2018 Annual Report
The energy that makes
the water hot, the milk
cold, keeps the warmth in
and the darkness out, is
nowhere near as vital as
the kind we carry within
ourselves. Human energy
is what makes us different.
It’s the kind of energy that
Contact is built on. And
the same energy that sets
us apart.
This Annual Report is dated 13 August 2018 and is signed on behalf of the Board by:
Sir Ralph Norris KNZM
Chairman
Sue Sheldon CNZM
Director
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Chairman’s Review .......................................... 5
CEO’s Review.................................................... 6
Our Board .......................................................... 8
Leadership Team ............................................. 10
Contact at a Glance ........................................ 11
Our Business .................................................... 15
Focussing on What Matters ........................... 16
Customer ......................................................... 17
Generation ........................................................ 19
Financial Sustainability.................................. 20
People ................................................................ 21
Environment ..................................................... 24
Community ....................................................... 27
Governance ...................................................... 29
Remuneration Report ..................................... 33
Statutory Disclosures ..................................... 37
Sustainability Report ..................................... 40
GRI Index ........................................................... 45
Financial Statements ...................................... 48
Corporate directory ........................................ 73
Contact Annual Report 2018 C
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As the outgoing chair of Contact’s Board of Directors I have
the privilege of being able to share my perspective on
Contact’s business, the industries it operates in, and the
challenges and opportunities that lie ahead.
It is fair to say that New Zealand’s energy industry is
continuing to change at quite a pace.
The already competitive markets that we operate in are
getting more competitive. The pace of technological change
in both operational segments of Contact’s business has
dispelled any notions that we can continue to operate on a
business-as-usual basis. At the same time, the policy
landscape is shifting rapidly too. The change of government
in 2017 has sharpened the focus on climate change in the
eyes of policy makers and the public alike, and the energy
sector is increasingly being expected to play a leading role in
moving New Zealand’s economy off fossil fuels. Recent
developments, like the ban on oil and gas exploration, have
shown that if the energy sector doesn’t adapt, Government
will do it for us.
What this means for Contact is that being adaptable and
agile is no longer a guarantee of a winning hand, but merely a
place at the table. We are laying the groundwork to lead the
low-carbon generation market of the future, while continuing
to operate safely and efficiently in the market realities of
today. In the Customer business, we are developing products
that deliver real value to customers to differentiate Contact
in a market where electricity is unfairly seen as a grudge
purchase, while also ensuring the most vulnerable in society
retain their access to energy.
This is a tough challenge. But it is one Contact is already
delivering on, as is evident from the improvements to all the
operational metrics and the development of execution
capability within the business.
The Board is acutely aware of the scale of the task and pace
of change facing our industry, and has proactively developed
the capabilities to deliver for shareholders, customers and
New Zealand society at large. To ensure we are keeping
abreast with the latest developments, three directors and
members of the executive team recently travelled to the
global technology epicentres of San Francisco, Berlin and
London to gain first-hand insight from those who will most
likely shape the face of energy in the coming decades.
Since my appointment in 2015, Board composition, continuity
and capability have been important considerations for me. It
was therefore immensely pleasing that Rob McDonald will
step into the chair role after almost three years on the Board.
Dame Therese Walsh has also agreed to join the Board as a
new independent director. She fills the vacancy left by Sue
Sheldon who recently resigned after serving as a director for
nine years. The Board and I thank Sue for her service and
significant contribution to Contact.
The Customer and Generation businesses are delivering on
our strategy by focussing on the controllable aspects of the
business with delivery of operational efficiencies.
In FY18, the Generation business delivered record geothermal
production and sustainable cost efficiencies through its
continuous improvement programme, which has helped offset
lower than average hydro generation.
In the Customer business, our brand refresh is an outward
manifestation of the customer-centric changes that have
been implemented in recent years. The ongoing
transformation programme has Contact well on the way to the
aspirational target of being New Zealand’s most advocated-
for energy retailer with the lowest cost to serve.
As a result of this immense effort from our people in the
business, operating costs declined by $20 million (8%) in the
period, and stay-in-business capital expenditure was
$38 million (33%) lower than last year, helping reduce debt by
$97 million in the financial year. The delivery of Contact’s
operational efficiencies, the quality of the generation assets
and the strength of the balance sheet have given the Board
confidence in the business’s ability to generate cash flow,
despite the inevitable short-term earnings swings with
changes in hydrology illustrated in this year’s result. This has
seen the Board declare a full year dividend of 32 cents per
share, up 23% on last year, and target a FY19 dividend of 35
cents per share, up 9% on FY18.
As I prepare to leave, I see a business well placed for the
certainties of the present as well as the uncertain future.
Our long-life renewable generation fleet will mean we will
continue to play a critical part in reducing New Zealand’s
greenhouse gas emissions and limiting the negative effects of
climate change on our environment. Our dependence on
natural resources to generate energy means we will remain a
cornerstone business and employer in provincial
New Zealand. Our belief that customers are at the heart of
every decision means we will continue to provide tailored
energy services so that customers can continue to use
energy in a way that best suits them. And, ultimately, these
efforts culminate in an investment that delivers
for shareholders.
Sir Ralph Norris
Chairman
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CONNECTING WITH CUSTOMERS
The New Zealand energy market remains highly competitive
and, with more retailers competing for attention, it is more
important than ever that we can distinguish our products and
services in the eyes of customers. Our new brand marks the
culmination of a number of years of work to reinvent Contact
as a truly customer-centric digital energy company from the
inside out.
The operational performance of the Customer business over
the last year has given us the confidence in our belief that we
are on the right path, and provides solid momentum to deliver
on our brand promise. Our focus on being New Zealand’s
lowest cost energy retailer with the best customer experience
is delivering results, with customers advocating for us in
greater numbers than ever before (as measured by our Net
Promoter Score) and customers staying longer, with churn
below the market average.
Much of this is attributable to our transformation programme
which continues to deliver operational efficiencies by
empowering the Customer team to remove bottlenecks,
reduce operating costs and react to valuable market
opportunities. This focus resulted in a $13 million reduction in
electricity and gas cost to serve, and a decline in the number
of interactions with customers as the functionality of our
online channels improved. Our proactive approach to the
debt collection cycle has also lead to less debt being written
off and fewer customers in the credit cycle.
Despite these operational improvements, the Customer
business results in the year were impacted by market
headwinds. In particular, increased competition in the
commercial and industrial electricity segments reduced
margins and Contact was unable to pass through the higher
cost of LPG to customers as it rose with global oil prices. As a
result, the Customer business EBITDAF was $109 million in
the period, $9 million lower than FY17.
GENERATING FOR THE FUTURE
Dry conditions impacted the earnings in our Generation
business as the low South Island inflows at the end of FY17
extended into the start of FY18 culminating in a dry, hot
summer. As a result, hydro generation volumes were below
average for the second consecutive financial year and,
although hydrology recovered in the last quarter of FY18, it
was not enough to offset the dry start.
Hydrological variability is expected and our flexible fleet of
generation assets means we are able to increase generation
from our thermal plants and supply energy to our customers
at a fixed price when they need it, not just when it’s raining.
However, the additional cost of gas and carbon to run harder
has weighed on our financial performance in the period.
Unfortunately the timing of the scheduled five-yearly major
refurbishment of our largest thermal plant, the Taranaki
Combined Cycle, occurred during November and December,
a period of unusually higher wholesale prices due to the
dry summer.
This year has been a noteworthy one for Contact, not least
because it marks the last time we will be known by our familiar
red brand. In its stead is our new brand, which firmly signals
the beginning of our transformation to become a truly digital
retailer with the in-house agility to adapt to the evolving needs
of our customers. This includes streamlining the channels
through which they interact with us, and surprising and
delighting them with new products and services that
customers value.
It is also a year where the electricity and gas operating
environment has tested us. In the Generation business we
experienced a second successive year of hydro inflows that
were 10% lower than average. Our Customer business
continued to compete hard against an ever-growing number
of start-up retailers and reinvigorated incumbents. In the face
of the challenges, we showed strong financial discipline and
reduced the operating and capital spend by $58 million, an
incredible effort from our dedicated people. Our lean and
low-cost operation sets up Contact for any future and has
given the Board the confidence to increase dividends to
shareholders after a period of serious investment in assets
and systems.
In the last year we also announced two transactions. They
stand out to me as key enablers to accelerate the delivery of
our strategy: the sale of the Ahuroa Gas Storage (AGS)
facility, and the sale of the Rockgas LPG business. Although
on face value they seem like simple disposals at a fair price,
they build significant flexibility into our business. With AGS we
retain access to long-term gas storage services to meet our
flexible thermal generation requirements without the need to
own and operate a gas storage asset. Similarly, the Rockgas
sale frees us up from the fulfilment aspects of the LPG
business while still being able to sell the product to our mass
market customers, which we know is something they value.
The sales proceeds will also strengthen our balance sheet
and add resilience to the company.
Focussing on our core areas of advantage will be key to
succeeding in today’s markets and allowing us to participate
in those that are only just starting to emerge. For example, we
know the demand for low carbon, reliable, renewable
electricity will rise as the economy reduces reliance on fossil
fuels and decarbonises. This will need to be balanced against
access to affordable energy and we will work with the
Government to help shape future policy that will impact our
regulatory environment. New technologies will continue to
disrupt traditional ways of doing business and provide
challenges and opportunities that we need to be prepared for.
I can say with confidence we will be ready for them.
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Employees who are respected, included and trusted are a
sustainable advantage and Contact works hard to create a
receptive culture where diversity flourishes. We take the
pulse of our progress with an annual engagement survey,
which pleasingly recorded a five percentage point increase
in engagement to 77% between October 2017 and May 2018.
As a dynamic, progressive organisation we will continue to
adapt and improve to raise engagement.
At Contact we take pride in our excellent safety systems and
generative safety culture, which empowers frontline workers
to take ownership of health and safety outcomes with the
backing of our world-class process safety systems. It follows
that when 14 people were hurt in the year it is incredibly
disappointing. While most of the injuries were strains or
sprains, this does not diminish our resolve for improvement.
As mentioned, a key sustainable priority is working to
position ourselves to take the lead in the decarbonisation of
New Zealand’s energy sector. To be credible in the
conversations with customers, Contact needs to deliver on
our carbon strategy. This means measuring, controlling and
ultimately reducing our emissions.
Under our new brand, we will put our human energy where it
matters: delighting customers, leading the decarbonisation
charge, contributing positively to the communities in which
we operate, and delivering value for shareholders.
I very much look forward to it.
Dennis Barnes
Chief Executive Officer
As a result, operating earnings (EBITDAF) from the
Generation business were $372 million in the period,
$11 million lower than FY17. The portfolio performed as
expected and the 3% reduction was primarily due to lower
returns as a market-making participant on the ASX futures
market and the liquidated damages received in FY17 were not
repeated. The full effect of the dry conditions on our financial
performance was mitigated by our continuous improvement
programme, which is delivering sustainable reductions in
ongoing operating costs and improving the resource
utilisation of our renewable assets.
