body
Laceration
Burns
Puncture wound
Head injury
Note: All 3 female injuries were sprains or strains.
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.
2017
Our controlled TRIFR for the year was 3.2, an
improvement on 3.3 achieved in the prior period.
10 people were hurt during the year (9 male,
1 female). Our rate per 200,000 hours worked
for 2017 is 0.64 and is included to enable
comparison with other organisations which
calculate performance on this basis.
Our monitored TRIFR looks at how many people
are hurt in activity where Contact supports the
safety outcomes, but the risk and management of
these is owned by the supplier of the service (such
as meter reading, field services and franchises).
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.
2017
Our monitored TRIFR for the year was 12.7,
a significant improvement on 16.6 for the prior
period. 7 people were hurt during the year
(5 male, 2 female).
Process safety
Process safety incidents
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.
Our focus this year has been on ensuring
continued awareness of process safety,
while improving work procedures, such as
our ‘management of change’ process to
ensure it meets the needs of our people.
We also record process safety incidents
and have a dashboard that enables
visibility over our process safety barriers.
This year we have seen a drop in recorded
process safety incidents. This is due to
increased awareness and active
management of process safety issues to
address barriers before an incident occurs.
100
80
60
40
20
0
13
14
15
Tier 1
Tier 2
Tier 3
17
16
Financial year
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.
2017
In 2017 we saw a drop in Tier 3 process safety
incidents across our Generation and LPG business.
This is a result of embedded awareness of process
safety, which has led to early identification and
management of issues. In LPG, for example, most of
our Tier 3 incidents are third parties digging up and/or
damaging our gas pipes. This was reduced over the
year as our teams proactively worked with industry
peers to address these issues before they occurred.
34 Contact Annual Report 2017
35
Environment
Environment
We rely on natural
resources to generate
electricity, so in line
with our Tikanga we
aim to be good stewards
of these resources.
In harnessing energy from natural
resources, our activities impact on the
environment around our operational
sites. While our resource consents
guide us in reducing and mitigating
many of these impacts, we aim to be
proactive in our stewardship of the
resources that we rely on, to ensure
they remain for generations to come.
Climate change
Climate change is a significant global
issue which has the potential to adversely
impact the environment, communities
and the economy. Contact is planning to
continue to play a big role in decarbonising
energy use and production in New Zealand.
In line with this we also obtained green
certification for a proportion of our debt
portfolio recognising the sustainable low
carbon nature of our geothermal assets.
We have significantly reduced our own
emissions over the last six years and we
are now looking at supporting industry,
vehicle fleets, and the generation market
to transition to lower carbon fuels.
Risks and opportunities
Climate-related risks and opportunities
are considered through our annual
strategy process, which involves a
thorough analysis of the external
environment in which Contact operates.
This analysis identifies trends, risks and
opportunities across a range of
environmental, economic and social areas.
Scenarios of what the future could look
like are then created and used by
management and the Board to guide
decision making.
We have identified a number of
climate-related risks including changes in
demand for energy, cost of supplying
energy, and fuel availability for electricity
generation. High levels of adoption of new
technologies and/or energy efficient
products could impact the demand for
energy from Contact’s customers. Climate
change may also impact on natural
resources that Contact uses to generate
electricity; for example changes in rainfall
patterns may affect Contact’s ability to
generate electricity from hydro resources
and costs to supply electricity to our
customers when they need it.
In New Zealand we have the Emissions
Trading Scheme (ETS), which requires
participants like Contact to purchase
carbon emission units and surrender units
based on our calendar year emissions.
Prices on greenhouse gas emissions,
implemented through the ETS, affect the
cost of supplying electricity, which creates
risk for new and existing thermal
generation but also creates opportunities
for new and existing renewable generation.
We also see a number of opportunities in
the low carbon transition. Using our deep
experience of renewable generation we
can assist other businesses to transition to
lower carbon fuels. The transition may also
drive an increase in electricity demand, for
which we are well positioned with options
to develop the consented Tauhara
geothermal power station if an increase in
demand or the opportunity to replace
existing thermal generation presents itself.
The Tauhara geothermal resource also
provides an opportunity for a low carbon
source of heat for industry, of which a
significant portion is currently fuelled by
fossil fuels.
36 Contact Annual Report 2017
37
Environment Left: Contact branded electric vehicle loaned
to commercial and industrial customers.
Below: Te Mihi geothermal power station.
Our emissions
Our geothermal and thermal operations
and vehicle use produce greenhouse gas
emissions. We also buy and sell LPG and
natural gas. We monitor these emissions
and other discharges to air in line with
resource consents and reporting
requirements under the ETS. We also
voluntarily report our vehicle emissions in
our Annual Reports.
This year our emissions from electricity
generation increased by 3% on the prior
year as a result of the historically low
inflows into the Clutha/Mata-Au
catchment in winter, requiring us to run our
thermal power stations more in order to
maintain a reliable supply of energy to
the market.
Over the last six years, however, Contact’s
investment into building a renewable and
flexible generation fleet has enabled us to
significantly reduce our emissions, and
since 2012 we have reduced emissions by
53%1. Our ability to make further emissions
reductions from our generation fleet
without increasing market risks is limited.
This is because our thermal generation
continues to play an important role in
ensuring a reliable supply of electricity at
times of high demand or when renewable
sources of electricity are unavailable. But
we believe that every bit counts. And so we
continue to seek emissions reductions
across our business by maximising the
output of our renewable assets; operating
thermal plant efficiently; seeking energy
efficiencies in our offices; electrifying our
vehicle fleet; and investigating new
technologies that support our goals and
those of our customers.
We offer an energy solutions service to our
commercial and industrial customers to
identify energy efficiency opportunities
that then help them to reduce both their
energy costs and emissions from
electricity use. We are also using
distributed generation and energy storage
in a number of new technology trials to
develop and test innovative products for
our customers. Electric vehicles (EVs), for
example, hold the potential to significantly
reduce New Zealand’s carbon footprint.
We have set a target that 30% of our
vehicle fleet will be electric by 2019. As at
30 June 2017 the proportion of EVs in our
fleet sits at 25%.
Emissions from
electricity generation
s
n
o
i
l
l
i
m
e
O
C
2
t
2.5
2.0
1.5
1.0
0.5
0
12
13
14
15
16
17
Financial year
This graph shows the total emissions
from our power stations in tonnes of carbon
dioxide equivalents.
2017
Our emissions from electricity generation
increased by 3% on the prior year due to a dry final
quarter of the financial year which saw us running
our gas-fired power stations hard in order to meet
New Zealand’s electricity needs.
1. Restated. For more information see section 3 on page 56.
38 Contact Annual Report 2017
Water
We use water in a wide variety of ways in
our business. At our geothermal and
thermal plants we use fresh water for
cooling and air emissions reduction. Hydro
power stations on the Clutha/Mata-Au
generate renewable electricity from river
and stored water at Lake Hawea.
Over the year the link between water use
and emissions was very clearly illustrated
with the first half of the year marked by
favourable hydrological conditions, lower
electricity use and above average
temperatures across the country. This
meant we could make the most of our
renewable generation options and reduce
thermal operations. The second half of the
financial year, and in particular the final
quarter, was characterised by historically
low inflows in the Clutha/Mata-Au
catchment. This required us to run our
gas-fired thermal power plants more,
resulting in a higher cost of energy and
increased greenhouse gas emissions
output during this period.
Water usage for year ended 30 June 2017
Source / Water use
Geothermal reservoir
River and surface water
Water from third parties
Council 2
Discharge from all sources
Grand total
Non-consumptive water usage3 (ML)
Clutha/Mata-Au river water4
Geothermal reservoir
Geothermal cooling water
Grand total
At our geothermal and thermal power
stations we have some impacts on water
quality, which we manage in accordance
with our resource consents. At our
Wairakei power station, where we
discharge some geothermal water to the
Waikato river, we have a bioreactor which
biologically treats and removes most of
the dissolved Hydrogen Sulphide (H2S)
from our cooling water before the water is
returned to the river. In August 2016 our
consent limit for the discharge of H2S to
the river reduced from 2,800 kilograms
per week to 630 kilograms per week. This
was completed successfully by ensuring
that all cooling water is treated by the
bioreactor before being discharged. Since
these changes were made, our average
weekly discharge is less than half the
allowable limit.
Withdrawal (ML)1
Discharge (ML)
103,547
3,201
316
53
107,117
21,823
21,823
14,647,193
66,236
410,518
15,123,947
The Wairakei bioreactor
To support our sustainable management
of freshwater resources, we created a
water dashboard that makes it easier to
monitor water use across our operations.
We used 15,231,064 megalitres of water
over this financial year. 99% of this was
water was not consumed, but returned to
either rivers or geothermal reservoirs. The
remainder was discharged in line with
resource consents.
Our Water Commitment, developed in
2015, positions us proactively on issues
that matter to stakeholders such as
access, quality, quantity and ownership of
water. We also participate in local and
national stakeholder forums, such as
regional plan processes and
New Zealand’s Land and Water Forum to
ensure that the community and policy
makers are aware of our interests and the
role we will play in ensuring this precious
resource remains for generations to come.
Our belief is that water is for all
New Zealanders to share, and our
access to this resource is a privilege
that comes with responsibilities that
define our use. We will maximise the
efficiency of our water use, enhance water
quality, and play our part in ensuring
sustainable access to water for cultural,
recreational and economic uses. We seek
to ensure that every decision we make in
relation to water is in accordance with
this Commitment.
1. Megalitres
2. Council water usage is estimated based on a per-person flow allowance.
3. Non-consumptive use refers to water that flows through our dams, or is returned to river or the reservoir that it has been drawn from.
4. Clutha/Mata-Au River water flows through both the Roxburgh and Clyde dams.
39
39
Biodiversity
During the year we brought together a
diverse range of stakeholders to help us
formulate a broader response to
biodiversity issues. Their input ultimately
guided us towards growing our green
business credentials by seeking green
certification for our debt portfolio and
sharing our progress on environmental
issues; developing a biodiversity work
programme which includes ‘hands-on’
activities to address our biodiversity
impacts; and adopting practices that
enable us to show we are good stewards
of the resources that future generations
will inherit.
The diverse nature of our operations
means that our impacts differ across each
of our sites. As such we’ve adopted local
responses to local biodiversity issues.
Additionally we set ourselves a target of
planting 10,000 native trees during the
financial year. We have exceeded this, with
over 14,000 trees planted across our sites
with the support of our local communities.
Geothermal
Hydro
Our geothermal operations are
undertaken on land we own or occupy and
has been largely cleared of native
vegetation. The use of geothermal
resources can contribute to a decrease in
surface heat patterns, which in turn affects
the availability of habitat for thermotolerant
species. In addition, our discharges can
negatively affect water quality.
This year we completed fencing to keep
stock away from all permanently flowing
watercourses on Contact owned or leased
land relating to our geothermal operations.
This helps protect freshwater resources
from contamination by animals and
supports the Waikato Regional Council’s
implementation of its Healthy Rivers Plan.
We undertook thermotolerant vegetation
surveys to monitor our impacts, fenced
areas around these species, and
undertook pest plant removal work. We
also completed maintenance works at the
Torepatutahi wetland (replanting and
clearing of pest species across 28ha),
which is an ‘offset’ site for impacts
associated with our Ohaaki power station.
This work is assessed by an independent
assurer every two years to ensure the
work is carried out to a high standard.
In partnership with Greening Taupo and
our local community we also planted more
than 10,000 native trees around our sites
in Taupo. We’re the proud sponsor of Kids
Greening Taupo, which helps build the
next generation of eco-champions in the
region. We’ve also partnered with The Kiwi
Trust, to help them nurture kiwi at the
neighbouring Wairakei Golf Sanctuary and
rehabilitate them back into the wild.
The construction of our hydro operations
in the 1980s 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 (kanakana)
surveys, whitebait (inanga) population
monitoring and habitat enhancement,
and fish passage work. We also carry
out work under our Sports Fish
Management Plan to maintain and
improve recreational fishing.
This year we undertook planting, fencing
and pest control as part of our Hawea
Foreshore and Landscape Plan, and
planted a further 2,000 trees around the
Lower Clutha/Mata-Au . We also
supported the Untouched World
Charitable Trust’s Waterwise programme,
which builds students’ understanding
of water issues including its uses,
availability, quality and economic issues.
It also exposes them to a range of
water users from industry to farming,
cultural and recreational users to
support their understanding of sustainable
water management.
Thermal
At our thermal power stations our impacts
on biodiversity relate to emissions and the
management of the land we own. We
undertake pest control work in line with
the Taranaki Regional Council’s pest
management plan. We undertook riparian
planting along the Kahouri Stream and
Patea Rivers, planting 2,000 trees, and
removed pest species (both plant and
animals including stoats, possums, and
willow trees) from these areas.
Ohaaki wetlands, near Contact’s
geothermal generation facilities.
40 Contact Annual Report 2017
Community
We work within
communities across
New Zealand and aim
to be a good neighbour,
a supportive member
of the community
and a trusted steward
of resources.
Supporting local
communities
We live and work in communities
throughout the country and we know that
our every action impacts on the people
and the environment around us. So being a
good neighbour and a good corporate
citizen is an important part of how we
operate. It’s also about living our Tikanga,
and ensuring that we demonstrate to our
stakeholders that we care about
New Zealand and its people.
Our approach to community engagement
is truly local. We focus on building
long-term relationships based on trust
with community stakeholders who live and
work around our sites. While at times our
engagement is driven by operational
resource consents we also work hard to
ensure that we’re proactively participating
in our local communities.
This year we invested $346,144 into our
communities through sponsorships,
partnerships and donations. In Levin,
Ohaaki and Taupo we have community
engagement plans to guide our activities.
In most places, however, our focus is on
supporting our local teams to build
community relationships and lead our
investment in their region through our site
sponsorship programme. Some examples
of initiatives supported through this
programme include Reporoa College’s
leadership programme, CACTUS; Lake
Hawea Community Centre’s purchase of an
emergency generator; and Cromwell-based
Mokihi Trust’s native planting programme.
We have regional partnerships around
our generation sites, which have enabled
us to support some significant outcomes
for our communities. In Taupo, for
example, we’ve been partnering with
Swim Well for seven years, and over that
time we’ve helped teach 24,672 kids to
swim, and delivered 173,452 swimming
lessons. In Otago, where we have the
Clyde and Roxburgh dams, we’re
celebrating 13 years as principal partner of
the Contact Alexandra Blossom Festival,
and 10 years backing the Contact Epic
Mountain Bike Challenge around
Lake Hawea.
Through ‘Community Contact’, our
employee volunteer programme, we
enable our people to draw on a pool of
a maximum of 8,000 hours to spend
supporting community initiatives.
41
Community Left: Dorothy Raroa (Ngati Tahu, Ngati Whaoa, Ngati Wahiao, Ngati
Tuwharetoa and Ngati Porou) meets students of RAPland School in Kenya.
Below: Swimming instructor takes a lesson as part of the Contact Swim
Well Taupo initiative.
Governance,
Remuneration
Report, Statutory
Disclosures &
Sustainability
Reporting
Employees across the country this year
spent 1,796 hours giving their time and
expertise to community organisations.
We’re always looking for new ways to
engage with communities. This year we
held a community open day at the iconic
Clyde Dam for the first time since it began
operating in 1992. It was a huge success
with a turnout of more than 5,000 people.
As part of the day our local team
partnered with the Lake Dunstan Lions
Club to guide the visitors around the site in
return for donations. The initiative raised
over $6,000 which will be used to develop
a public barbecue area on the lakeshore
near the dam.
In June 2017 this year we also held a family
day at Wairakei for our people, contractors
and business partners. Our teams put on a
wide range of activities to showcase the
work that goes into producing geothermal
energy. This was attended by more than
250 close friends and family, and was a
great opportunity for our families to see
what we do, and for our people to
demonstrate their world-class geothermal
skills and knowledge to the community.
The nature of our operations means that
our relationships can be tested at times.
We keep a register of community issues
and develop community engagement
plans on specific operational issues when
and if required. We also rely on our values
– our Tikanga - and our overarching
philosophy to be “the neighbour you’d
want” to guide our decision making to
ensure we are balancing the needs of our
stakeholders. For example, we have had
complaints of noise from our Te Mihi
power station. While the noise is within
consented levels, and we believe that
we’ve delivered beyond our compliance
requirements, we also want to be a good
neighbour and so over the last year have
worked with those neighbours affected to
find solutions to ensure that we are walking
the talk on our Tikanga and being a good
neighbour.
Tangata whenua
We recognise the special relationship that
hapu and iwi (indigenous communities)
have with the land and environment
around our operations. We aim to be
respectful, open and supportive of tangata
whenua aspirations and we work hard to
build positive long-term relationships.
We have a number of hapu and iwi
agreements in place supported by an
overarching tangata whenua strategy. As a
result of this strategy we have established
programmes such as our Maori internship
programme, now in its third year, which
saw us support four interns this year in
partnership with our iwi/hapu partners and
Waikato University. Our internships are
aimed at fostering Maori development,
while supporting Contact’s endeavour to
build stronger relationships with tangata
whenua. We have also provided
opportunities for employees to develop
their Te Reo Maori skills and have actively
worked on improving our relationships and
communication with tangata whenua
around our operational sites.
This year in partnership with Ngati Tahu,
who own the land the Ohaaki power station
sits on, Contact participated in an
exchange programme funded by the
United States Energy Association to
support community engagement with an
energy company in Kenya. We were
humbled to be asked to participate by the
iwi, and to share our learnings on how to
build positive and empowering
relationships with tangata whenua. We
were also pleased to contribute to, and
learn from, other power companies and
indigenous communities to support
community empowerment both here at
home and globally.
44
Governance
Remuneration Report
47
51
55
Statutory Disclosures
Sustainability Reporting
43
Governance
At Contact we believe that good corporate
governance is important as it protects the
interests of investors and creates and enhances
value over the short and long term. We regularly
review our corporate governance systems and
are always looking for opportunities to improve
the way we do things.
We welcome NZX’s recent publication of its Corporate Governance
Code (the NZX Code), which sets clear standards for effective corpo-
rate governance for New Zealand issuers. Although reporting against
the NZX Code is not mandatory this year, we have chosen to do so
to provide transparency on how our corporate governance practices
measure up against what NZX sees as best practice.
Our full reporting against the NZX Code is set out in our Corporate
Governance Statement, which is available on our website at
www.contact.co.nz/AboutUs/Investor-Centre/Governance. A
summary of our corporate governance practices is set out in this
section of the Annual Report. We comply with the corporate
governance policies, practices and processes of the NZX Code except
as noted otherwise in our Corporate Governance Statement.
Unless stated otherwise all of the information in this section is current
as at 30 June 2017.
CONTACT’S BOARD
The Board’s role and responsibilities
Our Board is elected by our shareholders and is accountable to them
for the performance of Contact. The Board’s primary role is to ensure
the long-term prosperity of Contact. Specific responsibilities include:
• setting and approving the strategic direction of Contact
• monitoring financial performance
• ensuring appropriate systems are established to manage risk
•
reviewing and approving our compliance systems
• overseeing our commitment to our values, sustainable
development, the community and environment, and the health and
safety of our people.
Board composition
Our Board consists of six directors, with a wide range of skills,
experience and points of view. The Contact Board is one of the most
diverse in the top 50 New Zealand listed companies, with 50% female
representation and two directors with Maori heritage. Profiles of each
director, including length of service, are set out on pages 8-9.
The Board has developed a skills matrix, which sets out the skills that
the Board believes are necessary for Contact’s success and measures
the key skills of each director against the desired skills. It is not
expected that every director will be an expert in every area, but all
skills should be represented in the Board as a whole. Candidates for
appointment are assessed against the skills matrix with a focus on areas
of competence the Board is looking to acquire with any new appointments.
One-third of our directors is required by our constitution to retire by
rotation at each annual meeting and is eligible to stand for re-election
by shareholders. That means each director is up for re-election at least
every three years. Information about candidates for election or
re-election is included in the notice of meeting to assist shareholders’
decision as to whether or not to elect or re-elect the candidate.
The Board considers all of the current directors to be independent in
that they are not executives of the company and do not have a direct or
indirect interest or relationship that could reasonably influence, in a
material way, their decisions in relation to Contact.
Board performance
We recognise the value of professional development and the need for
directors to remain current in relation to both industry and corporate
governance matters. Contact assists directors with their professional
development in a number of ways, including an induction programme
for new directors and briefings to upskill the Board on new
developments, such as changes to relevant law.
Reviews of the performance of the Board and individual directors are
carried out regularly to ensure the Board as a whole and individual
directors are performing to a high standard. This financial year, the
Board commissioned Propero Consulting Limited (Propero) to
conduct an independent review. The Board received a report including
recommendations, and each director received a personalised
feedback report on their performance, and a coaching session with
Propero. The Board has reviewed the outcome of the evaluation by
Propero and collectively discussed and agreed actions. These will be
monitored and progress assessed at set milestones.
Board committees
The Board has established Board committees to perform work and
provide specialist advice in particular areas. We have three standing
committees: the Audit Committee; the Remuneration and Nominations
Committee; and the Health, Safety and Environment Committee.
Members are chosen for the skills, experience and other qualities they
bring to the relevant committee.
The current members of the committees are:
Committee
Audit
Remuneration and Nominations
Health, Safety and Environment
Members
Sue Sheldon (chair)
Whaimutu Dewes, Rob McDonald
Sir Ralph Norris (chair)
Victoria Crone and Sue Sheldon
Whaimutu Dewes (chair)
Victoria Crone and Elena Trout
Each committee operates under a written charter, which is available on
our website. Detailed information about the role and responsibilities of
each committee is available in our Corporate Governance Statement.
Attendance at Board and committee meetings
Director
Number of meetings
Sir Ralph Norris
Victoria Crone
Whaimutu Dewes
Rob McDonald**
Sue Sheldon
Elena Trout***
Audit
Committee
Board
Remuneration
and Nominations
Committee
Health, Safety
and Environment
Committee
10
10
10
10
10
10
8
4
2*
4
4
4
2*
4
4
4
4
3
3*
3
3
2
2*
2
* The relevant director is not a member of the committee, but attended as an
observer.
** Rob McDonald ceased to be a member of Health, Safety and Environment
Committee on 1 April 2017.
*** Elena Trout was appointed to the Board on 3 October 2016 and to the Health,
Safety and Environment Committee on 1 April 2017.
OUR CORPORATE POLICIES
Code of Conduct
We are guided by our Tikanga – our set of beliefs, comprising our
purpose, commitments, principles and behaviours. These beliefs guide
the actions we take, both as individuals and as an organisation, our
decision making and the way we treat each other and our customers,
shareholders and the communities we are part of.
Our Code of Conduct outlines how Contact people are expected to
behave. It applies equally to our directors, employees and contingent
workers (such as contractors). Our Tikanga sits at the heart of our
Code of Conduct.
Contact people are encouraged to report breaches, or suspected
breaches, of the Code of Conduct to their manager, a Leadership
Team member or a representative from People and Safety. Breaches
of the Code of Conduct or other serious wrongdoing may also be
reported via the ‘whistleblowing’ procedures of our Protected
Disclosures (Whistleblowing) Policy, which includes an option for
people to report an issue or potential issue through an independent
reporting service.
Securities Trading
Our Securities Trading Policy sets out Contact’s expectations and
requirements for all our people, including directors, when buying, selling
or otherwise dealing with Contact shares or bonds.
In addition to the prohibition on insider trading, Contact people must
not buy or sell Contact securities during ‘blackout periods’. These
blackout periods occur twice per year, before each of the half and
full-year results. Certain individuals within Contact, including the
directors, all members of the Leadership Team and some others
(‘restricted persons’) must obtain the written consent of the company
before buying or selling Contact securities (which can only occur
outside of blackout periods).
We offer our people training on insider trading law and Contact
procedures. Anyone who, from time to time, may be in possession of
material information about Contact is required to complete this training
every year. Through our share registrar, Link Market Services (Link), we
actively monitor trading in Contact shares by our restricted persons.
Diversity and Inclusion
We believe a diverse workforce and an inclusive culture lead to diversity
of thought and better decision making, drive stronger business
performance, and create a stronger economy and a better world.
Our Diversity and Inclusion Policy, which was approved by the Board in
June 2017, provides the framework for diversity and inclusion initiatives
at Contact. Our diversity objectives are set by the Board. Each year the
Board reviews the objectives with management and assesses our
progress towards meeting them. Although it is too early for us to
provide a full evaluation of performance against our Diversity and
Inclusion Policy, information about our diversity progress this year is set
out on page 33.
Health and Safety
Our commitment to health and safety is outlined in our Health, Safety
and Environment Policy. Under this policy, health and safety risk is
managed through effective leadership and by engaging our people in
health and safety activities. We work with our people to develop robust
processes and procedures that lay the foundation for safe and
sustainable work. By focusing on learning and improving, and
empowering workers at the front line to actively manage safety
outcomes, we continually strengthen our capacity to fail safely and
reduce our environmental impact.