A key focus for the business is to position itself to support
further decarbonisation of New Zealand’s energy sector. We
see the development of the consented geothermal resources
under our control playing a key role in the transition and
reducing the cost of these renewable generation
developments will provide us with options to close thermal
plant, if gas and carbon costs continue to rise, and help to
keep our cost of energy low. It should be no surprise that as
an operator of geothermal plant for 60 years, it is an area
where we are a clear leader. We are not resting on our
heritage. Since 2015, Contact has improved the efficiency of
our geothermal operations by 7%. While the market
fundamentals don’t currently support new renewable
investment, it is something we plan for and refine, especially
as New Zealand looks to achieve its carbon
reduction ambitions.
OPERATING SUSTAINABLY
Contact can only operate commercially if we ensure the
sustainability of the resources that we rely on, and the
well-being of our stakeholders who rely on us. This principle is
universal and traverses environmental, social and economic
partners. We do not shy away from initiating and developing
these connections, even when at first there seem to be
divergent opinions – this will deliver the best outcomes in both
the short and long term.
This year we committed to the Science Based Targets
initiatives (SBTi) to set emissions reduction targets in line with
limiting global warming to two degrees. We also joined the
Climate Leaders Coalition to help New Zealand transition to a
low emissions economy. We created a climate change
position statement which describes our commitment to
reducing our own emissions while supporting our customers
and other sectors to reduce theirs.
As an owner and operator of iconic national generation
assets, provincial New Zealand is our home. We are an
inseparable part of those communities and have a shared
interest in creating a vibrant future. This year, we were ranked
among the top five companies in New Zealand for community
investment activities on the BACS Social Index, which signals
that our energy is focussed in the right place. We also work
with tangata whenua who have a special relationship with the
resources that we use.
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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
Chairman of Fletcher Building and a
director of RANQX Holdings Limited.
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. Sir
Ralph retires from the Contact Board
on 31 August 2018.
Victoria Crone
Independent Non-Executive Director
Sue Sheldon CNZM
Independent Non-Executive Director
Term of office
Appointed director 12 November 2015,
last elected 2017 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 chairman of Regenerate
Christchurch and 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. Sue’s
resignation from the Contact Board is
effective on 31 August 2018.
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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 October 2016,
last elected 2016 annual meeting.
Term of office
Appointed director 12 November 2015,
last elected 2017 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. His former
directorships include the Treasury
Board, Housing New Zealand Board,
Television New Zealand Limited and
the AMP New Zealand Advisory Board.
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, Marsden Maritime Holdings
Limited, Ngapuhi Asset Holdings
Company Ltd. Her former
directorships include Electricity
Authority and Transpower
New Zealand Limited. She is a
Past-President of Engineering
New Zealand with a membership status
of Fellow 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 a director of
Chartered Accountants Australia and
New Zealand and Sovereign Assurance
Company Limited, and was formerly
the chief financial officer with Air
New Zealand. From 1 September 2018
he will be a director of Fletcher Building
Limited. 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.
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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
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OUR TIKANGA
Our purpose is to put our human energy where it matters.
Our tikanga, what we believe in, guides how we bring this purpose to life. It’s our set of beliefs, expressed as a series of
Commitments, Principles and Behaviours; to guide the actions we take, both as individuals and as a whole organisation.
Our Principles
These provide guidance for making decisions every day.
Our Commitments
These define the sustainable outcomes that we always
strive to achieve for our key stakeholders.
with laws and regulations.
1 We act professionally at all times, in accordance
2 We care deeply about the health and safety of our
people and strive to minimise any health, safety
and environmental impacts on our customers
and communities.
by developing smart solutions that make living
easier for them now, and in the future.
1 Creating value for our customers and communities
2 Creating a rewarding workplace for our people by
valuing everyone’s contribution, encouraging
personal development, recognising good
performance and fostering equality of opportunity.
3 We put our energy into things that really matter by:
» Creating value from the resources that
come under our control
3 Respecting the rights and interests of communities
by listening to them, and understanding and
managing the environmental, economic and social
impacts of our activities.
» Being inclusive, encouraging diversity and
expression of ideas and opinions (in line with
our Commitments and Behaviours)
» Ensuring the sustainability of our business
» Taking care of the environment by looking
after our natural and shared resources
» Being a good neighbour in the
communities where we operate
» Being authentic.
4 When faced with choices, we make sound
decisions knowing they will be subject to scrutiny.
business partners so we work collaboratively to
create valued, rewarding partnerships.
4 Being respectful of the rights and interests of our
5 Delivering market-leading performance for
6 Staying a step ahead, anticipating the things that
shareholders by identifying, developing, operating
and growing value-creating businesses.
are going to matter. Not just to our business, but to
New Zealand.
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OUR OPERATIONS
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Clyde
Queenstown/
Wanaka
Auckland
Te Rapa
Stratford
Te Mihi
Ohaaki
Whirinaki
Te Huka
Poihipi
Wellington
Wairakei
Levin
Dunedin
Christchurch
Roxburgh
Invercargill
Head office
Geothermal power station
Hydroelectric power station
Thermal power station
Offices
LPG sales and distribution
CUSTOMER CONNECTIONS AND VOLUME SOLD BY ENERGY TYPE AS AT 30 JUNE
Energy type
Electricity
Natural gas
LPG
Total
2018
Connections
Volume sold
Connections
416,500
65,000
89,200
570,700
6,997 (GWh)1
806 (GWh)
72,845 (tonnes)
423,000
64,000
80,000
567,000
2017
Volume sold
7,266 (GWh)2
685 (GWh)
72,700 (tonnes)
1. GWh = gigawatt hours.
2. Electricity volume sold in 2017 restated due to change in reporting format.
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Customer connections by account type as at 30 June
Generation by type for the year ended 30 June
Residential
Business
Other1
Total
2018
2017
Generation type
493,300
492,000
Hydro (GWh)
75,800
74,000
Geothermal (GWh)
1,600
1,000
Thermal (GWh)
2018
3,479
3,323
1,812
2017
3,562
3,233
1,742
570,700
567,000
Total
8,614
8,537
1. Includes LPG connections where data on account type was unavailable.
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GENERATION BY STATION
North Island
Name
Output
Commissioned Type
Ahuroa
–
2011
Gas storage facility
Ohaaki
Geothermal
1989
Flash steam
Poihipi
Geothermal
1996
Flash steam
Location
Taranaki
Waikato
Waikato
Stratford
Thermal
Stratford
Thermal
1998
2011
Combined-cycle gas turbine
Taranaki
Peaker, gas turbine
Te Huka
Geothermal
2010
Binary cycle
Te Mihi
Geothermal
2014
Flash steam
Te Rapa
Thermal
1999
Open-cycle gas turbine
cogeneration
44
55
377
210
28
166
44
Taranaki
Taupo
Taupo
Waikato
Wairakei
Geothermal
1958, 2005
Flash steam/binary cycle
Taupo
132
Whirinaki
Thermal
2004
Diesel fuel, open-cycle turbine
Hawke’s Bay 155
1. MW = megawatts.
2. PJ = petajoules.
South Island
Capacity
(MW)1
2018
Generation
(GWh)
2017
Generation
(GWh)
Ability to store
and extract gas
as conditions
require
Can store up to 18 PJ2
of gas – enough to run
our Stratford peakers for
12 months at full capacity
280
411
1,071
528
198
1,372
211
1,062
3
336
403
1,020
495
189
1,184
226
1,121
1
Name
Clyde
Output
Hydro
Commissioned Type
1992
Conventional
Roxburgh
Hydro
1956-1962
Conventional
1. MW = megawatts.
Location
Otago
Otago
Capacity
(MW)1
432
320
2018
Generation
(GWh)
2017
Generation
(GWh)
1,912
1,567
1,999
1,563
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Contact Annual Report 2018
Contact is one of New Zealand’s biggest electricity
generators and digital retailers, providing electricity,
natural gas, LPG, and broadband services to over
570,000 customers. Our supply chain demonstrates
what we do, how we do it, and the key things we rely on to
run our business.
Hydro
Rain and snow-melt fill our hydro storage lakes, which we use to
generate electricity from our South Island hydro power stations.
Thermal
We buy gas and diesel from producers, which is used in our
thermal plant to support New Zealand’s electricity market
during periods of high demand and/or low supply.
Trading
The electricity we generate is sold on
the wholesale electricity market, which
is transmitted by Transpower to regional
connection points, and then distributed by
local lines companies to customers. We
also trade a range of financial products to
manage our risk and generate value.
Retail
On the retail side of our business,
we buy energy and broadband
services from the wholesale
market and suppliers, around
which we wrap a variety of
services, and on-sell these
products to our customers.
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Business customers
We sell electricity, gas, and LPG to small
businesses, as well as commercial
and industrial customers to meet their
energy needs.
Renewable energy
We buy electricity back from households and
businesses equipped with solar panels and
other distributed generation technologies.
Mass market
We provide electricity, natural gas, and broadband
services to households across New Zealand to meet their
energy needs.
Geothermal
We drill for geothermal fluid and steam at our
steam fields near Taupo. We use this heat to
generate electricity, and sell geothermal heat
to our direct-use customers for use in the
manufacture of timber mouldings, aquaculture
and tourism.
LPG
We purchase LPG from producers and supply over 88,000
customers through an extensive network that has national
distribution coverage.
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To ensure we are reporting on the things that our stakeholders care about, we ask them what matters most.
Our stakeholders include a wide range of representatives from different stakeholder areas across the five pillars of
sustainability – social, cultural, economic, environmental and political. Our key stakeholder managers are continually engaging
throughout the year to get regular feedback. This year they told us:
Customers
Investors
Employees
Partners and suppliers
They’ve told us they want
choice, certainty and
control. Customer service,
competitive pricing, value
for money and flawless
service are also very
important to them.
Earnings growth, efficient capital
management, and a strong
dividend are important to them.
They are also interested in our
response to the Electricity Price
Review and hydrology risk
management.
Our people told us
how inclusion and
diversity, leadership
development, and
health and well-being
are important.
They’ve told us that
maintaining positive
relationships, partnerships
and mutual value 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, to build relationships
based on trust and have open, clear and
early conversations.
Partnership, protection and
participation in the management
of natural resources alongside
social, cultural and economic
development are key 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 also run an annual Stakeholder Council which includes 14 stakeholders, some who have participated every year, some who
are new to the process. The stakeholders selected for this process are chosen because of their broad understanding of
issues, willingness to engage and representativeness. This helps us to achieve dependency, responsibility, tension, influence
and diversity.
The Stakeholder Council helps us to identify and prioritise our material issues by ranking each issue that has been raised.
Collectively, the group decides which the top issues are. We then take these back to the business and consider these
alongside global trends and research and Contact’s own strategy and risks.
We take this information and graph it based on the importance of the issue to our stakeholders and the business impact on
the issue and our ability to influence. We then review it for completeness, balance, sustainability context, materiality and
stakeholder inclusiveness.
MATERIAL
Access to energy
Water
Customer experience
Climate change
Financial sustainability
Biodiversity
Reliable, renewable energy
Employee safety
Local communities
Diversity
Changing expectations
Leadership/issue
championship
Inequality
Health and well-being
Partnerships
Leadership development
Technology
Customer well-being
Safer communities
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Government
Medium priority
While all these issues are important, our focus is on the material issues in the top right corner of the report. Our responses to
these issues and results over FY18 form the basis of this report.