More information about our health and safety performance is on
pages 34-35.
REPORTING AND DISCLOSURE
Continuous disclosure
We are committed to ensuring that all of our investors have timely
access to full and accurate material information about Contact. Our
Market Disclosure Policy sets out procedures that are in place to make
sure all material information is identified, reported for review and,
where required, disclosed in a timely manner. It also describes the
procedures that have been adopted to prevent the selective disclosure
of material, non-public information.
Under the policy, Leadership Team members and other executives are
required to escalate any potential ‘material information’ matters to the
CEO, CFO and general counsel (the Disclosure Group). The
Disclosure Group is ultimately responsible for approving the form and
content of material information that is disclosed. The company
secretary then coordinates disclosure to the market. We also monitor
information in the market about Contact and will release information to
the extent necessary to prevent development of a false market for
Contact shares.
Financial reporting
The Audit Committee oversees the preparation of our financial
statements, including materiality guidance and setting policy to ensure
the information presented is useful for investors and other
stakeholders. We make our financial statements easy to read by using
clear, plain language, and structure them so that key information is
presented at the beginning. In addition to the full-year audit, our
auditors complete a review of the half-year financial statements and we
undertake an internal certification process to ensure the information
presented is accurate, balanced and objective.
Non-financial reporting
As part of our commitment to providing our investors and other
stakeholders with access to all relevant information about Contact, we
report on material environmental, social and governance factors and
practices in accordance with the Global Reporting Initiative (GRI)
guidelines in our Annual Report. We’ve chosen to use GRI because it is
an internationally recognised framework under which we can present
information on the particular matters that are significant for Contact
and our stakeholders. While we do not have a policy on the assurance
of non-financial or sustainability data, our sustainability reporting data
is independently reviewed by Deloitte.
44 Contact Annual Report 2017
45
Governance Remuneration
Report
Contact is committed to ensuring that the remuneration of Board Directors, the Chief Executive Officer (CEO), Leadership Team and all of our
people at Contact is transparent, fair and reasonable.
DIRECTORS’ REMUNERATION
The total directors’ fee pool is $1,500,000 per annum. It has not been increased since it was approved by shareholders in 2008. Actual fees paid
to directors are determined by the Board on the recommendation of the Remuneration and Nominations Committee.
The remuneration scale for directors at 30 June 2017 is set out below. Between FY16 and FY17, the fees increased by between 2.8% and 4.3%,
with no increase to the Board Chairman’s fees. The overall increase was 2.2%.
Board of Directors1
Audit Committee
Health, Safety and Environment Committee
Remuneration and Nominations Committee
1. No additional fees are paid to the Board Chairman for committee roles.
FY17
Chairman
per annum
Member
per annum
$300,000
$130,000
$60,000
$24,500
$24,500
$32,500
$12,500
$12,500
Directors’ fees exclude GST, where appropriate. In addition, Board members are reimbursed for costs directly associated with carrying out their
duties, such as travel costs.
Details of the total remuneration received by each Contact director for FY17 are as follows:
Audit
Committee
Health, Safety
and Environment
Committee
Remuneration
and Nominations
Committee
Directors
Sir Ralph Norris (Chairman)1
Victoria Crone
Whaimutu Dewes
Rob McDonald2
Sue Sheldon
Elena Trout3
Total
Board fees
$300,000
$130,000
$130,000
$130,000
$130,000
$97,500
$917,500
$32,500
$32,500
$60,000
(Chair)
$125,000
$12,500
$24,500
(Chair)
$9,375
$3,125
$49,500
Inclusive of committee fees.
1.
2. Ceased to be a member of the Health, Safety and Environment Committee effective 1 April 2017.
3. Appointed to the Board on 3 October 2016 and member of the Health, Safety and Environment Committee effective 1 April 2017.
$0
(Chair)
$12,500
$12,500
Total
remuneration
$300,000
$155,000
$187,000
$171,875
$202,500
$100,625
$25,000
$1,117,000
RISK MANAGEMENT AND ASSURANCE
INVESTOR RELATIONS
Investor relations programme
We have designed and implemented an investor relations programme
to facilitate effective two-way communication with investors. The
investor relations programme provides the context in which
shareholders and potential investors can make an informed judgement
about the fair value of Contact’s shares consistently over time.
A primary aim of our investor relations programme is to allow investors
and other financial market participants to gain a greater understanding
of Contact’s business, governance, financial performance and
prospects. It also provides an opportunity for investors and other
financial market participants to express their views on matters of
concern or interest to them, and for those views to then be distilled and
communicated to our Board.
Investor communication and information
The investor section of our website is regularly updated. It contains
brief biographies of directors, the CEO and Leadership Team; financial
and operational information (including copies of annual reports and
financial statements); details of previous annual shareholder meetings;
key governance documents; and copies of NZX/ASX announcements.
To ensure that our investors and the market are kept up-to-date, we
release a regular operating report that sets out key information about
Contact’s performance. These reports are also available on our
website.
Annual shareholder meeting
Our annual shareholder meeting is held around October each year. We
hold it in a location and at a time that enables a number of shareholders
to attend. There were 167 shareholders at our 2016 meeting in
Auckland (117 shareholders in Wellington in 2015). A webcast of the
meeting is made available on our website for those shareholders who
are unable to attend. Our directors, CEO and members of our
Leadership Team attend the meeting and really enjoy the opportunity
to meet and talk with our shareholders.
Our notice of meeting is sent to all of our shareholders and posted on
our website. Voting at our annual shareholder meeting in October 2016
was by poll (i.e. one vote per share) and we will continue this practice at
our shareholder meeting in 2017.
Risk management
Our Board has established a robust risk management framework
across the business, which is aligned to the International Standard ISO
31000, Risk Management – Principles and Guidelines. Our framework
ensures that there are appropriate systems in place to identify the
material risks Contact faces. We make sure that we understand the
potential impact of identified risks and that, where applicable,
appropriate tolerance limits are set by the Board. Our framework
ensures that responsibilities are assigned to individuals to manage
identified risks and that any material changes to Contact’s risk profile
are monitored.
Assurance
Our Business Assurance team fulfils our internal audit function and
provides objective assurance of the effectiveness of our internal
control framework. The team is based in-house, but draws on external
expertise where required.
The team helps us to achieve our objectives by bringing a disciplined
approach to evaluating and improving the effectiveness of risk
management, internal controls and governance processes. We use a
risk-based assurance approach driven from our risk management
system. The Business Assurance team also assists external audits by
making findings from the internal assurance process available for the
external auditor to consider when providing their opinion on the
financial statements. The team has unrestricted access to all other
departments, records and systems of Contact, and to the external
auditor and other third parties as it deems necessary.
AUDITORS
We recognise that the role of our external auditor is critical for the
integrity of our financial reporting. KPMG is our external auditor and our
audit partner is David Gates. David has been our audit partner for two
financial years.
Our External Audit Independence Policy sets out the framework under
which we ensure the independence of the external auditors is
maintained and that their ability to carry out their statutory audit role is
not impaired. Under this policy, the external auditor may not undertake
any work for Contact that compromises, or is seen to compromise, the
independence and objectivity of the external audit process. In addition,
KPMG confirms their continuing independent status to the Board every
six months.
Before KPMG undertakes any non-audit work for Contact, specific
approval must be given by the Audit Committee or the Audit
Committee chairman. Approval will only be given where the
performance of such work does not compromise KPMG’s
independence.
Representatives from KPMG attend Contact’s annual shareholder
meeting each year, where they are available to answer any questions
from shareholders in relation to the audit.
For more detailed information about our corporate governance practices see our Corporate Governance Statement at:
www.contact.co.nz/AboutUs/Investor-Centre/Governance
46 Contact Annual Report 2017
47
Remuneration Report CHIEF EXECUTIVE OFFICER REMUNERATION
The CEO’s remuneration is approved by the Board on the recommendation of the Remuneration and Nominations Committee. The remuneration
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 total remuneration paid includes a fixed remuneration component
comprising cash salary and other employment benefits, and pay for performance remuneration comprising short-term incentives (cash and equity
awarded through deferred share rights) and long-term incentives (equity awarded through share options and performance share rights).
CEO remuneration for performance periods ended 30 June 2016 and 30 June 2017
FIXED REMUNERATION
PAY FOR PERFORMANCE REMUNERATION
Salary paid
$
939,834
814,2232
Benefits 1
$
42,026
40,096
Subtotal
$
981,860
854,319
Cash STI
$
471,2003
417,8254
Equity STI
$
157,3815
139,5546
Equity LTI
$
471,2007
464,2508
Subtotal
$
1,099,781
1,021,629
FY17
FY16
TOTAL
REMUNERATION
$
2,081,641
1,875,948
1.
2.
Benefits include 3% KiwiSaver contribution and Health Insurance.
Payment for partial period as appointed permanently to Contact in August 2015. Figure excludes one-off lump sum of $200,000 for the benefits relinquished as a
result of leaving Origin Energy.
STI for FY17 period, paid in FY18.
STI for FY16 period, paid in FY17.
3.
4.
5. Equity – based on face value allocation, performance hurdles tested 2019, if met will be paid in shares.
6. Equity – based on face value allocation, performance hurdles tested 2018, if met will be paid in shares.
7. Equity – based on face value allocation, performance hurdles tested 2020 and 2021, if met will be paid in shares.
8. Equity – based on face value allocation, performance hurdles tested 2019 and 2020, if met will be paid in shares.
Pay for performance CEO remuneration breakdown for the year ended 30 June 2017
Scheme
Cash STI
Description
Performance measure
Percentage awarded %
Cash STI is a discretionary scheme
based on achievement of KPIs.
Maximum potential set at 100% of base
salary.
60% based on Corporate shared KPIs:
• 60% Free cash flow
• 30% Earnings per share
• 10% Total recordable injury
frequency rate
40% based on individual KPIs being
costs, engagement, customer advocacy
and strategy
50% (payable in September 2017)
Equity STI
(awarded as deferred
share rights)
Equity STI allows the CEO to acquire
shares at a $0 exercise price subject to
the time-bound exercise hurdle being
achieved.
Maximum potential set at 33.4% of
base salary.
Equity LTI
(awarded as options
and performance
share rights)
Equity LTI allows the CEO to acquire
shares at the specified exercise price
subject to the exercise hurdle being
achieved.
Maximum potential set at 66.6% of
base salary.
The CEO’s performance influences the
Equity STI awarded by the Board.
16.7% (to be granted 1 October 2017
and tested October 2019)
The exercise hurdle to receive these is
to remain employed by Contact 2 years
from the grant date.
The CEO’s performance influences
the Equity LTI awarded by the Board.
The exercise hurdle to receive these
is Contact’s relative total shareholder
return (TSR) ranking within a peer group
of other New Zealand NZX50 listed
utilities companies. Tested twice over a
4 year period at year 3 and year 4.
50% vesting at 50th percentile and
100% at 75th percentile; pro-rata
vesting in between.
50% (to be granted 1 October 2017
and tested October 2020 and 2021)
The scenario chart below demonstrates the elements of the CEO remuneration design for the year ended 30 June 2017.
CEO remuneration
s
0
0
0
$
3,000
2,500
2,000
1,500
1,000
500
0
Fixed
remuneration
On-plan
remuneration
Maximum
potential
remuneration
Base salary and benefits
Short-term incentive – cash
Short-term incentive – equity
Long-term incentive – equity
Five year CEO remuneration summary
Total
remuneration paid1
$
2,081,641
1,875,948
1,210,1453
1,463,3163
1,582,9243
FY17
FY16
FY15
FY14
FY13
Percentage Cash
STI awarded
against maximum
%
Percentage vested
Equity STI
against maximum
%
50%
45%
35%
69%
72%
0 %
100%2
0%
0%
0%
Span of Equity
STI performance
period
n/a
2014-2016
Percentage vested
Equity LTI
against maximum
%
0 %
100%
n/a
n/a
n/a
0%
0%
0%
Span of Equity
LTI performance
period
n/a
2010-2013
2011-2014
2012-2015
2013-2016
2014-2017
n/a
n/a
n/a
1. Total remuneration paid includes salary, benefits, Cash STI, and Equity STI and LTI face values which have been allocated but awards are subject to achievement of
performance hurdles.
100% of Equity STI and LTI vested in August 2015 as a result of Origin selling its shareholding in Contact triggering vesting of equity due to the change of control.
2.
3. Dennis Barnes was seconded to the role of CEO by his employer Origin Energy Limited from April 2011 until August 2015. During the term of the secondment
remuneration paid by Contact to Dennis Barnes was processed by Contact reimbursing Origin Energy for his costs. The figures provided confirm his base salary level
and Cash STI for the periods.
Three year summary TSR performance
%
35
30
25
20
15
10
5
0
15
16
Company
NZX50
Peer
17
Financial year
48 Contact Annual Report 2017
49
Remuneration Report Statutory
Disclosures
The figures do not include amounts paid post 30 June 2017 that relate
to the year ended 30 June 2017. The remuneration (and any other
benefits) of the CEO, Dennis Barnes, is disclosed in the CEO
remuneration section on pages48 and 49.
DISCLOSURES OF INTERESTS BY DIRECTORS
The following are particulars of general disclosures of interest by directors holding office as at 30 June 2017, 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.
EMPLOYEE REMUNERATION
There are three components to employee remuneration – fixed
remuneration, pay for performance remuneration and other benefits.
These are designed to attract, reward and retain high performing
employees.
Fixed remuneration
Fixed remuneration is determined based on the role responsibilities,
individual performance and experience, and available market
remuneration data. Contact targets fixed remuneration at the median
of the market range.
Pay for performance remuneration
Pay for performance 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 those of Contact’s shareholders.
These are subject to performance hurdles.
Equity scheme
At 30 June 2017 there were 100 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 E9 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 78); and additional benefits and offers
from retailers and services providers.
The table below shows the number of employees and former
employees of Contact who received remuneration and other benefits
during FY17 of at least $100,000 for the year ending 30 June 2017.
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
$360,001 – $370,000
$370,001 – $380,000
$410,001 – $420,000
$440,001 – $450,000
$480,001 – $490,000
$490,001 – $500,000
$530,001 – $540,000
$630,001 – $640,000
$750,001 – $760,000
$840,001 – $850,000
$1,360,001 – $1,370,000
Number of employees
45
54
33
51
65
32
27
17
14
20
6
6
5
2
2
5
5
3
3
2
2
4
3
2
1
1
2
2
1
1
1
2
1
1
1
1
The value of remuneration benefits analysed includes:
Total
4231
• fixed remuneration including allowance/overtime payments
1.
Includes 45 former employees.
• employer superannuation contributions
•
•
•
•
short-term cash incentives relating to FY16 performance but paid in
FY17
the value of equity-based incentives expensed during FY17
the value of Contact Share expensed during FY17
redundancy and other payments made on termination of employment.
Sir Ralph Norris
Advisory Board Tax Management NZ
Advisory Board SouthPark Corporation
Auckland Grammar School Foundation Trust
Fletcher Building Limited
RANQX Holdings Limited
The Parenting Place Board
The Treasury Board
University of Auckland
Victoria Crone
Callaghan Innovation
Figure.NZ
Whaimutu Dewes
Aotearoa Fisheries Limited
Kura Limited
Ngati Porou Berries 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
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
Freightways Limited
Real Journeys Limited
NZ Global Women
FibreTech New Zealand Limited
Christchurch City Council
Auckland Council
Sue Sheldon Advisory Limited
Elena Trout
Defence Capability Management Board
Energy Efficiency and Conservation Authority (EECA)
Harrison Grierson Holdings Limited
Institution of Professional Engineers of New Zealand
Low Emission Vehicles Fund (a fund from EECA budget)
Marsden Maritime Holdings Limited
Motiti Investments Limited
Unitec Institute of Technology
Director
Director
Trustee
Chairman
Director
Member
Director
Council Member
Chief Executive Officer
Chair
Chairman
Chairman
Director
Chairman
Chairman
Director
Director
Chairman
Director
Director
Chairman
Director
Managing director/shareholder
Chief Financial Officer
Director
Director
Trustee
Chairman
Director
Director
Chairman
Independent Chair of Audit and Risk Management Committee
Independent Chair of Audit and Risk Committee
Director
External Advisory Member
Director
Director
Immediate Past-President
Chair
Director
Director
Council Member
50 Contact Annual Report 2017
51
There were no specific disclosures made during the year of any interests in transactions entered by Contact or any of its subsidiaries.
Statutory Disclosures INFORMATION USED BY DIRECTORS
No director issued a notice requesting to use information received in his or her capacity as a director that would not otherwise be available to the
director.
INDEMNITY AND INSURANCE
In accordance with section 162 of the Companies Act 1993 and the constitution of the company, Contact has continued to indemnify and insure
its directors and officers, including directors of subsidiaries, against potential liability or costs incurred in any proceeding, except to the extent
prohibited by law.
DIRECTORS’ SECURITY PARTICIPATION
Directors are 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 2017
Director
Sir Ralph Norris
Whaimutu Dewes
Rob McDonald
Sue Sheldon
Ordinary shares
Bonds
20,000
20,011
30,000
21,803
35,000
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 securities as follows:
Director
Date of allotment
Consideration per bond
Number of bonds allotted
Nature of relevant interest
Rob McDonald
23/02/17
$1.00
35,000
Beneficial
Subsidiary company directors
The following people held office as directors of Rockgas Limited during the year ended 30 June 2017. No director of Rockgas received additional
remuneration or benefits in respect of their directorships.
Company
Rockgas Limited
Directors
Dennis Barnes
Graham Cockroft
Jacqui Nelson
SHAREHOLDER STATISTICS
Twenty largest shareholders at 30 June 2017
HSBC Nominees (New Zealand) Limited – NZCSD 1
JP Morgan Chase Bank – NZCSD 1
HSBC Nominees (New Zealand) Limited – NZCSD 1
Citibank Nominees (NZ) Limited – NZCSD 1
Accident Compensation Corporation – NZCSD 1
National Nominees New Zealand Limited – NZCSD 1
HSBC Custody Nominees (Australia) Limited
FNZ Custodians Limited
J P Morgan Nominees Australia Limited
Cogent Nominees 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
Premier Nominees Limited – NZCSD 1
Tea Custodians Limited – NZCSD 1
Custodial Services Limited
JB Were (NZ) Nominees Limited
Private Nominees Limited – NZCSD 1
Investment Custodial Services Limited
Citicorp Nominees Pty Limited
Total for top 20
Number of ordinary shares
% of ordinary shares
78,350,589
71,075,009
57,740,036
46,923,090
33,625,769
23,002,609
21,740,544
20,985,449
19,350,309
19,326,385
14,557,197
14,138,931
12,126,321
10,059,005
9,810,908
9,592,190
8,297,382
6,557,913
6,211,609
5,888,631
10.95
9.93
8.07
6.56
4.70
3.22
3.04
2.93
2.70
2.70
2.03
1.98
1.69
1.41
1.37
1.34
1.16
0.92
0.87
0.82
489,359,876
68.39
1. New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to members. As at 30 June 2017 total
holdings in NZCSD were 419,429,120 or 58.62% of shares on issue.
Distribution of ordinary shares and shareholders at 30 June 2017
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
30,118
30,950
3,355
1,954
126
89
66,592
45.23
46.48
5.04
2.93
0.19
0.13
100.00
19,728,241
55,225,100
23,707,939
36,301,744
8,613,144
571,949,588
715,525,756
2.76
7.72
3.31
5.07
1.20
79.94
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 2017:
Substantial product holder
AustralianSuper Pty Ltd
Number of ordinary shares
in which relevant interest is held
Date of notice
37,327,277
1 October 2015
The total number of voting securities of Contact at 30 June 2017 was 715,525,756 fully paid ordinary shares.
52 Contact Annual Report 2017
53
Statutory Disclosures Sustainability
Reporting
1. Our stakeholders
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 and we also have a Stakeholder Council, with whom we meet once a 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 23 to 25.
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 30 to 35.
Partners and
suppliers
• Emails, meetings, phone calls
• Maintaining positive relationships
and conversations
with Contact
• Understanding our needs as
a customer
Each business unit manages its 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 41 and 42.
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 New Zealand’s
energy targets
• Freshwater reform and NZETS
Our approach to these issues is outlined on
page 42.
Our approach to these issues is outlined
on pages 6 to 7, and 23 to 42.
The sustainability aspects reported in this Annual Report cover the operations of Contact Energy Limited and its subsidiaries within New Zealand
for the period 1 July 2016 – 30 June 2017. Contact does not have a policy on the assurance of non-financial or sustainability data.
BONDHOLDER STATISTICS
Retail fixed rate bonds (CEN020) at 30 June 2017
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
200
520
1,408
204
125
2,457
8.14
21.16
57.31
8.30
5.09
998,334
4,994,500
39,924,700
17,257,000
158,825,466
0.45
2.25
17.99
7.77
71.54
100.00
222,000,000
100.00
Retail fixed rate bonds (CEN030) at 30 June 2017
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
61
148
451
95
96
851
7.17
17.39
53.00
11.16
11.28
305,000
1,401,000
12,876,000
7,736,000
127,682,000
100.00
150,000,000
0.20
0.94
8.58
5.16
85.12
100.00
Retail fixed rate bonds (CEN040) at 30 June 2017
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 bondholders
% of bondholders
Number of bonds
% of bonds
1
38
79
181
22
30
351
0.28
10.83
22.50
51.57
6.27
8.55
1,000
190,000
761,000
4,833,000
1,705,000
92,510,000
100.00
100,000,000
0.00
0.19
0.76
4.83
1.71
92.51
100.00
NZX WAIVER
On 10 February 2017 NZX Regulation granted Contact a waiver from
NZX Debt Market Listing Rule 5.2.3 (for a period of six months from
23 February 2017) in respect of Contact’s February 2017 issue of $100
million of unsecured, unsubordinated, fixed rate debt securities
(‘CEN040 Bonds’). NZDX 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 100 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 NZDX Listing Rule 5.2.3 is that the CEN040 Bonds may not be
widely held and there may be reduced liquidity in the CEN040 Bonds.
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 three issues of retail
bonds listed and quoted on the New Zealand Debt Market (NZDX)
under the company codes ‘CEN020’ (2014 series), ‘CEN030’ (2015
series) and ‘CEN040’ (2017 series). Contact’s listing on the ASX is as a
Foreign Exempt Listing. For the purposes of ASX listing rule 1.15.3,
Contact confirms that it continues to comply with the NZX listing rules.
EXERCISE OF NZX DISCIPLINARY POWERS
NZX did not exercise any of its powers under Listing Rule 5.4.2 in
relation to Contact during FY17.
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 FY17 was $480,000 and $2,150 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 $32,238 in FY17. 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.
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.
The $100 million unsubordinated, unsecured fixed rate bonds issued in
February 2017 are rated BBB by Standard & Poor’s.
54 Contact Annual Report 2017
55
Sustainability Reporting 2. Memberships of associations or advocacy organisations
Holds a position on the governance body
Utilities Disputes Limited
Electricity Retailers’ Association of New Zealand
Gas Industry Company
Liquefied Petroleum Gas Association
Participates in projects or committees
Retailers Working Group Forum
BusinessNZ Energy Council
The Sustainable Business Council
Land and Water Forum
Corporate Taxpayers Group
3. Contact’s direct (Scope 1) emissions
This table reports on greenhouse gas emissions (tCO2e) directly emitted through our operations on an operational control basis, and includes emissions
from our power stations, vehicles and use of SF6. This table includes all gases as per the most recent Intergovernmental Panel on Climate Change (IPCC)
report. This year we have updated the emissions factors used in our calculations to align with our ETS reporting 1. As a result our emissions data for 2012
and 2016 have been restated. While Contact aims to reduce our emissions year on year, we do not have set targets for emissions reductions.
Emissions (tCO2e)
Thermal generation
emission intensity
(tCO2e per MWh)
Total generation
emission intensity
(tCO2e per MWh)
Fuel used for generation
1,141,534
1,110,788
2,425,978
0.509
0.501
0.460
0.134
FY17
FY16
FY12 2
FY17
FY16
FY12
FY17
FY16
0.123
FY12
0.244
Fuel used in vehicles
Fugitive emissions – SF6
3
911
809
2
654
Total
1,142,447
1,112,251
2,425,978
1. Previous reports have used emissions factors from the Ministry for the Environment (2015) Guidance for Voluntary Corporate Greenhouse Gas Report, and ETS for geothermal.
2. Vehicle emissions were not recorded in FY12.
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.