Significance of the impact or opportunity
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As an energy company, we play a vital role in the lives of
hundreds of thousands of individuals and businesses in
New Zealand who rely on the electricity, natural gas, LPG and
broadband we supply. We help them warm their homes,
power their businesses, and connect with their communities
and the world. That’s why we put our time and effort into the
areas that make the most difference to customers.
Our strategy to match customers with the right products, at
the right time, and at the right price has continued to strike a
chord over the past 12 months. Despite highly competitive
conditions supressing mass market electricity connections,
our focus on offering a multi-fuel service has allowed us to
increase the number of customers across electricity, natural
gas and LPG by 3,000. We have also started to offer
broadband services, and over 2,000 customers have joined
us to date. Our customers continue to advocate for us in
greater numbers, with our Net Promoter Score (NPS)
averaging +18 over the past 12 months, up from an average of
+14 last year.
With the activity of over 40 retailers increasing market
switching by 0.90% in FY18, our switching rate of 19.56% was
marginally lower than our 2017 switching rate, and 1.62%
below the market average.
EXPERIENCE MATTERS
We strive to provide our customers with products and
services that give them price certainty, a wide choice of
plans, and control of their usage. But we know that success is
not determined by great products alone. In today’s busy
world the thing most people lack is time. That is why we focus
on responding to queries quickly, and providing multiple
channels through which customers can interact with us – and
in ways that suit them best. Good service and good products
lead to a positive customer experience, and improved loyalty.
This in turn lowers the cost to acquire new customers and
support existing ones.
This year we’ve continued to invest in delivering an
outstanding experience by focussing on our relationships
with our customers. We’ve continued to upskill and empower
our frontline teams to enable them to proactively make
decisions on the spot. This means more customers are
getting their questions answered and issues resolved the
first time they interact with us.
We’ve refreshed our website, made it easier for our
customers to manage their bills and monitor power usage
online, and we’ve also added chat to our website so they can
get immediate online help when they need it. We’ve also
added messages into the body of our billing emails, which
means there’s less chance our customers miss important
information by not opening the attached bill.
Our focus on improving customer experience and business
performance means we’ve been making ongoing changes to
our systems and processes to ensure our service is as
streamlined as possible. Using a business transformation
platform that empowers all people in the Customer team to
identify better ways of doing things, we’ve successfully
delivered 180 business improvements in the past year. A
number of bigger initiatives have also seen us working closely
with our customers to redesign our processes and products.
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Access to energy
Access to reliable, sustainable and affordable energy is a
critical issue, and as an energy company we know that we
have a role in helping those most in need to keep their lights
on and homes warm. We believe we must lend our efforts to
those areas that we directly control, as well as those that we
can only influence, such as the wider policy environment.
This is particularly fitting this year, with the Electricity Price
Review enquiry already underway and the Government’s
renewed focus on the housing stock problem, which is a
significant factor in energy poverty in New Zealand.
We’re working with other retailers through the Electricity
Retailers Association of New Zealand to find collaborative
solutions to this complex issue. We’ve also been working
together with community organisations, government
departments and other retailers to identify ways that we can
work more effectively towards solving access to energy
issues in New Zealand.
On a day-to-day basis, the best way we can help customers
maintain access to energy is by ensuring our energy prices
are competitive and that we have the right systems in place
to ensure those critically in need of energy, like medically
dependent customers and those facing material hardship,
get it.
Our customers have also told us that having weekly or
fortnightly payment options that align with their salary and
wages cycles would help with budgeting. We have just
launched this option and look forward to being able to help
make it easier for our customers to manage their finances.
If customers do get into debt, we have a team who
proactively works with customers to manage their
outstanding bills before they get too big. In the past year we
have reduced the amount of debt that is older than 90 days
by 40%. We have also reduced the time customers spend in
the credit cycle, meaning that if we need to disconnect them
as a last resort, they have a lower debt to manage before
they are reconnected.
Over the last quarter of FY18 the average debt at
disconnection had reduced by 25% to $527, which has
allowed customers to be reconnected faster, with 47%
reconnected within 24 hours, up from 27% in FY17. We’ve also
reduced the cost of disconnection and reconnection for our
customers, and we’ve improved the number of
reconnections made within the first 24 hours of a
disconnection occurring.
Reputation institute - reputation score
57
60
69
64
FY15
FY16
FY17
FY18
Net Promoter Score
18
14
-8
-3
FY15
FY16
FY17
FY18
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Our generation business is focussed on delivering
sustainable electricity as part of our strategy to lead the
decarbonisation of New Zealand’s energy sector. Doing this
sustainably means ensuring there’s enough electricity
available to meet customers’ needs today and in the future,
while keeping costs competitive, and doing our bit to look
after the resources and communities that we work with. This
is enabled by our flexible generation portfolio, backed by our
Continuous Improvement programme, and driven by
our strategy.
OPERATIONS
We maximise production from our renewable hydro and
geothermal assets, with thermal plant providing electricity
when renewable sources are not sufficient to meet demand
from customers (such as in low wind or dry periods, or when
it’s really cold). This strategy has proven its worth this
financial year, as a dry winter extended into a dry summer,
resulting in historical low inflows into the South Island
catchments. Although we have no control over the weather,
our flexible generation portfolio meant we were able to make
greater use of thermal assets to meet electricity demand.
This resulted in our cost of energy rising from $27.61/MWh to
$28/MWh, and increased our emissions by 4% on the prior
year. Even with greater use of our thermal generation plants,
we were able to produce 80% of our electricity from
renewable sources in the last financial year.
In December we announced the sale of Ahuroa Gas Storage
Facility to GSNZ SPV1 Limited, a move that frees up capital
while maintaining our access to the facility as part of a
15-year gas storage services agreement. Our ongoing
Continuous Improvement programme is ensuring we remain
competitive, with operating expenditure of $223 million in
FY18, down 8% on the previous period.
DECARBONISING NEW ZEALAND’S
ENERGY SYSTEM
Our decarbonisation strategy positions us to both support
and benefit from New Zealand’s transition to a low carbon
economy through electrification. This allows us to leverage
opportunities from new technologies, and enable greater
utilisation of our renewable generation options.
Over the year, we have aligned our generation business
around our decarbonisation strategy which focusses both on
taking advantage of commercial opportunities while
demonstrating authenticity in our own actions to tackle
climate change. We’ve invested in a demand management
platform and developed an energy solutions ecosystem, and
we’re more closely aligning our commercial and industrial
sales team with our wholesale energy activities as we continue
to proactively engage with large scale industrial energy users
on energy solutions.
At a governance level, we have also developed a climate
change position, set ambitious emissions reduction targets,
and strengthened our governance oversight and management
systems on climate change and decarbonisation.
A range of future energy scenarios was published by various
bodies over the course of the year and we continue to
undertake our own scenario work to understand pathways to
the Government’s target of 100% renewable electricity in an
average hydrological year.
It is very difficult to predict the future accurately, but we do
believe that customers will adopt lower carbon solutions for
their energy needs over time (transport, industry, and home),
including renewable electricity. We believe that in response to
this growth in demand there will be an increase in renewable
electricity generation, much of it intermittent in nature, making
controllable stored energy a key component of our energy
future. For the medium term, thermal plant will continue to play
a key role. Ultimately, it is unclear how technology and
increased electrical consumption will interact, and so we
adopt a view that near-term demand will grow at a rate of
around 1% annually. We are well placed with our diverse and
flexible fleet and our consented options to meet a range of
demand outcomes in the near to medium term.
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We have over $2.7 billion in net assets, more than 64,000 shareholders and 3,500 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 our strategy of
delivering strong cash flows for 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 reducing costs and capital
expenditure across all of our operations.
Contact has had a BBB Standard & 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.
In August 2017 the 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 falls below 2.8x, as assessed by S&P.
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 $97 million to bring the ratio down to 3.1x as at 30 June 2018.
This year the Board declared a full-year ordinary dividend of 32 cents per share, of which the final dividend of 19 cents per
share will be paid in September 2018. For the 2019 financial year we will target an ordinary dividend of 35 cents per share, an
increase of 9% on financial year 2018.
THE LAST FIVE YEARS IN REVIEW
For the year ended 30 June
Revenue
Expenses
EBITDAF
Profit/(loss)
Underlying profit
Underlying profit per share
Operating free cash flow
Operating free cash flow per share
Dividends declared1
Total assets
Total liabilities
Total equity
Gearing ratio
1. FY15 included a special dividend of 50 cents per share.
2. Figures have been restated for the adoption of NZ IFRS 15 Revenue from Contracts with Customers and NZ IFRS 16 Leases.
3. Figures above reflect the combined result and position for the continuing operations and discontinued operation.
2015
2,443
1,918
525
133
161
21.9
338
46.6
76
6,089
2,918
3,171
36
2014
2,446
1,859
587
234
227
31.0
293
40.0
26
6,186
2,604
3,582
27
2016
2,163
1,640
523
(66)
157
21.7
352
48.5
26
5,652
2,829
2,823
38
Unit
$m
$m
$m
$m
$m
cps
$m
cps
cps
$m
$m
$m
%
20172
2,079
1,578
501
151
142
19.9
305
42.6
26
5,455
2,677
2,778
36
20183
2,283
1,802
481
132
130
18.1
301
42.0
32
5,311
2,584
2,727
35
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EMBRACING DIVERSITY
A truly diverse workforce manifests in great company
performance and a good reputation that attracts the best
talent. We see diversity as an important contributor to our
competitiveness, providing a source of creative ideas from a
wide range of perspectives, allowing us to solve problems
faster and achieve better business performance. Our
stakeholders also value organisations whose make-up
reflects that of broader society. This is why we place such a
strong focus on fostering an inclusive work environment
through our diversity and inclusion policy.
We have already achieved a number of milestones. In FY18
our Board of Directors was one of the most diverse among
New Zealand-listed companies, with equal gender
representation and two directors of Maori descent. Our
female employees earn on average 97% of the average
salary of male employees in the same salary band, the same
as we reported last year. We were also ranked first in the
2017 Thomson Reuters Diversity & Inclusion Index, a gain of
five places on 2016.
We’re proud of these achievements and recognise that they
are milestones on a journey to make inclusion and diversity a
self-sustaining behaviour within our organisation.
To deepen our understanding of the issue, this year we
conducted a series of in-depth workshops across all of our
sites. The findings encouragingly show our people value
diversity and our sites need different levels of support to help
them fully embrace inclusion within their workplace culture.
We are currently working with each of our sites to support
them to meet these challenges.
Our people are vital to driving world-class performance.
They connect with our customers, shareholders, suppliers,
business partners, tangata whenua, government, and
communities. They are a rich source of innovative ideas that
drive our competitive edge.
That is why we invest significant time and energy to ensure
we hire, develop and keep great talent, and foster a
workplace that engages our people, rewards their
performance, is safe, and encourages inclusion and
expression of different views.
ENGAGING OUR PEOPLE
The measure we use to tell us if we are providing an enriching
and rewarding workplace is how engaged our people are.
For many years we used an employee engagement survey,
independently facilitated by AON Hewitt, to identify where
we were getting things right and where improvements were
needed. This measure showed we were making positive
progress, with a score of 68% in 2017.