4. Workforce by gender and employment type as at 30 June 2017
FY17
Officers1
Corporate
Customer
Generation
Total
FY16
Officers
Corporate
Customer
Generation
Total
Total
Headcount
6
137
563
320
1,026
Total
Headcount
8
168
526
336
1,038
Female
Male
Fixed term Permanent
Permanent
part-time
Permanent
full-time
2
75
314
55
446
4
62
249
265
580
–
6
75
8
89
6
131
488
312
937
–
12
55
14
81
6
119
433
298
856
Female
Male
Fixed term Permanent
Permanent
part-time
Permanent
full-time
3
96
307
55
461
5
72
219
281
577
–
10
60
20
90
8
158
466
316
948
–
13
52
12
77
8
145
414
304
871
1.
“Officers” means the CEO and members of Contact’s Leadership Team.
5. Contact Green Borrowing Programme
In line with our commitment to a low carbon economy Contact has created a green borrowing programme (‘Green Borrowing Programme’) to finance
Contact’s past and future renewable energy generation initiatives. This is a progressive approach to financing and provides investors and lenders with an
opportunity to access a broad range of certified green debt instruments where proceeds are applied to eligible green assets.
The Green Borrowing Programme is described in Contact’s Green Borrowing Programme Framework (‘Framework’), which has been developed in
alignment with the Green Bond Principles and also certified by the Climate Bonds Initiative (CBI) under Climate Bonds Standard V2.1 with assurance from
EY. The Framework, CBI Certification and EY’s assurance report are available on contact.co.nz. The Framework articulates which of Contact’s debt
instruments and assets qualify as green, and provides for a comprehensive compliance and disclosure regime to ensure the Climate Bonds Standard
V2.1 is always met, in turn ensuring that the existing CBI certification remains in place. A key compliance indicator is the ‘Green Ratio’ whereby the total
Green Asset value must be at least equal to total Green Debt Instruments (i.e. a ratio of 1.0 minimum). This indicator is to be reported on a half yearly basis.
The following table sets out the total Green Asset value and total Green Debt Instruments for the current reporting period, and confirms that the Green
Ratio is met at 1.03. Contact confirms to the best of its knowledge that its Green Borrowing Programme therefore is in compliance with the certification
requirements of the Climate Bonds Standard V2.1.
Geothermal assets data for FY17
Book value
$m
Generation
(GWh)
Emissions
(tCO2e)
Emissions intensity
(gCO2e/KWh)
Compliance
with CBI standards
(<100 gCO2e/KWh)
Poihipi1
Tauhara1
Te Mihi1
Te Huka1
Wairakei1
Tenon1
Ohaaki
Geothermal portfolio total/average
Eligible Green Asset total/average
Total Green Debt Instruments
Green Asset Ratio
1.
Eligible Green Asset in relation to Contact’s Green Borrowing Programme.
6. Employee diversity
403
15,277
–
–
1,184
50,111
189
7,029
1,121
26,834
106
1,283
336
154,093
3,339
254,627
3,003 100,534
168
95
561
115
931
5
118
1,993
1,875
1,819
1.03
38
–
42
37
24
12
459
76
33
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Gender
Age
Ethnicity 1
FY17
Female
Officers
Corporate
Customer
Generation
Total
33%
55%
56%
17%
43%
Gender
FY16
Female
Officers
Corporate
Customer
Generation
Total
38%
57%
58%
16%
44%
Male
67%
45%
44%
83%
57%
Male
62%
43%
42%
84%
56%
<30
0%
10%
30%
9%
21%
30 – 49
50 – 59
60+
European
60%
66%
43%
41%
46%
40%
20%
19%
35%
24%
Age
0%
4%
8%
15%
9%
67%
38%
38%
40%
39%
<30
30 – 49
50 – 59
60+
European
0%
5%
26%
8%
17%
50%
69%
46%
45%
49%
37%
18%
18%
32%
23%
13%
8%
10%
15%
11%
75%
40%
34%
41%
38%
Other
inc. NZer
50%
34%
25%
35%
29%
Other
inc. NZer
50%
38%
24%
35%
30%
Maori
Asian
Pasifika AMELA2 Undisclosed
0%
7%
7%
3%
6%
0%
9%
6%
6%
6%
17%
1%
3%
0%
2%
Ethnicity 1
0%
1%
1%
1%
1%
0%
25%
34%
24%
29%
Maori
Asian
Pasifika AMELA2 Undisclosed
0%
7%
6%
4%
5%
0%
7%
5%
7%
5%
13%
1%
3%
0%
2%
0%
1%
1%
1%
1%
0%
25%
37%
23%
30%
1. Employees can indicate more than one ethnic group; therefore percentages do not equal 100%.
2. AMELA: African, Middle Eastern, or Latin American.
56 Contact Annual Report 2017
57
Sustainability Reporting 7. Board diversity as at 30 June 2017
FY17
Male
Female
Total
5
GRI Content
Index
Board of Directors
Board of Directors
8. Employee absentee rate1
Total scheduled days
Total absence days
Lost days as a percentage
Total
6
3
3
50%
FY16
Male
Female
2
3
60%
50%
100%
40%
100%
FY17
FY16
NZ European
/Pakeha
4
67%
Maori
2
Total
6
33%
100%
NZ European
/Pakeha
3
60%
Maori
2
Total
5
40%
100%
FY17
FY16
Females
Males
All
employees
Females
Males
All
employees
109,749
148,130
257,878
113,365
148,489
261,854
4,652
2,868
7,520
4,335
3,052
7,387
4%
2%
3%
4%
2%
3%
1. Measures days lost as a percentage of total scheduled work days for employees.
9. Safety data
Fatalities
Occupational Disease Rate – Controlled 1
Lost Time Injury Frequency Rate – Controlled 2
Lost Time Injury Frequency Rate – Monitored 2
1. Measures occupational disease as a rate of hours worked for employees and contractors working under our HSE management systems.
2. Measures the number of lost time injuries occurring in a workplace per 1 million man-hours worked for employees and contractors.
FY17
FY16
–
–
3.2
12.7
–
–
1.5
5
General standard disclosures
Disclosure
Description
Strategy and analysis
Page number
G4-1
Statement from the most senior decision maker
CEO Review, page 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
G4-14
G4-15
G4-16
G4-EU1
G4-EU2
G4-EU3
G4-EU4
G4-EU5
Name of the organisation
Brands, products, and/or services
Headquarters location
Countries in operation
Nature of ownership
Markets served
Scale of the organisation
Contact Energy Limited
Our business p.16-17
Contact at a glance p.14
Contact operates only in New Zealand
Listed New Zealand Limited Liability Company
Contact at a glance p.14
Total employees p.56, contractor workforce data not available.
Number of operations p.15
Net revenue p.66
GWh sold p.15
Employee statistics
Sustainability reporting p.56
Employees covered by collective bargaining agreements
11% of total Contact 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
No significant changes occurred in FY17
Precautionary approach
Not specifically addressed. Potentially adverse environmental impacts are
addressed through adaptive management including official (often publicly
notified) resource consent assessments
External charters, principles, or other initiatives
None noted
Memberships in associations and advocacy organisations
Sustainability reporting p.56
Installed capacity
Net energy output broken down by primary energy source
and by region
Contact at a glance p.15
Contact at a glance p.15
Number of customer accounts
Sustainability reporting p.15
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
Sustainability reporting p.55
Process for defining the report content
Material aspects identified
Aspect boundaries within the organisation
Aspect boundaries outside the organisation
Living our Tikanga p.20
Living our Tikanga p.21
The boundaries of most material topics is within Contact Energy, apart
from occupational health and safety where there are impacts created by
companies in our supply chain as well as ourselves.
Restatements of information
FY16 and FY12 emissions data p.56
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
Living our Tikanga p.20
Sustainability reporting p.55
Sustainability reporting p.55
Key topics and concerns raised by stakeholders
Living our Tikanga p.20
58 Contact Annual Report 2017
59
Sustainability Reporting
Financial
Statements
Page number
Financial year
Disclosure
Description
Report profile
Reporting period
G4-28
G4-29
G4-30
G4-31
G4-32
Date of most recent previous report
The previous report was dated 15 August 2016
Reporting cycle
Contact point for questions
Chosen ‘In accordance’ option, GRI index
Annual
Corporate Directory p.83
This report has been developed in accordance with the core
GRI-G4 guidelines.
GRI Index pp.59-60
G4-33
External assurance for the report
Annual Report 2017 was not assured by an external assurer.
Governance
G4-34
Governance structure
Governance, pp.44-45
Ethics and integrity
G4-56
Organisation’s values, principles, standards
and norms of behaviour, and codes of ethics
Contact at a Glance p.11
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.37
p.37
pp.26-27
Planned capacity against projected electricity demand
p.15, pp.26-27
Category: Environmental
DMA
Water
G4-EN8
Total water withdrawal by source
DMA
Biodiversity
G4-EN13
Habitats protected or restored
DMA
Emissions
G4-EN15
Direct (Scope 1) Greenhouse gas emissions
Category: Social
DMA
Occupational Health and Safety
G4-LA6
Workplace injuries
DMA
Diversity and Equal Opportunity
G4-LA12
Gender and ethnic diversity
DMA
Equal remuneration for women and men
G4-LA13
Gender pay ratio
DMA
G4-SO1
Local Communities
Community engagement and development
DMA
Product and Service Labelling
G4-PR5
Customer satisfaction
DMA
Access (Sector specific) – socio-economic
p.39
p.39
p.40
p.40
pp.37-38
p.56
pp.34-35
pp.34-35, p.58
p.33
p.33, pp.56-58
p.33
p.33
pp.41-42
p.60
pp.23-25
p.25
pp.24-25
Own measure Reduction of customer debt expressed as a percentage
p.60
Contractor data not available for
Absentee Rate, Occupational Disease
rate and fatalities
We have community engagement plans
for 23% of our sites by region.
There was a 43% reduction in the
average debt levels owed by residential
and business customers in FY17.
62
About these Financial
Statements
63
Statement of
Comprehensive Income
63
Statement of
Cash Flows
64
Statement of
Financial Position
65
Statement of
Changes in Equity
66
Notes to the Financial Statements
66 A. OUR PERFORMANCE
66 A1. Segments
66 A2. Earnings
67
A3. Free cash flow
68
68
68
68
69
69
B. OUR FUNDING
B1. Capital structure
B2. Share capital
B3. Distributions
B4. Borrowings
B5. Net interest expense
70 C. OUR ASSETS
70 C1. Property plant & equipment
and intangible assets
C2. Goodwill and asset
impairment testing
D. OUR FINANCIAL RISKS
D1. Market risk
D2. Liquidity risk
D3. Credit risk
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. New accounting standards
72
73
73
74
74
75
75
75
75
75
76
76
76
77
78
79
79
80
Independent
Auditor’s Report
60 Contact Annual Report 2017
61
About these
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2017
Statement of
Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2017
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 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 11 August 2017.
Sir Ralph Norris
Chairman
Sue Sheldon
Director
$m
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 2017
$m
Receipts from customers
Payments to suppliers and employees
Tax (paid)/received
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
Note
A2
A2
A2
C1
B5
E1
E1
D1
B3
Note
E6
B3
B2
B4
2017
2,080
(1,586)
11
(204)
(92)
209
(59)
150
(21)
6
(15)
135
2016
2,163
(1,640)
(327)
(201)
(101)
(106)
40
(66)
5
(3)
2
(64)
21.0
(9.1)
2017
2,074
(1,535)
(37)
–
–
502
(118)
9
1
(108)
(186)
–
115
(221)
(87)
(14)
(393)
1
5
6
2016
2,172
(1,620)
1
2
1
556
(122)
27
1
(94)
(189)
(100)
360
(431)
(94)
(7)
(461)
1
4
5
62 Contact Annual Report 2017
63
Financial Statements
Statement of
Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2017
$m
Balance at 1 July 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
Profit
Change in cash flow hedge reserve (net of tax)
Lapsed share scheme awards
Share-based compensation expense
Dividends paid
Balance at 30 June 2017
Note
B2
E9
B3
E9
B3
Share
capital
1,605
–
–
–
(90)
–
–
1,515
–
–
–
–
–
1,515
Retained
earnings
1,546
(66)
–
3
–
–
(189)
1,294
150
–
2
–
(186)
1,260
Other
reserves
Shareholders’
equity
20
–
2
(3)
(10)
5
–
14
–
(15)
(2)
3
–
–
3,171
(66)
2
–
(100)
5
(189)
2,823
150
(15)
–
3
(186)
2,775
Statement of
Financial Position
AT 30 JUNE 2017
$m
Cash and cash equivalents
Trade and other receivables
Inventories
Intangible assets
Derivative financial instruments
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
Tax payable
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
B4
E4
E3
C1
D1
E3
C1
C1
C2
D1
B4
D1
E5
B4
D1
E5
E1
B2
E7
2017
6
190
46
11
8
–
261
24
4,592
321
182
38
11
5,168
5,429
202
4
386
50
14
656
1,141
52
50
748
7
1,998
2,654
2,775
1,515
1,260
(8)
8
2016
5
201
58
15
22
1
302
46
4,699
318
182
88
17
5,350
5,652
223
–
305
24
10
562
1,391
82
44
736
14
2,267
2,829
2,823
1,515
1,294
7
7
2,775
2,823
64 Contact Annual Report 2017
65
Financial Statements
A. Our Performance
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
A1. SEGMENTS
Contact’s operating segments were changed during the year to the
Generation segment and the Customer segment in order to better
reflect how the business is managed. All comparative information has
been restated accordingly.
The Generation segment includes revenue from the sale of electricity
to the wholesale electricity market and to the Customer segment, less
the cost to generate and/or purchase the electricity sold.
The Customer segment includes revenue from delivering energy to
customers less the cost of purchasing energy, and costs to service and
distribute energy to customers.
The Customer segment purchases electricity from the Generation
segment at a price fixed in a manner similar to transactions with third
parties.
A2. EARNINGS
The table below provides a breakdown of Contact’s 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.
$m
Mass market electricity
Commercial & Industrial (C&I) electricity 1
Wholesale electricity 1
Inter-segment electricity sales
Gas
LPG
Steam
Total revenue
Other income
Total revenue and other income
Electricity purchases1
Inter-segment electricity purchases
Gas purchases
LPG purchases
Electricity networks, transmission, levies & meters
Gas networks, transmission, levies & meters
Other operating expenses
Carbon emissions
Total operating expenses
EBITDAF
Depreciation and amortisation
Net interest expense
Tax on underlying profit
Underlying profit
Significant items
Change in fair value of financial instruments
D1
Transition costs
Remediation for Holidays Act non-compliance
Otahuhu thermal power station closure and sale
Write-down of inventory gas
Asset impairments
Tax on significant items
Reinstatement of tax depreciation on powerhouses
Profit/(loss)
Underlying profit per share (cents)
B3
Note Generation Customer Eliminations
Total Generation Customer Eliminations
2017
2016
–
–
483
641
–
–
25
893
510
–
–
66
122
–
–
(37)
9
(641)
–
–
–
893
473
492
–
66
122
25
–
–
539
661
1
–
25
903
520
–
–
62
117
–
–
(19)
4
(661)
–
–
–
Total
903
501
543
–
63
117
25
1,149
1,591
(669)
2,071
1,226
1,602
(676)
2,152
3
–
9
6
5
–
11
1,594
(669)
2,080
1,232
1,607
(676)
2,163
6
1,155
(494)
–
–
(641)
(100)
–
(42)
(8)
(119)
(9)
(15)
(71)
(590)
(36)
(128)
(2)
28
641
–
–
–
–
–
–
(466)
(528)
–
–
(115)
(71)
(632)
(44)
(247)
(11)
–
(661)
(108)
–
(41)
(12)
(121)
(7)
(14)
(68)
(596)
(33)
(126)
(1)
15
661
–
–
–
–
–
–
(513)
–
(122)
(68)
(637)
(45)
(247)
(8)
(772)
(1,483)
669
(1,586)
(817)
(1,499)
676
(1,640)
383
111
–
494
(204)
(92)
(57)
141
23
(7)
(5)
–
–
–
(2)
–
150
19.7
415
108
–
523
(201)
(101)
(64)
157
(21)
(10)
–
(217)
(43)
(36)
100
4
(66)
21.7
EBITDAF and underlying profit are non-GAAP profit measures that
provide a consistent measure of Contact’s ongoing performance.
EBITDAF is profit/(loss) before tax excluding interest, depreciation,
amortisation and significant items.
Underlying profit 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. They are determined in
accordance with the principles of consistency, relevance and clarity.
Transactions considered for classification as significant items include
change in fair value of financial instruments; impairment or reversal of
impairment of assets; significant business integration, restructure,
acquisition and disposal costs; and transactions or events outside of
Contact’s ongoing operations that have a significant impact on
reported profit.
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 D1 and E7.
• Transition costs: Incurred as a result of the ICT Change and
Transition programme to significantly change Contact’s ICT
infrastructure and service delivery. The programme was completed
during the current reporting period. Included in the cost is $1 million
of depreciation (2016: $2 million).
• Remediation for Holidays Act non-compliance: At 30 June 2016
Contact disclosed a contingent liability for non-compliance with
aspects of the Holidays Act 2003. A provision representing the
best estimate of the cost to resolve the issue, including payments
to current and previous employees, was recognised during the year.
Refer note E5. Actual payments may differ from the estimate and
the cost recognised will be adjusted accordingly.
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 growing the business. A reconciliation from EBITDAF to
NZ GAAP operating cash flows and to free cash flow is provided below.
$m
EBITDAF
Tax (paid)/received
Note
Change in working capital net of non-cash,
investing and financing activities
E6
Non-cash items included in EBITDAF
Significant items, net of non-cash amounts
Operating cash flows
Net interest paid
Stay in business capital expenditure
Operating free cash flow
Proceeds from sale of assets
Free cash flow
Operating free cash flow per share (cents)
B3
2017
494
(37)
41
12
(8)
502
(86)
(116)
300
9
309
41.9
2016
523
1
22
20
(10)
556
(93)
(111)
352
27
379
48.5
Stay in business capital expenditure is required to maintain our
business operations and includes major plant inspections and
replacements of existing assets. The composition of stay in business
capital expenditure was refined during the year to include costs
incurred on restoration provisions. The comparative period was
restated accordingly.
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 spot
price component is classified as electricity purchases. The CfDs treatment grosses up revenue and expenses. For financial reporting purposes, these CfDs are
settled net within wholesale electricity revenue.
66 Contact Annual Report 2017
67
Notes to the Financial Statements | For the year ended 30 June 2017
B. Our Funding
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
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 manage 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 support a BBB credit rating
and a gearing ratio suitable to the nature of our business.
$m
Borrowings
Shareholders’ equity
Total capital funding
Gearing ratio
2017
1,527
2,775
4,302
35.5%
2016
1,696
2,823
4,519
37.5%
The gearing ratio calculation has changed from the prior period to
align with the gearing ratio defined in Contact’s Deed of Negative
Pledge and Guarantee.
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). All shareholders are
entitled to receive distributions and to make one vote per share.
Balance at 1 July 2015
Share capital issued
Share capital repurchased
and cancelled
Balance at 30 June 2016
Balance at 30 June 2017
Comprised of:
Ordinary shares
Contact Share
Note
Number
733,358,872
2,871,844
(20,704,960)
715,525,756
715,525,756
715,122,383
E9
403,373
$m
1,605
10
(100)
1,515
1,515
1,516
(1)
B3. DISTRIBUTIONS
Earnings and operating free cash flow per share
Cents per share
Profit/(loss) – basic
Profit/(loss) – diluted
Underlying profit – basic
Operating free cash flow – basic
Weighted average
2017
21.0
21.0
19.7
41.9
2016
(9.1)
(9.0)
21.7
48.5
Number of shares – basic
715,525,756
725,446,379
Number of shares – diluted
715,586,571
736,016,721
The basic calculation uses the weighted average number of shares 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 or it is likely vesting conditions will
be met.
Dividends
Paid during the year ended
2015 final
2016 interim
30 June 2016
2016 final
2017 interim
30 June 2017
Cents
per share
15.0
11.0
15.0
11.0
$m
110
79
189
107
79
186
On 11 August 2017, the Board resolved to pay a fully imputed final
dividend of 15 cents per share on 19 September 2017. On 11 August
2017, Contact held 1.7 million imputation credits.
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 changes in market interest and
foreign exchange rates result in a change in the fair value adjustment
on that debt (note E7).
Short-term funding
Contact uses bank facilities for general corporate purposes including
to manage its liquidity risk (note D2). 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 the reporting period end.
Borrowings denoted with an asterisk (*) are Green Debt Instruments
under Contact’s Green Borrowing Programme, which has been
certified by the Climate Bond Initiative.
Contact’s total bank facilities (including undrawn facilities of
$487 million at 30 June 2017) have a range of maturities:
$m
Maturity
Coupon
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%
*Retail bonds – CEN020
May 2019
5.80%
*Wholesale bonds
May 2020
5.28%
*USPP notes – US$56m
Dec 2020
3.46%
*Retail bonds – CEN030
Nov 2021
4.40%
*Retail bonds – CEN040
Nov 2022
4.63%
*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%
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
2017
3
180
113
19
–
71
43
50
222
50
70
150
100
28
64
61
73
62
75
22
29
38
2016
5
165
223
23
100
71
43
50
222
50
70
150
–
28
64
61
73
62
82
22
29
38
1,523
1,631
(7)
(8)
1,516
1,623
11
73
1,527
1,696
386
305
1,141
1,391
A summary of the changes in Contact’s borrowings is provided below:
Maturity $m
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
More than 3 years
2017
150
265
30
155
600
2016
115
240
155
140
650
In July 2017, total facilities reduced by $75 million to $525 million. All
bank facilities form part of Contact’s Green Borrowing Programme.
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
Cash and cash equivalents exclude bank overdrafts which are included
within borrowings. Contact trades electricity price derivatives on the
ASX market using a broker that holds collateral on deposit for margin
calls. At 30 June 2017, this collateral was $6 million (2016: $3 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.
$m
Interest expense on borrowings
Unwind of discount on provisions
Note
E5
2017
(89)
(5)
2
(92)
2016
(98)
(6)
3
(101)
$m
Borrowings at the start of the year
Net cash borrowed/(repaid)
Non-cash change in finance leases
Non-cash change in deferred financing costs
Non-cash change in fair value adjustment
2017
1,696
(106)
(2)
1
(62)
2016
Interest income
Net interest expense
1,750
(71)
–
–
17
Borrowings at the end of the year
1,527
1,696
68 Contact Annual Report 2017
69
Notes to the Financial Statements | For the year ended 30 June 2017
C. Our Assets
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
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 and billing, finance functions and generation asset
management, which has a value of $260 million (2016: $256 million)
and a remaining life of 12 years.
All assets are recognised at cost less accumulated depreciation or
amortisation and impairments. Generation plant and equipment
acquired before 1 October 2004 is recognised at deemed historical
cost, which is the fair value of those assets at 1 October 2004, less
accumulated depreciation and accumulated impairment losses.
Property, Plant & Equipment
$m
Cost
Balance at 1 July 2015
Additions
Transfers from capital work in progress
Transfers to assets held for sale
Disposals
Balance at 30 June 2016
Balance at 1 July 2016
Additions
Transfers from capital work in progress
Disposals
Balance at 30 June 2017
Depreciation and impairment
Balance at 1 July 2015
Depreciation charge 1
Impairment
Disposals
Balance at 30 June 2016
Balance at 1 July 2016
Depreciation charge 1
Disposals
Balance at 30 June 2017
Carrying value
At 30 June 2016
At 30 June 2017
Generation plant
and equipment
Other land and
buildings
Other plant and
equipment
Capital work in
progress
6,076
35
43
–
(471)
5,683
5,683
28
27
(2)
5,736
(1,355)
(161)
(250)
470
(1,296)
(1,296)
(159)
1
(1,454)
4,387
4,282
33
–
–
(3)
–
30
30
–
–
–
30
(13)
(2)
–
–
(15)
(15)
(2)
–
(17)
15
13
252
6
4
–
(19)
243
243
6
1
(7)
243
(167)
(12)
–
18
(161)
(161)
(10)
7
(164)
82
79
318
47
(47)
–
(102)
216
216
31
(28)
–
219
(66)
–
(37)
102
(1)
(1)
–
–
(1)
215
218
Total
6,679
88
–
(3)
(592)
6,172
6,172
65
–
(9)
6,228
(1,601)
(175)
(287)
590
(1,473)
(1,473)
(171)
8
(1,636)
4,699
4,592
1. $1 million of depreciation charge (2016: $2 million) 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 2015
Additions
Disposals
Balance at 30 June 2016
Balance at 1 July 2016
Additions
Disposals
Balance at 30 June 2017
Amortisation
Balance at 1 July 2015
Amortisation charge
Disposals
Balance at 30 June 2016
Balance at 1 July 2016
Amortisation charge
Disposals
Balance at 30 June 2017
Carrying value
At 30 June 2016
At 30 June 2017
Current
Non-current
Cost
Contact capitalises the costs to purchase and bring assets into
service. When Contact develops an asset, employee time and other
directly attributable costs are capitalised, 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 existing
area of operations that they relate to is unsuccessful or abandoned. All
other geothermal exploration costs are expensed.