We recently moved to a new people survey called
AskYourTeam, a tool that gives us a more direct insight into
what our people think and enables more agility for managers
to action and monitor progress. Our first survey in October
2017 noted an engagement score of 72%. We acted on the
feedback from this survey, implemented a number of
changes and as a result saw our engagement score rise to
77% in the May 2018 survey.
Key to lifting this score has been a focus on developing the
capability of our leaders. A first step was to broaden our
definition of leadership to include people leadership,
technical leadership, and influencers. To support our current
and future leaders, we’ve introduced the Hogan predictive
assessment tools – to help us de-bias our leadership and
selection decisions, gain a more comprehensive view of
future potential (rather than relying only on past
performance), and support succession planning and
leadership development. We’re also refining our leadership
development programmes to align with this work.
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FLEXIBLE WORK
Gender pay ratio by business group1
Corporate
Customer
Generation and Development
Overall
1. We measure pay equity difference within salary bands using the average
compa-ratio between males and females.
FY18
98.7%
97.7%
97.1%
97.4%
FY17
97.1%
98.3%
96.8%
98.0%
HEALTH AND SAFETY
People are the lifeblood of our business, and our Health,
Safety and Environment Management System (HSEMS) is
designed to keep them, and the environment and
communities they operate in, safe. As a major energy
producer and supplier, our focus has long been on physical
safety, especially in our power stations and LPG delivery
business, where there is an elevated risk of injury due to the
nature of the activity.
Our approach is to empower and trust our people to make
the right decisions, and to constructively help them learn
from mistakes when things don’t go as planned. This
generative approach has made us a health and safety leader
in New Zealand.
This year we improved our safety focus with a new HSEMS,
which was created in-house. This framework is simple,
flexible and forward-looking, with a set of commitments
across five areas guiding our people to take ownership in
how they bring these to life in their day-to-day work.
Our people have also told us they want a broader focus on
health as well as safety, with more support around stress,
mental health and workload.
We have rethought our approach to occupational health
monitoring, and in the year ahead we will offer regular health
checks for all our people, not just those working in high risk
areas. These health checks will cover physical, nutritional,
mental and general health and well-being and advice. Doing
this will give us more visibility of our people’s health and
well-being and where there might be trends and gaps,
facilitating more targeted support.
We are also working proactively to address the psychosocial
risks encountered by our customer-facing staff, providing
change resilience support as we work through business
changes, and supporting our leaders to take a whole-person
approach to managing their teams. This will complement the
employee assistance programme we already have in place,
where we offer free counselling services to our people.
People’s home lives do not always keep nine-to-five hours.
For us to attract and keep talent from as wide-a-pool as
possible, we need to provide a flexible work environment that
accommodates life’s other commitments. This is why this
year we launched Contactflex, a programme that
encourages all our people to consider flexible working
options to balance their work and home lives.
Our Recruiting and Acquisitions team is using Contactflex to
position Contact as an employer of choice. We’ve signed up
to Flex Careers, Getaflex and Job Café to connect with
women looking to get back into the workforce. We are
currently undergoing Rainbow Tick accreditation – designed
to ensure our workplace is safe and inclusive for people of
diverse gender identity and sexual orientation. The term
‘rainbow’ includes people who are LGBT+ or lesbian, gay,
bisexual, transgender, and other people who don’t feel they
fit conventional categories when it comes to gender or sexual
identity. We’re also a founding partner of The Diversity (A)
Gender, an Engineering New Zealand initiative aiming to
increase the number of female engineers in senior roles.
To support achievement of our business strategies, we’re
also reviewing our critical roles, capability strengths and
gaps, succession planning, and how we develop talent. Over
the last year we’ve re-aligned our Generation workforce to be
more efficient and flexible to move our strategy forward.
While these changes saw the creation of new roles to
support our future strategy, it resulted in a reduction of
headcount overall.
Gender
58% Males
42% Females
Age group
44%
32%
21%
3%
30 - 50
Over 50
Under 30
Undisclosed
Ethnicity
39.2%
29.8%
27.9%
6.7%
5.7%
2.9%
0.5%
European
Other
Undisclosed
Maori
Asian
Pasifika
AMELA1
1. African, Middle Eastern or Latin American.
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SAFETY METRICS
Total Recordable Injury Frequency Rate – controlled activity
Total Recordable Injury Frequency Rate – monitored activity
25.4
20.8
16.6
13.9
12.7
4
1.9
3.3
3.2
5.2
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
Controlled activity is where we require work to be
undertaken using the guidance of our HSEMS, e.g. work
undertaken on our sites, or by our people on customer sites,
etc. Our controlled TRIFR number tells us how many people
have been harmed, including contractors, public visitors to
our sites as well as our own people. To calculate our TRIFR,
we divide the number of incidents that needed medical care,
or resulted in restricted work or required time off, by the
hours worked and multiply this by 1 million.
Monitored activity covers work performed by our partners
under their own HSE systems, e.g. meter reading and
maintenance, LPG franchises, bulk LPG distribution, etc.
Contact works collaboratively with our partners to ensure
HSE systems are aligned with Contact’s standards. Our
monitored TRIFR measures the number of contractors hurt
working for Contact and we proactively work with our
contractors and industry partners to learn from these issues
and agree solutions.
2018
2018
This year our controlled TRIFR was 5.2 with 14 injuries (11
male and 3 female) and was higher than our target of 1.9
(which was based on 6 injuries). While this number is higher
than we hoped for, our positive reporting culture ensured we
learned from these events. As in past years, most of these
injuries were minor and consisted mainly of sprains
and strains.
Our monitored TRIFR for the year was 13.9 with 6 injuries (all
male) which was slightly above our target of 10.7 (also based
on 5 injuries). This is an improvement on the prior period
where TRIFR was 12.7. We calculate this figure by dividing the
number of incidents that needed medical care, have limited
work or resulted in time off, by the hours worked and multiply
this by 1 million.
Total Incident Severity Rate
Process safety incidents
This year we’ve formally monitored Total Incident Severity
Rate (TISR), an HSE measure that is an early indicator
metric. TISR assesses all HSE events and considers both
actual and potential consequences so that we get a view of
how well our defences are working for our critical risks. TISR
incorporates process safety events, injuries and general
safety events. It uses a weighting system to ensure incidents
with higher risk potential are highlighted within the
calculation and, similar to TRIFR, it uses working hours to
calculate the rate.
TISR was 3,500 within controlled activity in FY18 (compared
to 3,100 in FY17), while TISR in monitored activity was 10,600
for FY18 (compared to 8,200 in FY17).
TISR has increased slightly within controlled activity due to
more minor injuries being reported, in alignment with the
TRIFR increase.
Within monitored activity, we have seen an increase in
reporting practices from our contracting partners resulting in
more incidents being reported, including a number of
incidents with a serious potential consequence within Field
Services work.
FY14
FY15
FY16
FY17
FY18
Tier 1
Tier 2
Tier 3
2
9
45
1
1
60
0
1
88
0
2
72
0
0
79
This table 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.
2018
In FY18 we saw the more serious Tier 1 and Tier 2 safety
incidents drop to zero, albeit from a very low base in FY17. This is
a result of embedded awareness of process safety, which has
led to early identification and management of issues.
Of the 78 Tier 3 incidents, roughly a third related to our
automatic protection operating as designed to keep our plant
safe, another third related to minor losses of containment of
material, and the remainder was due to various faults in
safety-related equipment (in all cases other equipment was
available to ensure safe operation) and anomalies in our
procedures for isolating equipment.
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We rely on many natural resources to generate electricity.
It is important that we look after these resources so that we
can continue to supply reliable electricity to
New Zealanders, and ensure these resources are available
for future generations.
Risk assessments using the International Energy Agency
450 scenario highlight the risks to the availability of fuel for
electricity generation, but also signal that the Clutha
Mata-Au catchment may receive increased rainfall over the
longer term.
We’ve identified several climate-related risks, including
changes in demand for electricity, changing customer
expectations and the potential for increasing costs to supply
electricity. There are also opportunities in this area as
customers adopt lower carbon energy sources, like
renewable electricity (grid connected or distributed).
More details of the short-, medium- and long-term
climate-related risks and opportunities can be found in the
Sustainability Report on page 40.
STRATEGY
Our renewable electricity generation fleet and development
options mean we’re well placed to supply electricity to
industry as it looks to move from high-emission fuel sources,
like coal, to electricity, or to lower-emission transitional fuels,
like natural gas.
As the leading geothermal company in New Zealand, we’re
also exploring ways to use this heat directly in the
manufacturing process.
Our renewable generation fleet is complemented by thermal
plant, which is critical to ensure reliable electricity supply
during adverse hydrological conditions, and as the share of
intermittent renewable generation grows. This diverse
generation fleet gives us the flexibility to respond to potential
risks and opportunities as they arise, but can result in higher
operating costs and greenhouse gas emissions when it is
called on to support New Zealand.
CLIMATE CHANGE
Climate change is a real global challenge that will affect our
communities, our economy and our environment.
We produce greenhouse gas emissions from our activities,
primarily our thermal and geothermal plant. We’re focussed
on reducing these in line with the Paris Agreement’s goal of
limiting the global temperature increase to 2 degrees
Celsius, while also supporting our customers to reduce
their emissions.
Our stakeholders and customers have told us that energy
resilience is important to them, so we’re committed to
maintaining affordable, sustainable and reliable access to
energy. We also see commercial opportunities in the
transition to a low carbon economy and are open to forging
partnerships that enable us to offer low carbon solutions to
our customers.
Risks and opportunities
Climate-related risks and opportunities are considered
during our annual strategy process. This involves a thorough
analysis of our operating environment, and takes a range of
environmental, economic and social factors into
consideration. We use this information, as well as a range of
other reports, analysis and data, to create future scenarios
that guide management’s decision-making. For example, in
FY18, Contact undertook analysis to further understand
decarbonisation pathways for the New Zealand electricity
sector.
The risks of a changing climate and its effects on natural
resources, especially in regards to water, affect our strategy
and financial planning. This was evident over autumn and
summer where historically low inflows in the Clutha Mata-Au
catchment required us to run our thermal power stations
more in order to maintain a reliable supply of energy.
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Metrics and targets
We use a number of metrics to assess climate-related risks
and opportunities in line with our strategy and risk
management processes. We monitor commodity costs, such
as carbon and coal prices, the advancement of new
technologies, the costs of electricity generation
technologies, regulation changes, marginal abatement costs
and international trends.
This year Contact committed to the Science Based Targets
initiative (SBTi), using the sectoral decarbonisation
methodology to set emissions targets in line with limiting
global warming to 2 degrees. Our unverified1 targets are:
a. 30% reduction of 2018 Scope 1 emissions by 2030
(absolute emissions reduction target)
b. 36% reduction of 2018 emission intensity by 2030
(emissions intensity target)
c. 1 petajoule (PJ) of fossil fuel energy displaced by
renewable energy by 2022 (electrification target).
Over the last seven years, our strategy has enabled us to
reduce our emissions by 51%.
Our targets do not include any offsetting from domestic or
international schemes.
1. Verification is intended to be completed in FY19.
OUR EMISSIONS
Our greatest emissions are in our Scope 1 emissions from
power generation at our thermal and geothermal operations
and through fuel use in our vehicles. We monitor our direct
emissions and other discharges to air in line with resource
consents and reporting requirements under the Emissions
Trading Scheme. Accurate monitoring enables us to track
progress against targets and ensure transparency in
reporting. This year we are voluntarily reporting our Scope 1,
2 and 3 emissions in line with the Greenhouse Gas Protocol
2004, and we have rebased our Scope 1 emissions to align
across the three scopes. We have also applied the
operational control consolidation approach, which allows us
to focus on those emissions sources that we have control
over and have the ability to change.
This year our emissions from electricity generation increased
by 4% on the prior year as a result of low hydro inflows in
South Island catchments over summer and autumn, which
required us to run our thermal power stations more to
maintain electricity supply.
Total Greenhouse Gas Emissions by Scope (tCO2e)
Scope 3
21%
Scope 2
0.05%
Scope 1
79%
Emissions from electricity generation (tCO2e)
3, 000,000
2, 500,000
2, 000,000
1, 500,000
1, 000,000
500,000
0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Water
Our use of water in our operations can affect this resource in a
number of ways. We pass water through the dams on a
non-consumptive basis but there are other river impacts such
as sedimentation and disruption to fish passage. Our
geothermal operations use fresh water for cooling, and we
discharge some geothermal fluid into rivers. In our thermal
power stations, fresh water is used for cooling and to reduce
air discharges. At Te Rapa power station we also produce
super-heated steam for Fonterra.
Continued supply and access to fresh water is crucial to our
operations. Competing users, potential regulatory changes,
water charges, and other issues all pose risks to our access of
this resource, but also present opportunities for Contact to
play a leadership role in these areas.
Our management of these risks is guided by our water
position, which states that water should be shared by all
New Zealanders, and our access to this resource is a privilege
that comes with responsibilities. As such, we’re committed to
using this resource as efficiently as possible, enhancing its
quality, and ensuring sustainable access to water for cultural,
recreational, and other economic uses. This policy is central
to all the decisions we make in relation to water.
To support our sustainable management of freshwater
resources, we created a water dashboard which makes it
easier to monitor use across our operations. We used
14,399,800 megalitres of water over this financial year.
Ninety-nine per cent of this water was not consumed, but
returned to rivers or geothermal reservoirs, with the
remainder discharged in line with our resource consents.
Overall water usage for processing, cooling and consumption
in our thermal power stations was 1,656.95 megalitres.
At our hydro operations, this year we worked with farmers,
irrigators, environmental groups, iwi and regulators to resolve
appeals on the Otago Regional Policy Statement without the
need for an Environment Court hearing. We have continued to
provide water to a third party for irrigation through a pipeline
from Lake Dunstan into the Fraser River. And we also worked
closely with bore users in the Hawea area to manage
historically low water levels on the dam.
At our Wairakei power station, where we discharge some
geothermal water to the Waikato River, our maximum arsenic
discharge limit was decreased in August 2017 from 53 tonnes
per year to 34 tonnes per year. To ensure we met this new
limit, our volume of reinjected fluid was increased through a
number of projects across the steamfield. The total arsenic
discharged to river in FY17 was 8.8 tonnes lower than FY16.
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We also committed to a long-term partnership with Te Kapa
o te Rangiita to restore the Te-Rau-o-te-huia stream.
Ecological investigations found koura (crayfish), tuna (eels),
brook char, and many native plants. The stream is significant
to local iwi as a site of historical kai and kokowai gathering,
and also provides fresh water for use throughout our
geothermal steamfields.
We work hard to mitigate these impacts, and this year we have
increased our focus on protecting these areas by fencing off an
area of thermotolerant plants to reduce the impact from animals
and humans, and we have also removed exotic species from this
area. In addition, a co-ordinated pest control programme was
started in October with the installation of 97 predator traps,
which has caught over 400 pests so far.
Contact actively engages in conversations at a district,
regional and national level and supports activities that are
consistent with our position on water. We have held a
long-term position on the Land and Water Forum, which has
provided advice to the Minister for the Environment in
relation to the careful balances needed to significantly
improve New Zealand’s water quality, while maintaining
social, economic and cultural equity.
Total water usage for year ended 30 June 20181
Source / water use
Withdrawal (ML) Discharge (ML)
Geothermal reservoir
River and surface water
Water from third parties
Council
Discharge from all sources
Total
1. Management of the use and impact on water is largely done through our
resource consent compliance activities.
107,008
3,031
344
53
110,436
20,448
20,448
Non-consumptive water usage (ML)
Source / water use
Clutha Mata-Au River water
Geothermal reservoir
Geothermal cooling water
Total
Grand total
(ML)
13,888,694
68,716
331,954
14,289,364
14,399,800
In July, our main Stratford water take pump at the Patea River
intake failed. While this pump was being fixed, we were able to
re-use all of the available water from sources on-site and only
purchased an extra 827 cubic metres of potable water.
Biodiversity
New Zealand has rich and varied biodiversity which is
increasingly threatened. As a major natural resources user,
we see ourselves as stewards of the resources under our
control, and we have a responsibility to protect, maintain and
enhance the biodiversity of the areas we operate in.
Throughout the year, protection and advancement of
biodiversity have been central to our conversations with
communities and tangata whenua.
The diverse nature of our operations means that our impacts
differ across each of our sites, which is why we take a
site-by-site approach to biodiversity management, and
develop a site-specific management plan for each site, or bio
bubbles as we refer to them. So far we have biodiversity
management plans in place for 50% of our operational sites,
and expect to have plans in place for all our sites by 1
September 2019. For Contact, protection of biodiversity
means protecting the indigenous ecosystems that were
present before our operations altered them. Our goal is to
have thriving and sustainable ecosystems within all habitats
that we influence.
Geothermal
Our geothermal operations can affect the existing habitat of
at-risk or threatened thermotolerant species. In addition, our
discharges to freshwater can negatively affect water quality.
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In Ohaaki, the creation of a flood protection bund along the
Waikato River provided a habitat for the planting of over 38,000
native plants. We’ve also started work to restore a small wetland
through an exotic plant control programme.
We continue to sponsor the Greening Taupo and Kids Greening
Taupo education and environmental initiatives, which aim to
increase native flora and fauna of the district. We also support
the Kiwis for Kiwi programme, a Department of Conservation-
managed initiative that helps rehabilitate the native kiwi
population by removing eggs from the wild and later releasing
fully grown birds back into nature.
Hydro
The biggest biodiversity impacts from our hydro operations are
in the disruption of fish movements. Our Roxburgh, Hawea and
Clyde dams were built many decades ago with little
consideration to fish passage, which has made it challenging to
maintain the migratory patterns of native fish, including eel
and lamprey.
Over the year we have been working with key stakeholders,
including the Department of Conservation, Ngai Tahu and the
South Island Eel Industry Association, to discuss ways to
improve the population and habitat of longfin eel in the Clutha
Mata-Au catchment.
Key to these efforts will be tracking the population of threatened
species. To this end, in April a major study of resident and
migrant eel populations in Roxburgh, Hawea and Dunstan lakes
was completed. Over 530 nets were set, resulting in the humane
capture of 1,096 longfin eel, who were all weighed, measured
and released. The results of this study will help us understand
the health of the eel population in our hydro lakes, and inform our
trap and transfer process.
We also installed a new elver trap at the Roxburgh Dam in time
for the 2018 run to support the passage of fish. The new trap has
been highly successful, with over 25 kilograms caught in the last
elver season, a significant improvement on last year.
In addition, we’ve worked with the Department of Conservation
and private landowners to restore three different farmland sites
for three at-risk species as part of our Native Fish Management
Programme. These partnerships focussed on replanting, habitat
restoration and maintenance projects, which saw volunteers
plant 2,675 native species. These efforts on the Waitahuna River,
Lovells Stream, and the Clutha Mata-Au River will enhance the
habitat of a number of native fish species, including longfin eel
(tuna), kanakana, giant kokopu, and whitebait (inanga).
Thermal
In Taranaki, local and central government, and the community are
working to become the first predator-free region in New Zealand.
We are supporting this through Project Stoat, a predator trapping
programme at our Stratford site that has been running for two
years. Over the past year, 69 predators have been trapped along
two to three kilometres of stream margin.
Overall, our ongoing restoration and maintenance programmes
saw a total of 66,335 trees planted in FY18 and 78 hectares
protected across all operational sites since these initiatives began.
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Communities have an important role as stewards and shared
users of the resources we rely on for our business. Ensuring
we play our part as a good neighbour and community
member is an important part of maintaining our licence to
operate both in the short and long term. In practical terms
that means establishing long-term relationships based on
trust with local stakeholders, being a trusted steward of the
environments we operate in, and lending our support to good
causes. Our community support is guided by local
sponsorship committees that we’ve established at our sites.
CAUSES BIG AND SMALL
Our approach to community investment is to keep it local,
and to put our energy into the causes that matter to our
people and our communities.
Contact has been a long-time supporter of the Alexandra
Blossom Festival, and this marks the 14th year that we have
supported this family-friendly event, and the 10th year
since we became the principal partner. We’ve also
continued to support Swimwell Taupo, who we’ve partnered
with since 2010, which saw around 3,500 students receive
swimming and water safety training over the course of
the year.
Also, 2018 marks the 10th anniversary of Contact Epic, a
125 kilometre race around Lake Hawea, which takes riders
on a unique but gruelling tour of private and conservation
land. We have been principal partner of this event since its
inception, and a portion of the funds raised goes to
support the Hawea District community. We also continue
to operate and maintain a webcam at the top of Clyde Dam
to help recreational users on Lake Dunstan gauge local
weather conditions.
This year the Wairakei Charity Golf Tournament raised
$27,500 to support the local animal charity CARE. The event
was started 17 years ago by our people to support local
charities and organisations.
In addition to these recurring events, we supported a number
of individual community initiatives. In June we launched our
energy audits for schools initiative in Taranaki, a pilot
programme that sponsors free energy audits to help them
become more efficient with their energy use. We also
donated $5,000 of electricity to a shelter in Rotorua.
The Contact Renal Fund, which was started in 2009,
continues to support Northland patients on dialysis to lessen
the hardships they often face when dealing with treatment at
home. We provided funding support to the Reporoa College
CACTUS programme, a youth development programme that
aims to assist local youth in their personal development. It is
run by the police with support from the local community. We
also raised $45,000 for Wellington Free Ambulance partly
through the donation of a gift, which was auctioned at the
service’s 90th birthday gala.
In addition, we dedicated 1,256 employee volunteer hours to
community organisations that our people have identified as
good causes. Some examples of organisations supported by
our people include the Porirua Homework Club, Octacan,
Zealandia, Foodbank, and Lake Taupo Cycle Challenge.
Our community work has also been recognised. In
December 2017 we were awarded an 8 out of 10 on the BACS
Social Index, a corporate social responsibility ranking of 100
New Zealand businesses. This ranks us among the top five
companies in New Zealand for community investment
activities, and underscores our commitment to being a good
corporate citizen.
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TANGATA WHENUA
We interact with various iwi and hapu (indigenous
communities) who have a special relationship with the
resources that we use. We aim to be proactive in this space
and have a tangata whenua strategy that guides us in
maintaining these relationships, some of which have been
formalised through mitigation agreements as part of our
consenting processes.