Computer software
and capital work
in progress
Gas
storage rights
Carbon
emission units
370
36
(1)
405
405
37
–
442
(92)
(27)
1
(118)
(118)
(32)
–
(150)
287
292
–
292
35
–
–
35
35
–
–
35
(4)
(1)
–
(5)
(5)
(1)
–
(6)
30
29
–
29
20
6
(10)
16
16
3
(8)
11
–
–
–
–
–
–
–
–
16
11
11
–
Total
425
42
(11)
456
456
40
(8)
488
(96)
(28)
1
(123)
(123)
(33)
–
(156)
333
332
11
321
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 useful life changes identified in the current
reporting period did not result in a material change in depreciation.
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:
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 (2016: $52 million) is
classified as generation plant and equipment.
Generation plant and equipment:
– Straight line
– Equivalent operating hours
Assets
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 our ETS obligations at balance date or
obligations expected to be incurred within one year of balance date.
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.
Other buildings, plant and equipment
Computer software
Gas storage rights
Capital commitments
At 30 June 2017, Contact was committed to $11 million of capital
expenditure, with all payments due within one year of the reporting
period end (2016: $33 million).
Rate/hours
1 – 33%
8,000 – 100,000
2 – 33%
6 – 33%
3%
70 Contact Annual Report 2017
71
Notes to the Financial Statements | For the year ended 30 June 2017
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
(2016: $95 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 – 8 % to arrive
at the present value, or recoverable amount, of each CGU.
The key inputs to each CGU’s cash flows are:
A 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, which 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.
No impairments were recognised in the current period. During the prior
period, an impairment was recognised when the Otahuhu power
station was classified as held for sale, and the Taheke geothermal
development was fully impaired (note A2).
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 2017
Contact’s financial risk management system mitigates the exposure to
market, liquidity and credit 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.
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 payments.
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.
Favourable/(unfavourable)
$m
Hedging impact on cash flow hedge reserve (CFHR)
Forward electricity prices
Forward foreign exchange rates
Hedging impact on post-tax profit/(loss)
Forward interest rates
Forward electricity prices
+10%
-10%
+10%
-10%
+100bps
-25bps
+10%
-10%
2017
2016
(14)
(16)
14
(1)
1
20
(5)
(19)
–
16
(2)
2
21
(6)
(8)
–
Fair value of derivatives
The fair value of derivatives used to hedge risk, categorised by
accounting treatment, is provided below:
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.
$m
Fair value hedges
CCIRS
IRS
Cash flow hedges
CCIRS – margin
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 provides 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 at 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 product
purchases and may use derivatives to fix the price of LPG.
Summary of hedged 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 – 2028
$m 2017 – 2018
IRS – floating exposure
$m 2018 – 2022
IRS – fixed exposure
$m 2017 – 2024
2017
560
20
521
979
2016
560
35
635
966
The notional exposure for electricity price derivatives in the table
above does not include fixed price, variable volume contracts.
Sensitivities
The table below summarises the impact on derivative valuations of
possible changes in forward wholesale electricity 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.
Foreign exchange derivatives
Electricity price derivatives
Derivatives not designated in hedge
relationships
IRS
Electricity price derivatives
Current
Non-current
$m
CCIRS
IRS
Fair value adjustment to borrowings
Fair value hedges
CCIRS – margin
Foreign exchange derivatives
Tax on change in fair value
Cash flow hedges
IRS
Electricity price derivatives
Derivatives not designated
in hedge relationships
Electricity price
derivatives
GWh 2017 – 2030
8,290
8,544
Electricity price derivatives
2017
Asset
2017
Liability
2016
Asset
2016
Liability
33
8
(30)
–
2
–
–
–
3
(6)
–
(6)
(53)
(7)
72
14
2
–
17
(17)
–
(4)
(4)
–
3
2
(79)
(2)
46 (102)
110 (106)
8
38
(50)
(52)
22
88
(24)
(82)
2017
Profit/
(loss)
(52)
(6)
62
4
–
–
–
–
–
23
(4)
19
2017
CFHR
–
–
–
–
(2)
4
(23)
6
(15)
–
–
–
2016
Profit/
(loss)
11
8
(17)
2
–
–
–
–
–
(22)
(1)
(23)
2016
CFHR
–
–
–
–
(3)
(7)
15
(3)
2
–
–
–
2
Total fair value movement
23
(15)
(21)
The change in fair value of derivatives is provided below:
72 Contact Annual Report 2017
Further information on fair value and accounting for derivatives is
provided in note E7.
73
Notes to the Financial Statements | For the year ended 30 June 2017
D2. 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.
Management monitors the available liquidity buffer by comparing
forecast cash flows to available facilities to ensure sufficient liquidity is
maintained in accordance with internal limits.
Information on contracted cash flows in the table below is presented on
an undiscounted basis.
CCIRS cash flows are included within Borrowings in the table below. US
dollar inflows on the CCIRS offsets the US dollar outflows on the USPP.
D3. CREDIT RISK
Total credit risk exposure is measured by the notional amount
of financial instruments in an asset position of $239 million
(2016: $314 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.
2017
$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
2016
Trade and other payables
Borrowings
Finance lease liabilities
Electricity price derivatives – net settled
IRS – net settled
Foreign exchange derivatives – inflow
Foreign exchange derivatives – outflow
Total contractual
cash flows
Less than
1 year
1 – 2 years
2 – 5 years
More than
5 years
(201)
(1,794)
(32)
(40)
(51)
25
(25)
(201)
(465)
(3)
(10)
(14)
25
(25)
–
–
–
(335)
(396)
(598)
(2)
(6)
(11)
–
–
(6)
(12)
(24)
–
–
(21)
(12)
(2)
–
–
(2,118)
(693)
(354)
(438)
(633)
(220)
(2,034)
(46)
41
(134)
51
(56)
(220)
(368)
(4)
17
(31)
50
(55)
–
–
(519)
(481)
(4)
10
(30)
1
(1)
(8)
14
(63)
–
–
–
(666)
(30)
–
(10)
–
–
(2,398)
(611)
(543)
(538)
(706)
E. Other Disclosures
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
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).
$m
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
2017
210
(59)
1
–
(1)
(59)
(41)
(18)
2016
(106)
30
9
4
(3)
40
(19)
59
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.
$m
PP&E and
Intangible
assets
Derivative
financial
instruments
Balance at 1 July 2015
(822)
Recognised in profit/(loss)
Recognised in OCI
44
–
Balance at 30 June 2016
(778)
Recognised in profit/(loss)
Recognised in OCI
(6)
–
Balance at 30 June 2017
(784)
16
6
(3)
19
(7)
6
18
Other
Total
14
(792)
9
–
59
(3)
23
(736)
(5)
–
18
(18)
6
(748)
E3. INVENTORY
Contact’s inventories include gas in storage at the Ahuroa gas storage
facility for use in thermal generation. Inventory gas is carried at the
lower of net realisable value (NRV) and cost. 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 is split between current and non-current based on
expected future and past actual gas usage. At 30 June 2017, Contact
expects to use 50% of the gas held in storage within one year of the
end of the reporting period (2016: 40%).
$m
Inventory gas
Consumables and spare parts
LPG
Diesel fuel
Current
Non-current
2017
54
10
2
4
70
46
24
2016
90
8
3
3
104
58
46
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.
E4. TRADE AND OTHER RECEIVABLES
$m
Trade receivables
Unbilled receivables
Provision for impairment
Net trade receivables
Prepayments
Other receivables
2017
83
100
(3)
180
3
7
190
2016
91
101
(5)
187
2
12
201
E2. OPERATING EXPENSES
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 (2016: $5 million) are included in other operating
expenses (note A2).
Contact recognises a provision for impairment of trade receivables
based on historical delinquency rates across the customer base. When
Contact has been unable to recover aged debt it is written off.
Ageing of trade receivables not impaired is:
$m
Less than 1 year
Between 1 and 5 years
More than 5 years
Total operating lease commitments
$m
2017
2016
Not past due
6
13
1
20
5
15
3
23
0 – 30 days past due
30 – 90 days past due
Over 90 days past due
2017
154
18
4
4
2016
161
13
5
8
180
187
Other operating expenses
Other operating expenses (note A2) include total labour costs of $103
million (2016: $104 million) and contributions to KiwiSaver of $3 million
(2016: $3 million).
Audit fees paid to Contact’s auditors (KPMG) of $480,000 for review
of the interim and audit of the year end financial statements
(2016: $483,000), and $2,150 for scrutineering at the annual meeting
(2016: $4,500).
Bad debts net of recoveries of $7 million (2016: $9 million) were
recognised during the reporting period.
74 Contact Annual Report 2017
75
Notes to the Financial Statements | For the year ended 30 June 2017
E5. 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.
The other provision includes $5 million (2016: nil) for remediation of the
Holidays Act non-compliance. Refer note A2.
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:
$m
Balance at 1 July 2016
Created
Utilised
Unwind of discount
Balance at 30 June 2017
Current
Non-current
Restoration/
environmental
rehabilitation
(51)
(3)
3
(5)
(56)
(8)
(48)
Other
(3)
(6)
1
–
(8)
(6)
(2)
Total
(54)
(9)
4
(5)
(64)
(14)
(50)
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 8%.
E6. PROFIT/(LOSS) TO OPERATING CASH FLOWS
$m
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
Movement in provisions
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
2017
150
204
(23)
–
–
–
5
92
10
18
3
(2)
(1)
35
7
4
2016
(66)
201
21
36
43
217
–
101
14
(59)
5
2
16
13
(7)
19
$m
CCIRS
CCIRS – margin
Foreign exchange derivatives
IRS
Electricity price derivatives
2017
Asset
2017
Liability
2016
Asset
2016
Liability
26
(23)
67
(12)
–
–
8
3
37
(4)
–
(53)
(13)
(93)
1
–
14
18
100
(3)
(4)
(76)
(1)
(96)
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 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.
The following table provides a breakdown of the fair value of derivatives
by the source of key valuation inputs:
$m
Sourced from market data
Derived from market data
Electricity price estimates
2017
(3)
(45)
(8)
(56)
The electricity price derivatives most affected by estimates are
reconciled below:
2016
–
(5)
9
4
2016
2
(2)
(1)
1
9
9
$m
Opening balance
Gain/(loss) in profit/(loss):
– wholesale electricity revenue
502
556
– change in fair value of financial instruments
Gain/(loss) in OCI
Instruments issued
Closing balance
2017
9
(7)
(1)
(9)
–
(8)
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 remaining period of up to 13 years and
is recognised as an electricity price derivative at fair value.
When quoted prices are not available or relevant (i.e. long dated and
large contracts ), the key unobservable inputs and management
judgement is the cost of new supply. The fair value also takes into
account other inputs including forward quoted commodity prices, such
as carbon and aluminium prices, and CPI.
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:
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 the 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.
$m
Opening balance
Effective portion of cash flow hedges
Transferred to revenue
Transferred to property, plant and equipment
Transferred to deferred tax
Closing balance
2017
7
(29)
11
(3)
6
(8)
2016
5
11
(6)
–
(3)
7
$m
Opening difference
Initial differences in new hedges
Volumes expired and amortised
Changes for future prices and time
Closing difference
2017
(17)
–
(1)
(15)
(33)
2016
2
(24)
–
5
(17)
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 and financial transmission rights. All
changes in fair value of these derivatives are recognised directly in
profit/(loss).
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 the
change in fair value of financial instruments in the SOCI to the extent
the hedging relationship is effective.
E8. FINANCIAL INSTRUMENTS AT AMORTISED COST
The value of financial instruments carried at amortised cost is provided
in the table below.
$m
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
2017
6
187
(201)
2016
5
199
(220)
(1,516)
(1,623)
For disclosure purposes, the fair value of all borrowings is $1,550 million
(2016: $1,707 million). This fair value is derived from market data.
76 Contact Annual Report 2017
77
Notes to the Financial Statements | For the year ended 30 June 2017
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.
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 2015
Shares purchased and issued
Transferred to employees
Balance at 30 June 2016
Shares purchased and issued
Transferred to employees
Balance at 30 June 2017
Contact Share
274,704
148,277
(20,551)
402,430
139,071
(138,128)
403,373
There shares have a weighted average remaining life of one year and
four months (2016: one year, three months).