We recognise that, in order to strengthen our business
sustainability, these relationships have to be respectful,
positive, aligned on shared long-term goals, and mutually
beneficial. Our Maori internship programme, for example,
aims to grow our relationships with iwi by giving people an
opportunity to gain work experience, while building our
capacity to grow an inclusive and diverse workplace. It
enables us to learn more about one another, recognising our
different viewpoints but shared values. The programme,
which has been running for four years, saw six interns work
on a range of projects this year, spanning from emissions
data collection through to building a stakeholder registry for
our sites. We also partnered with Waikato University to
co-fund two of these internships.
In 2018 we teamed up with Geo40 and Ngati Tahu Tribal
Lands Trust to extract silica from our geothermal fluid as
part of a world-leading sustainable energy initiative. Our iwi
partners on the Ohaaki steamfield will receive an ongoing
revenue stream, as well as employment opportunities for
tribe members, and it will also improve the clarity of a local
ngawha (natural hot spring).
We have also mutually leveraged the strength of this
relationship to benefit other indigenous communities. This
year Contact and Ngati Tahu were awarded the prestigious
2018 US Energy Association Corporate Volunteer Award for
helping power company KenGen and Maasai communities
establish a sustainable partnership to co-manage
geothermal resources in Kenya.
This year we also started a formal process to grow our
relationship with Wairakei and Tauhara hapu, and are working
to establish a Mahinga Kai trust with Ngai Tahu.
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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.
As at 30 June 2018, we comply with all of the
recommendations of the NZX Corporate Governance Code.
Our full reporting against the NZX Code is set out in our
Corporate Governance Statement, which is available on our
website at contact.co.nz/aboutus/investor-centre/
governance. A summary of our corporate governance
practices is set out in this section of the annual report.
Unless otherwise stated all of the information in this section
is current as at 30 June 2018.
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 tikanga.
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 who are highly regarded for their Maori heritage.
Profiles of each director, including length of service, are set
out on page 8.
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 are 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.
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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. A comprehensive review is carried out every two
years, the last one being an external review of individual
directors, the Board and committees by Propero Consulting
Limited in FY17. In FY18, the Board has focussed on
implementing the recommendations that came out of this
review. In addition, a review of the performance of each
director standing for re-election at the annual meeting is
carried out before that meeting and the Board’s
recommendation on re-election, as a result of that review, is
made available to shareholders in the notice of meeting.
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)1
Whaimutu Dewes, Rob McDonald
Sir Ralph Norris (chair)1
Victoria Crone, Sue Sheldon
Whaimutu Dewes (chair)
Victoria Crone, Elena Trout
1. Dame Therese Walsh will be Audit Committee chair and Rob McDonald will be
Remuneration and Nomination Comittee chair from 1 September 2018.
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
Board
Audit
Committee
Health,
Safety and
Environment
Committee
Remuneration
and
Nominations
Committee
3
3
11
11
10
2*
3*
Number
of
meetings
Sir Ralph
Norris
Victoria
Crone
Whaimutu
Dewes
Rob
McDonald
Sue
Sheldon
Elena
Trout
* The relevant director is not a member of the committee, but attended as an
observer.
2*
11
11
11
11
3
3
3
3
2
2
3
3
3
1*
1*
3
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, is likely
to be in possession of material information about Contact
that is not available to the market 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.
Inclusion and diversity
We believe an inclusive culture and a diverse workforce leads
to diversity of thought, better decision-making, drives
stronger business performance, and creates a stronger
economy and a better world.
Our Inclusion and Diversity 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. Details about these objectives, and
our evaluation of how well we are performing in respect of
them, is set out on page 21.
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Health, safety and environment
Our commitment to health, safety and the environment is
outlined in our Health, Safety and Environment Policy. Under
this policy, health, safety and environmental risks are
managed through effective leadership and by engaging our
people in health, safety and environmental activities. We
work with our people to develop robust processes and
procedures that lay the foundation for safe and sustainable
work. By focussing 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.
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 Ernst & Young.
RISK MANAGEMENT AND ASSURANCE
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 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 three 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 chair. Approval will only be given where
the performance of such work does not compromise
KPMG’s independence. There was no non-audit work
undertaken by KPMG during the year.
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.
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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
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 last annual shareholder meeting was held in Auckland on
11 October 2017. We hold the annual meeting in a location and
at a time that enables a number of shareholders to attend.
There were 147 shareholders at our 2017 meeting (167
shareholders in 2016). 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 each year 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 2017 was by poll (i.e. one vote per share)
and we will continue this practice at our shareholder meeting
in 2018.
For more detailed information about our corporate
governance practices see our Corporate Governance
Statement at:
contact.co.nz/aboutus/investor-centre/governance
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Contact is committed to ensuring that the remuneration of Board Directors, the Chief Executive Officer, 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 2018 is set out below. Between FY17 and FY18, the fees increased by between
1.5% and 2.5%, with no increase to the Board Chairman’s fees. The overall increase was 1.7%. The remuneration scale for
directors for the year ending 30 June 2019 is also set out below. The Board has approved a 1.5% increase to base director
fees, with an 8% reduction to the Board Chairman’s fee and approximately 30% reduction to the Audit Committee fees.
FY18
FY19
Board of Directors1
Audit Committee
Health, Safety and Environment Committee
Remuneration and Nominations Committee
Chairman per annum Member per annum Chairman per annum Member per annum
$135,000
$275,0002
$300,000
$133,000
$61,500
$25,000
$25,000
$33,000
$12,750
$12,750
$45,0002
$25,000
$25,000
$22,5002
$12,750
$12,750
1. No additional fees are paid to the Board Chairman for committee roles.
2.Takes effect 1 September 2018.
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 FY18 are as follows:
Directors
Sir Ralph Norris (Chairman)1
Board fees
$300,000
Audit
Committee
Health, Safety and
Environment Committee
Remuneration and
Nominations Committee
$0
Total
Remuneration
$300,000
Victoria Crone
Whaimutu Dewes
Rob McDonald
Sue Sheldon
Elena Trout
Total
1. Inclusive of Committee fees.
$133,000
$133,000
$133,000
$133,000
$133,000
$965,000
$33,000
$33,000
$61,500
$127,500
$12,750
$25,000
$12,750
$50,500
$12,750
$12,750
$25,500
$158,500
$191,000
$166,000
$207,250
$145,750
$1,168,500
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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).
The CEO has a four month notice period.
CEO remuneration for performance periods ended 30 June 2017 and 30 June 2018
Fixed remuneration
Pay for performance remuneration
Salary paid $
Benefits1 $
Subtotal $ Cash STI $ Equity STI $
Equity LTI $
Subtotal $
Total remuneration
$
FY18
FY17
958,306
939,834
44,202
42,026
1,002,508
981,860
529,1002
471,2003
177,0084
157,3815
481,0006
471,2007
1,187,108
1,099,781
2,189,616
2,081,641
1. Benefits include 3% KiwiSaver contribution and health insurance.
2. STI for FY18 period, paid in FY19.
3. STI for FY17 period, paid in FY18.
4. Equity – based on fair value allocation, performance hurdles tested 2020, if met will be paid in shares.
5. Equity – based on fair value allocation, performance hurdles tested 2019, if met will be paid in shares.
6. Equity – based on fair value allocation, performance hurdles tested 2021 and 2022, if met will be paid in shares.
7. Equity – based on fair value allocation, performance hurdles tested 2020 and 2021, if met will be paid in shares.
Pay for performance remuneration breakdown for the year ended 30 June 2018
Scheme
Cash STI
Description
Cash STI is a discretionary
scheme based on achievement
of KPIs.
Maximum potential set at 100%
of base salary.
Equity STI
(awarded
as deferred
share rights)
Equity LTI
(awarded as
options and
performance
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 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.
Performance measure
60% based on corporate shared KPIs:
• 60% free cash flow
• 30% earnings per share
• 10% total recordable incident frequency rate
40% based on individual KPIs being engagement, costs, corporate
reputation and executive capability.
The CEO’s performance rating influences the Equity STI awarded
by the Board.
The exercise hurdle to receive these is to remain employed by
Contact 2 years from the grant date.
Percentage awarded %
55%
(payable in September 2018)
18.4%
(To be granted 1 October 2018
and tested October 2020)
The CEO’s performance rating 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 2018
and tested October 2021 and
2022)
CEO remuneration
The scenario chart below demonstrates the elements of the CEO remuneration design for the year ending 30 June 2018.
Maximum potential remuneration
On-plan remuneration
Fixed remuneration
Base of salary & benefits
Short term incentive - cash
Short term incentive - equity
Long term incentive - equity
$0
$500k
$1,000k
$1,500k
$2,000k
$2,500k
$3,000k
Total
Remuneration
Paid1 $
2,189,616
2,081,641
1,875,948
Percentage Cash
STI awarded against
maximum %
55%
50%
45%
Percentage vested
Equity STI against
maximum %
100%
0%
100%2
Span of Equity
STI performance
period
2015-2017
n/a
2014-2016
Percentage vested
Equity LTI against
maximum %
0%
0%
100%
1,210,145 3
1,463,316 3
35%
69%
0%
0%
n/a
n/a
0%
0%
Span of Equity
LTI performance
period
n/a
n/a
2010-2013
2011-2014
2012-2015
2013-2016
2014-2017
n/a
n/a
FY18
FY17
FY16
FY15
FY14
1. Total remuneration paid includes salary, benefits, cash STI, and Equity STI and LTI fair values which have been allocated but awards are subject to achievement of
performance hurdles.
2. 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.
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.
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Four year summary TSR performance graph
Peer group
Company
NZX 50
35%
30%
25%
20%
15%
10%
5%
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
EMPLOYEE REMUNERATION
We are committed to paying appropriate market levels for roles, ensuring employees are being rewarded appropriately given
their performance and experience.
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 that have a maximum potential level set
reflecting the employee position grade 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 2018 there were 86 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.
Contact does not implement any clawback practices on employee remuneration other than in situations permitted by
New Zealand legislation (e.g. for correction of overpayments).
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Other benefits
Contact also offers a range of benefits. These have varying
eligibility criteria and include the following: discounts for
home energy, including electricity, natural gas and LPG;
employer subsidised health insurance; an employee share
ownership plan ‘Contact Share’ (details of Contact Share can
be found on page 68; and additional benefits and offers from
retailers and services providers.
The table at right shows the number of employees and
former employees of Contact who received remuneration
and other benefits during FY18 of at least $100,000 for the
year ended 30 June 2018.
The value of remuneration benefits analysed includes:
» fixed remuneration including allowance/overtime
payments
» employer superannuation contributions
» short-term cash incentives relating to FY17
performance but paid in FY18
» the value of equity-based incentives received during
FY18
» the value of Contact Share received during FY18
» redundancy and other payments made on
termination of employment.
The figures do not include amounts paid post 30 June 2018
that relate to the year ended 30 June 2018. The
remuneration (and any other benefits) of the CEO, Dennis
Barnes, is disclosed in the CEO remuneration section on
page 34.
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
$320,001-$330,000
$330,001-$340,000
$340,001-$350,000
$350,001-$360,000
$360,001-$370,000
$370,001-$380,000
$390,001-$400,000
$410,001-$420,000
$420,001-$430,000
$440,001-$450,000
$480,001-$490,000
$510,001-$520,000
$530,001-$540,000
$650,001-$660,000
$730,001-$740,000
$860,001-$870,000
Total
1. Includes 31 former employees.
Number of employees
49
51
35
39
64
33
24
15
13
10
9
5
6
4
3
1
4
4
4
1
3
3
1
3
2
2
1
1
1
1
1
1
1
1
1
1
1
399
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DISCLOSURES OF INTERESTS BY DIRECTORS
The following are particulars of general disclosures of interest
by directors holding office as at 30 June 2018, 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.
Sir Ralph Norris
Auckland Grammar School Foundation Trust
Fletcher Building Limited1
RANQX Holdings Limited
The Parenting Place 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
Whainiho Developments Limited
Trustee
Chairman
Director
Member
Council Member
Chief Executive
Officer
Chair
Chairman
Chairman
Director
Chairman
Chairman
Director
Director
Chairman
Director
Director
Chairman
Managing
Director/
shareholder
Rob McDonald
Chartered Accountants Australia & New Zealand
Fletcher Building Limited2
Sovereign Assurance Company Limited
McDonald Family Trust
Director
Director
Director
Trustee
1. Until 1 September 2018
2. From 1 September 2018
Sue Sheldon
Auckland Council Audit and Risk Committee
Audit and Risk Management Committee of the
Christchurch City Council3
FibreTech New Zealand Limited
Freightways Limited4
Real Journeys Limited
Regenerate Christchurch
Sue Sheldon Advisory Limited
Elena Trout
Joint NZ Defence Force and Ministry of
Defence Capability Management Board
Electricity Efficiency and Conservation Authority
(EECA)
Harrison Grierson Holdings Limited
Low Emissions Vehicle Fund (a fund from
EECA budget)
Marsden Maritime Holdings Limited
Motiti Investments Limited
Ngapuhi Asset Holding Company Limited
Ngapuhi Books and Stationery Limited
Ngapuhi Food & Beverage Limited
Ngapuhi Service Station Limited
Unitec5
3. Until 2 July 2018
4. Until 25 October 2018
5. Until 23 July 2018
Independent Chair
Independent Chair
Chairman
Chairman
Director
Chairman
Director
External Advisory
Member
Director
Director
Chair
Director
Director
Director
Director
Director
Director
Council Member
There were no specific disclosures made during the year of
any interests in transactions entered by Contact or any of
its subsidiaries.
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INFORMATION USED BY DIRECTORS
SUBSIDIARY COMPANY 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.
The following people held office as directors of Rockgas
Limited during the year ended 30 June 2018. No director of
Rockgas Limited received additional remuneration or
benefits in respect of their directorships.
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.
Company
Rockgas Limited
Directors
Dennis Barnes
Graham Cockroft
Jacqui Nelson
SHAREHOLDER STATISTICS
Twenty largest shareholders at 30 June 2018
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 2018
Director
Sir Ralph Norris
Whaimutu Dewes
Rob McDonald
Sue Sheldon
Elena Trout
Ordinary shares
20,000
20,011
30,000
21,803
16,000
Bonds
-
-
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:
Date of
acquisition
20/09/17
Director
Elena
Trout
15/03/18
Nature of
transaction
On-market
purchase of
shares
On-market
purchase of
shares
Consideration
per share
$5.46
Number
of shares
acquired
8,000
$5.25
8,000
Number of
ordinary
shares
% of
ordinary
shares
HSBC Nominees (New Zealand)
Limited – NZCSD1
JP Morgan Chase Bank – NZCSD1
Citibank Nominees (NZ) Limited –
NZCSD1
HSBC Nominees (New Zealand)
Limited – NZCSD1
Accident Compensation Corporation
– NZCSD1
National Nominees New Zealand
Limited – NZCSD1
HSBC Custody Nominees (Australia)
Limited
84,886,729
67,275,908
50,595,195
46,883,930
31,995,407
27,668,637
26,044,868
J P Morgan Nominees Australia Limited
22,779,573
FNZ Custodians Limited
22,099,439
Cogent Nominees Limited – NZCSD1
19,606,558
Tea Custodians Limited– NZCSD1
New Zealand Superannuation Fund
Nominees Limited – NZCSD1
BNP Paribas Nominees NZ Limited –
NZCSD1
National Nominees Limited
Premier Nominees Limited – NZCSD1
Custodial Services Limited
JB Were (NZ) Nominees Limited
Private Nominees Limited – NZCSD1
Citicorp Nominees Pty Limited
15,735,175
15,652,664
10,521,464
10,257,027
9,644,109
9,389,805
8,958,100
7,620,622
6,462,296
11.85
9.39
7.06
6.55
4.47
3.86
3.64
3.18
3.09
2.74
2.20
2.19
1.47
1.43
1.35
1.31
1.25
1.06
0.90
Custodial Services Limited
Total for top 20
1. New Zealand Central Securities Depository Limited (NZCSD) is a depository
system which allows electronic trading of securities to members. As at 30 June
2018, total holding in NZCSD were 406,849,885 or 56.8% of shares on issue.
6,377,665
500,455,171
0.89
69.88
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Distribution of ordinary shares and shareholders
at 30 June 2018
Size of holding
Number of
shareholders
% of
shareholders
1 – 1,000
29,394
1,001 – 5,000
29,618
5,001 – 10,000
3,193
10,001 – 50,000 1,850
50,001 – 100,000 127
100,001 and over 93
45.73
46.08
4.97
2.88
0.20
0.14
Number of
ordinary
shares
% of
ordinary
shares
19,193,844
2.68
52,916,765
7.39
22,482,405 3.14
34,916,958
4.87
8,948,010
1.25
577,828,588 80.67
Total
64,275
100.00
716,286,570 100.00
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 2018:
Substantial
product holder
AustralianSuper
Pty Ltd
Number of ordinary shares in
which relevant interest is held Date of notice
1 October 2015
37,327,277
The total number of voting securities of Contact at 30 June
2018 was 716,286,570 fully paid ordinary shares.
BONDHOLDER STATISTICS
Retail fixed rate bonds (CEN020) at 30 June 2018
NZX WAIVERS
There were no waivers granted by NZX or relied on by Contact
in the 12 months preceding 30 June 2018.
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 FY18.
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 FY18 was $520,000 and $2,500 for
scrutineering at the annual meeting. There was no non-audit
work undertaken by KPMG during the year.
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% of
bondholders
Number of
bonds
% of
bonds
DONATIONS
195
506
1,343
196
122
8.26
973,334
0.44
21.42
4,846,500
2.18
56.86
37,656,500
16.96
8.30
16,659,000
7.50
5.17
161,864,666
72.91
In accordance with section 211(1)(h) of the Companies Act
1993, Contact records that it donated $3,227 in FY18.
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.
We also donated $5,000 of electricity to a shelter in Rotorua
and raised $45,000 for Wellington Free Ambulance through
the donation of a gift.
No political contributions were made during the year.
Total
2,362
100.00 222,000,000 100.00
Retail fixed rate bonds (CEN030) at 30 June 2018
Number of
bondholders
% of
bondholders
Number of
bonds
% of
bonds
CREDIT RATING
61
141
435
87
94
818
7.46
17.24
305,000
1,335,000
53.18
12,337,000
10.64
7,111,000
0.20
0.89
8.22
4.74
11.49
128,912,000 85.94
100.00 150,000,000 100.00
Retail fixed rate bonds (CEN040) at 30 June 2018
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
37
78
184
22
33
10.45
22.03
183,000
751,000
51.98
4,926,000
6.21
1,683,000
0.18
0.75
4.93
1.68
9.32
92,457,000 92.46
354
100.00 100,000,000 100.00
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.
39
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Total
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The sustainability aspects reported in this annual report cover the operations of Contact Energy Limited and its subsidiary
Rockgas for the period 1 July 2017 – 30 June 2018.
Contact does not have a policy on the assurance of non-financial or sustainability data.
1. MEMBERSHIPS OF ASSOCIATIONS OR ADVOCACY ORGANISATIONS
Holds a position on the governance body
Participates in projects or committees
Electricity Retailers’ Association of New Zealand (ERANZ)
Retailers’ Working Group Forum
Gas Industry Company
Business New Zealand Energy Council
Electricity Authority Market Development Advisory Group
The Sustainable Business Council
Liquigas Limited
Land and Water Forum
Liquefied Petroleum Gas Association
Retailer Forum
ERANZ Vulnerable & Medically Dependent Customer (VCMDC) Working Group
2. EXTERNAL COMMITMENTS
Organisation/Group
Date of adoption
Commitment
Climate Leaders Coalition
July 2018
• To measure our greenhouse gas emissions and publicly report on them.
• To set a public emissions reduction target consistent with keeping within 2 degree
of warming.
• To work with our suppliers to reduce their greenhouse gas emissions.
• We support the Paris Agreement and NZ’s commitment to it.
• We support the introduction of a climate commission and carbon budgets
enshrined in law.
Science Based Targets Initiative -
Committed
Sustainable Business Council
Platform for Action on Climate and
Emissions
March 2018
• To set a science based emissions reduction target within a year of signing up.
November 2017
• Committed to setting emission reduction targets that, at a minimum, align with New
Zealand’s national target under the Paris Agreement (30% by 2030 vs 2005 levels).
• Publicly reporting on progress towards targets.
• Collaborating with others and sharing learnings on emissions reduction activities.
• Encourage other organisations to be part of the movement.
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3. EMISSIONS DATA AS AT 30 JUNE 2018
Contact uses the Greenhouse Gas Protocol to guide its emissions reporting. Emissions are reported on an operational control
basis with a base year of FY12 which represents the year of Contact’s peak emissions. This year Contact is expanding its
emissions reporting to include Scope 2 and 3 emissions. Given this change, FY18 will form the base year for all greenhouse
gas emissions reporting going forward. As per the Contact Energy policy for the recalculation of base year emissions data,
any structural, methodological or other changes identified that change the emissions reported by more than 5% will trigger a
recalculation of the base year and the current reporting year.
Our emissions data includes all gases as per the most recent Intergovernmental Panel on Climate Change (IPCC) report.
Emission factors are sourced from the Ministry for the Environment except in the following cases: Scope 1 – gas field specific
emissions factors are provided by the supplier and geothermal field specific factors approved under the Climate Change
Unique Emissions Factor regulations 2009. SF6 is sourced from the IPCC fifth assessment report. Scope 3 – category 3
emissions factors are sourced from the Carnegie Mellon University Economic Input-Output lifecycle assessment.
For more detail on FY18 emissions refer to the Greenhouse Gas Inventory document on contact.co.nz.
Scope 1 emissions
This table reports Contact’s scope 1 greenhouse gas emissions (tCO2e) directly emitted through our operations and includes
emissions from our power stations, vehicles and the use of SF6.
Emissions
(tCO2)
Thermal Generation Emission
Intensity (tCO2 per MWh)
Total Generation Emission Intensity
(tCO2 per MWh)
FY18
(Audited)
FY17
(Unaudited)
FY12
(Unaudited)
FY18
(Audited)
FY17
(Unaudited)
FY12
(Unaudited)
FY18
(Audited)
FY17
(Unaudited)
FY12
(Unaudited)
1,184,289
1,14 1,534
2,425,978
0.534
0.509
0.460
0.137
0.134
0.244
1,072
1,0393
2.35
2
Fuel used
for generation
Fuel used
in vehicles1
Fugitive
emissions - SF62
Total
1,185,363
1,142,575
1. Vehicle emissions were not recorded in FY12.
2. 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.