Share-based compensation expense
The current reporting period’s expense was $3 million (2016: $5 million).
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 1 July 2015
Granted
Lapsed
Balance at 30 June 2016
Granted
Lapsed
Balance at 30 June 2017
Options
Number outstanding
13,463,423
1,012,408
(3,474,844)
11,000,987
1,157,407
(2,511,733)
9,646,661
Price
$5.44
$4.92
$5.61
$5.34
$4.98
$5.37
$5.28
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 2015
Granted
Exercised
Lapsed
Balance at 30 June 2016
Granted
Lapsed
Balance at 30 June 2017
PSRs
2,476,330
314,660
DSRs
395,514
341,861
(2,476,330)
(395,514)
(20,344)
294,316
285,054
(43,067)
536,303
(27,691)
314,170
345,720
(64,654)
595,236
$
Share options
PSRs
DSRs
Contact Share
Key inputs in determining the fair values are:
At 30 June 2017, 7,679,533 share options were exercisable. The
exercisable share options have a weighted average exercise price
of $5.37.
Share options had a weighted average remaining life of one year and
seven months (2016: two years), PSRs had three years and five months
(2016: four years, four months) and DSRs had 11 months (2016: one year
and five months).
Risk-free interest rate
Expected dividend yield
Expected share price volatility
2017
0.44
2.91
4.50
4.98
2017
2%
6%
21%
2016
0.61
3.16
4.51
4.92
2016
3%
5%
22%
E10. RELATED PARTIES
Contact’s related parties include Directors, the Leadership Team (LT)
and Rockgas Timaru Limited. Contact wholly owns Rockgas Limited,
which holds 50% of Rockgas Timaru Limited. Both entities are LPG
retailers.
Revenue recognition
The new standard provides detailed revenue recognition guidance,
including how to treat cash incentives and discounts given to
customers. The standard also requires capitalisation of incremental
customer acquisition costs.
Related party transactions are disclosed in the table below.
Received/(paid) $m
Rockgas Timaru Limited
Sale of LPG
Key management personnel
Directors’ fees
LT – salary and other short-term benefits
LT – share-based compensation expense
Balances payable at end of the year
Key management personnel
2017
2016
2
(1)
(6)
(1)
(1)
1
(1)
(5)
(2)
(1)
Members of the Leadership Team purchase goods and services from
Contact for domestic purposes on normal commercial terms and
conditions which includes staff discount available to all eligible
employees.
E11. NEW ACCOUNTING STANDARDS
Contact early adopted the Amendments to NZ IAS 7 Statement of
Cash Flows, which requires disclosure of changes in liabilities arising
from financing activities. The table in note B4 provides the cash and
non-cash changes in borrowings.
Contact intends to early adopt NZ IFRS 15 Revenue from Contracts
with Customers and NZ IFRS 16 Leases for the year ending 30 June
2018. Early adoption provides clarity on the ongoing accounting
requirements of new transactions.
Both standards will be adopted retrospectively with adjustments to
retained earnings on 1 July 2016 to reflect the accounting policy changes.
Contact has chosen not to early adopt NZ IFRS 9 Financial Instruments
effective for the year ending 30 June 2019. The impact on our Financial
Statements has not yet been assessed.
Cash incentives will be deferred on balance sheet and recognised
against revenue when the related products are delivered to the
customer. This is not an accounting policy change as cash incentives
are already deferred over the related contract term of up to two years.
However, the revised amortisation period will be changed to three
years reflecting both average customer life and contract term. There
may be some reclassification of cash incentives and discounts
between product lines, e.g. retail gas and retail electricity.
Capitalisation of the incremental costs of acquiring customers is an
accounting policy change. The costs will be amortised to operating
expenses over a period consistent with that applied to cash incentives.
The effect of the changes described above on the year ended 30 June
2017 would be an estimated increase in profit/(loss) of $2 million and an
estimated increase in deferred costs on balance sheet of $4 million.
Lease accounting
The new standard introduces a single lessee accounting model that
brings all leases on balance sheet except low value or short term
leases. There is no change to lessor accounting.
Contact will recognise lease assets and lease obligations at inception
of a lease that represent, primarily, the present value of lease payments
for the minimum lease term and all renewal options that Contact is
reasonably certain to exercise.
Rental payments are currently recognised as an operating expense.
Under the new standard, they will be treated as a repayment of lease
obligations. The lease obligations will result in recognition of interest
expense and the lease assets will result in depreciation expense.
The estimated effect of the changes described above on the year
ended 30 June 2017 would have been an insignificant impact on profit/
(loss), recognition of $21 million of lease obligations and $18 million of
lease assets.
78 Contact Annual Report 2017
79
Notes to the Financial Statements | For the year ended 30 June 2017
Independent
Auditor’s Report
TO THE SHAREHOLDERS OF CONTACT ENERGY LIMITED
REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
Opinion
In our opinion, the accompanying consolidated financial statements of
Contact Energy Limited (the Company) and the entities over which it
has control or joint control (the Group) on pages 61 to 79:
i. present fairly in all material respects the Group’s financial position
as at 30 June 2017 and its financial performance and cash flows for
the year ended on that date; and
ii. comply with New Zealand Equivalents to International Financial
Reporting Standards and International Financial Reporting
Standards.
We have audited the accompanying consolidated financial statements
which comprise:
•
•
the consolidated statement of financial position as at 30 June 2017;
the consolidated statements of comprehensive income, changes in
equity and cash flows for the year then ended; and
• notes, including a summary of significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (New Zealand) (“ISAs (NZ)”)(ISAE. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
We are independent of the Group in accordance with 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.
Our responsibilities under ISAs (NZ) are further described in the
Auditor’s Responsibilities for the Audit of the consolidated financial
statements section of this report.
Our firm has also provided 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 may 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.
Scoping
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.
The context for our audit is set by the Group’s major activities in the
financial year ended 30 June 2017. The Group had a continued focus on
improvements in retail operating performance as it seeks to realise
benefits from its investments in its retail customer business. There also
remains an ongoing focus on the generation portfolio in light of potential
sector developments and overall strategy to increase the proportion of
renewable generation in New Zealand.
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 million determined with reference to a benchmark of Group profit
before tax adjusted for certain significant non-recurring items. We chose
the benchmark because, in our view, this is a key measure of the Group’s
performance.
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 and our key audit procedures to address those matters in
order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were
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
The key audit matter: Carrying value of cash-generating units
Note C2 of the Financial Statements.
The Group separates 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.
We focused primarily on the generation assets due to the significance
of the assets relative to the Group’s financial position, the impact
changes in underlying assumptions may have and the sensitivity of the
generation portfolio to developments and changes in the electricity
generation sector as a whole.
The significant assumptions in that model are forward electricity
prices, future generation volumes, forecast operating and asset costs,
the terminal growth rate and the discount rate applied to the future
cash flows. All these assumptions involve judgement.
The key audit matter: Revenue recognition
Note A2 of the Financial Statements
The Group has numerous revenue streams for which there are different
price structures and deliverables.
For electricity and gas revenue, customer billing cycles are not aligned
to the end of reporting period therefore an estimate for unbilled
receivable is required.
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
judgement involved in estimating each customer’s electricity and gas
consumption since their last bill.
How the matter was addressed in our audit
Our audit procedures over the key revenue streams included the testing
the financial reporting control environment over the Group’s capture and
recording of revenue. We agreed wholesale electricity LPG and gas
revenue streams to third party documentation and compared mass
market and Commercial & Industrial electricity revenue to our
expectation which was supported by internal and external factors.
Our audit procedures to assess the estimate of unbilled revenue and
receivables included assessing the methodology used to calculate the
unbilled revenue, recalculating a sample of the unbilled receivables at
the individual customer level, performing trend analysis by comparing
the unbilled mass market receivable to our forecasted expectation; and
verified a sample of Commercial & Industrial unbilled receivables to
subsequent invoice.
We found that the estimate of unbilled revenue and receivables to be in
line with our expectation.
How the matter was addressed in our audit
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 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
historical levels, budget and assessing any impact in changes in the cost
structure of generation sites. We also compared the model’s terminal
growth and discount rates 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.
We are satisfied that the forward electricity prices, future generation
volumes, forecast operating and asset costs, terminal growth rate and
discount rate assumptions used by Management were within an
acceptable ranges and in line with the current market view.
As an overall test we compared the Group’s net assets at 30 June 2017
of $2,775 million to its market capitalisation of $3,728 million at 30 June
2017 and noted an implied headroom of $953 million.
The key audit matter: Future development of generation capital
work in progress
Note C1 of the Financial Statements.
We considered the recoverability of capital work in progress, with a
particular focus on geothermal projects and wells that are being held
for future development.
We consider this a key audit matter due to the recoverability
assessment being based on Management’s intention for continued
investment in the project, determining the impact of future
developments in the electricity generation sector and the level of
judgement involved in the assumptions modelled to determine future
economic feasibility of these projects.
How the matter was addressed in our audit
We satisfied ourselves that the recoverability of generation projects held in
capital work in progress for future development were supported by
appropriate development plans and economic feasibility models.
The minutes of board and executive management meetings, which we
reviewed, demonstrated continued support for the future development of
the generation projects held in work in progress and that there were no
external sector factors which may indicate potential impairment or change
in strategy towards these developments.
80 Contact Annual Report 2017
81
Notes to the Financial Statements | For the year ended 30 June 2017 Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements
Our objective is:
•
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 Independent 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. They 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 further description of our responsibilities for the audit of these
consolidated financial statements is located at the External Reporting
Board (XRB) website at:
https://www.xrb.govt.nz/Site/Auditing_Assurance_Standards/
Current_Standards/Page1.aspx.
This description forms part of our Independent Auditor’s Report.
David Gates
For and on behalf of
KPMG
Wellington
11 August 2017
Other information
The Directors, on behalf of the Group, are responsible for the other
information included in the Group’s Annual Report. Other information
includes the company reporting on pages 4 to 42, Governance
Principles, Remuneration Report, Statutory Disclosures and
Sustainability Reporting. Our opinion on the consolidated financial
statements does not cover any other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the consolidated financial statements or our knowledge obtained in the
audit or otherwise appears 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.
Use of this Independent Auditor’s Report
This report is made solely to the shareholders as a body. Our audit
work has been undertaken so that we might state to the shareholders
those matters we are required to state to them in the Independent
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 shareholders as a body for our audit work, this report, or
any of the opinions we have formed.
Responsibilities of the Directors for the
Consolidated Financial Statements
The Directors, on behalf of the Group, are responsible for:
•
•
the preparation and fair presentation of the consolidated financial
statements in accordance with generally accepted accounting
practice in New Zealand (being New Zealand Equivalents to
International Financial Reporting Standards) and International
Financial Reporting Standards;
implementing necessary internal control to enable the preparation
of a consolidated set of financial statements that is fairly presented
and free from material misstatement, whether due to fraud or error;
and
• assessing the ability to continue as a going concern. This includes
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless they either
intend to liquidate or to cease operations, or have no realistic
alternative but to do so.
Corporate
Directory
BOARD OF DIRECTORS
Sir Ralph Norris (Chairman)
Victoria Crone
Whaimutu Dewes
Rob McDonald
Sue Sheldon
Elena Trout
LEADERSHIP TEAM
Dennis Barnes
Chief Executive Officer
Graham Cockroft
Chief Financial Officer
Venasio-Lorenzo Crawley
Chief Customer Officer
James Kilty
Chief Generation and Development Officer
Tania Palmer
General Manager, People and Safety
Catherine Thompson
General Manager, External Relations and 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
Find us on Facebook, Twitter, LinkedIn and YouTube
by searching for Contact Energy
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 (Link) is Contact’s registrar for shares
and bonds and is your first point of contact for any queries regarding
your investment in Contact. You can view your investment portfolio,
indicate your preference for electronic communications, supply your
email address, change your details or update your payment instructions
relating to Contact at any time by visiting the Link Investor Centre:
investorcentre.linkmarketservices.co.nz
investorcentre.linkmarketservices.com.au
New Zealand
Email: contactenergy@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
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
INVESTOR RELATIONS ENQUIRIES
Matthew Forbes
Investor Relations Manager
Email: investor.centre@contactenergy.co.nz
Phone: +64 4 462 1323
SUSTAINABILITY ENQUIRIES
Genelle Palmer
Senior Sustainability Advisor
Email: genelle.palmer@contactenergy.co.nz
Assurer
Deloitte
P O Box 1990
Wellington 6140
New Zealand
82 Contact Annual Report 2017
83
Corporate Directory
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