3. FY17 emissions have been restated due to incorrect vehicle emissions calculation.
Scope 2 and 3 emissions
Scope
Indirect Emissions (Scope 2) (Audited)
Indirect Emissions (Scope 3) (Unaudited)
Total (Scope 1, 2 and 3)
Category
FY18 tCO2e
Electricity Consumption
Capital Goods
Fuel & Energy
Waste
Business Travel
Use of Sold Products
Franchises
Subtotal
759
13,899
77,049
134
1,182
219,870
4,536
316,670
1,502,792
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4. CLIMATE RELATED RISKS
Timeframe
Short term
(now – 2020)
Medium term
(2020-2050)
(all short term
risks and
opportunities
continue)
Reduced margin or revenue due to:
• Outdated or uncertain regulation drives inefficient adoption of new
technologies or otherwise adversely impacts transition to electricity as a
low carbon fuel
• Regulatory interventions lead to additional costs that cannot be recovered
from customers and Contact faces a higher cost than its competitors
Improved margin or revenue due to:
• Increased electricity demand from customers
transitioning to electricity as a lower carbon fuel
• Opportunities to become an originator of carbon
units at a price that is lower than the market price
Demand impacts:
• Customer adoption of new technologies and/or energy efficient products
Demand impacts:
• Electrification of transport and industry grows
reduces demand for grid connected electricity
• The costs imposed on NZ customers related to climate policies result in
production being transferred to other countries resulting in lower demand
for electricity (carbon leakage)
• The costs imposed on NZ customers related to climate policies are not
high enough, or policy direction not certain enough, to incentivise a switch
to low carbon electricity
demand for electricity increasing prices
• Customer uptake of new technologies enables
Contact to grow its product and service offering
• NZ’s clear regulatory direction and low carbon
electricity attracts new large customers to NZ
• Direct use of low carbon geothermal energy
becomes a preferred heat source for industry
Supply impacts:
• Overbuild of new low carbon generation lowers wholesale prices reducing
the value of existing assets
• Wholesale market conditions (whether through regulation or otherwise) fail
to reward dispatchable capacity resulting in electricity shortages and an
adverse regulatory response
• The costs imposed on Contact’s business related to climate policies (e.g.
carbon costs, emissions reduction targets) impact Contact more than its
competitors and are unable to be recovered from customers
• A new technology aimed at reducing emissions bypasses grid connected
electricity and/or a digital retailer
Supply impacts:
• Grids operate as platforms for competitive models
to roll out new technologies and customer offerings
and Contact grows its business
• Contact’s thermal plant is rewarded for its
important role in the low carbon electricity
transition
• Contact is able to develop new low carbon supply
as demand for low carbon electricity grows
Demand Impacts
• Costs imposed on customers due to weather extremes result in reduced
Demand Impacts:
• Ongoing electrification increases demand for
demand for Contact’s services
electricity and associated central or distributed
generation growth for Contact
Supply Impacts
• Costs imposed on Contact’s business due to weather extremes (impacting
fuel supplies or operational plant and property) impact Contact more than
its competitors and cannot be recovered from customers
Supply Impacts
• Contact is able to develop new low carbon
solutions to meet growing demand
Long term
(2050-onwards)
(all short and
medium term
risks continue)
5. GREEN BORROWING PROGRAMME
In line with our commitment to a low carbon economy, Contact has a Green Borrowing Programme to finance Contact’s past
and future renewable energy generation investments. This is a progressive approach to financing and provides investors and
lenders with an opportunity to access a broad range of accredited green debt instruments where proceeds have been applied
to eligible green assets.
The Green Borrowing Programme is described in Contact’s Green Bond Framework (“Framework”), which aligns with the
Green Bond Principles and is certified by the Climate Bonds Initiative (CBI) under Climate Bond Standard V2.1 with assurance
from EY. The Framework, CBI certification and EY’s latest annual assurance statement is 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 (i.e. a ratio of 1.0 minimum). This indicator is reported on a half yearly basis.
The following table sets out the total green asset value and total green debt for the current reporting period, and confirms that
the Green Ratio is met at 1.08. Contact confirms to the best of its knowledge that its Green Borrowing Programme continues
to remain in compliance with the CBI certification in place, including the requirements of the Climate Bond Standard V2.1.
Geothermal Assets data
as at 30 June 2018
Book Value
$m
Generation
(GWh)
Emissions
(CO2)
Emissions Intensity
(gCO2e/KWh)
Compliance with CBI standards
(< 100 gCO2e/KWh)
Poihipi1
Tauhara1
Te Mihi1
Te Huka1
Wairakei1
Tenon1
Ohaaki
162
97
546
110
884
4
114
411
-
1,372
198
1,062
110
280
15,796
-
60,608
7,395
24,559
1,308
107,812
Geothermal portfolio total/average
1,917
3,4332
217,478
38
N/A
44
37
23
12
385
63
Eligible Green Asset total/average
1,803.36
3,153
109,666
34.78
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Total Eligible Green Debt Instruments
(refer Borrowing Note)
Green Ratio (total Eligible Green
Assets / total Green Debt Instruments)
1. Eligible green asset in relation to Contact’s Green Borrowing Programme
2. Includes direct heat sold to Tenon
1,672
1.08
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6. WORKFORCE BY GENDER AND EMPLOYMENT TYPE AS AT 30 JUNE 20181
FY18
Officers2
Corporate
Customer
Generation
Total
FY17
Officers2
Corporate
Customer
Generation
Total
Total Headcount
Female
Male
Fixed Term
Permanent
Part Time
Full time
6
107
548
317
978
2
57
296
59
414
Total Headcount
6
Female
2
137
563
320
1026
75
314
55
446
4
50
252
258
564
Male
4
62
249
265
580
-
6
28
8
42
6
101
520
309
936
-
15
67
24
106
6
92
481
293
872
Fixed Term
-
Permanent
6
Part Time
-
Full time
6
6
75
8
89
131
488
312
937
12
55
14
81
119
433
298
856
1. Gender is recorded by self-identification.
2. “Officers” means the CEO and members of Contact’s Leadership Team.
7. EMPLOYEE DIVERSITY AS AT 30 JUNE 2018
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Officers
Corporate
Customer
Generation
Total
FY17
Officers
Corporate
Customer
Generation
Total
Gender
Age
Ethnicity1
Female Male
<30 30 - 50
>50 Undisclosed Maori Pasifika Asian European Other2 AMELA3 Undisclosed
33%
53%
54%
19%
42%
67%
-
47% 17%
46% 28%
81%
9%
58% 20%
67%
61%
44%
39%
44%
33%
19%
25%
50%
32%
-
3%
3%
2%
3%
-
8%
9%
3%
7%
17%
1%
5%
-
3%
-
9%
5%
5%
6%
67%
40%
39%
39%
39%
50%
35%
26%
34%
30%
-
-
-
1%
1%
-
24%
30%
27%
28%
Gender
Age
Ethnicity1
Female
Male
<30 30 - 50
>50 Undisclosed Maori Pasifika Asian European Other2 AMELA3 Undisclosed
33%
55%
56%
17%
43%
67%
45%
-
9%
44% 29%
83%
9%
57% 20%
67%
64%
42%
40%
44%
33%
23%
26%
49%
33%
-
3%
3%
1%
3%
-
7%
7%
3%
6%
17%
1%
3%
-
2%
-
9%
6%
6%
6%
67%
38%
38%
40%
39%
50%
34%
25%
35%
29%
-
1%
1%
1%
1%
1. Ethnicity data does not equal 100% as employees may affiliate to more than one ethnicity.
2. Other includes individuals who identify as New Zealanders, not as Europeans.
3. African, Middle Eastern or Latin American.
8. BOARD DIVERSITY AS AT 30 JUNE 2018
Gender
Male
Female
Total
3
50%
3
50%
3
50%
3
50%
6
100%
6
100%
Ethnicity
NZ European/
Pakeha
Age
Maori
Total
<30
30-50
4
67%
4
67%
2
6
33%
100%
2
6
33%
100%
-
-
-
-
1
17%
1
17%
Board of
Directors FY18
Board of
Directors FY17
-
25%
34%
24%
29%
>50
5
83%
5
83%
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9. EMPLOYEE ABSENTEE RATE1 AS AT 30 JUNE 2018
FY18
FY17
Total scheduled days
Total absence days
Lost days as a percentage
Females
101,223
3,808
4%
Males All Employees
245,809
144,586
3,271
2%
7,080
3%
Females
109,749
4,652
4%
Males
148,130
2,868
2%
All Employes
257,878
7,520
3%
1. Measures days lost as a percentage of total scheduled work days for employees.
10. SAFETY DATA AS AT 30 JUNE 2018
Fatalities
Occupational Disease Rate – Controlled1
Lost Time Injury Frequency Rate – Controlled2
Lost Time Injury Frequency Rate – Monitored2
FY18
-
0.7
3.0
9.3
FY17
-
-
3.2
12.7
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. ‘Lost days’ is based on work days
not calendar days. A lost time injury commences the next rostered day after the injured person is signed off work by a medical practitioner. First aid injuries are not
included in this rate. It only includes injuries that result in a lost time injury.
11. INJURIES BY GENDER AS AT 30 JUNE 2018
Controlled
Monitored
Male
Female
Male
Female
6
-
1
-
1
1
1
-
-
10
-
-
-
1
-
1
-
1
1
4
3
2
-
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
-
0
Type of injury
Sprain or strain
Bruising or crushing
Laceration
Puncture wound
Poisoning or toxic effects
Fracture
Illness (medical condition)
Dislocation
Burns (hot or cold)
Total
12. TCFD INDEX
Disclosure
Describe the Board’s oversight of climate-related risks and opportunities.
Describe management’s role in assessing and managing climate-related risks and opportunities.
Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long
term.
Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial
planning.
Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios,
including a 2 degree or lower scenario.
Describe the organisation’s processes for identifying and assessing climate-related risks.
Describe how processes for identifying, assessing and managing climate-related risks are integrated into the
organisation’s overall risk management.
Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy
and risk management process.
Disclose Scope 1, 2 and if appropriate 3 greenhouse gas (GHG) emissions, and the related risks.
Describe the targets used by the organisation to manage climate-related risks and opportunities and performance
against targets.
44
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Board oversight is through
the Health, Safety and
Environment Committee
p.24
p.42
p.24
p.24
p.24
p.30
p.25
p.41
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Description
Page Number
STRATEGY AND ANALYSIS
102-14
Statement from the most senior decision maker Chair and CEO reviews, p.5-7
ORGANIZATIONAL PROFILE
102-1
102-2
102-3
102-4
102-5
102-6
102-7
Name of the organization
Brands, products, and/or services
Headquarter location
Locations of operations
Ownership and legal form
Markets served
Scale of the organization
102-8
102-41
102-9
102-10
102-11
102-12
102-13
EU1
EU2
EU3
EU4
EU5
Employee statistics
Employees covered by collective bargaining
agreements
Organisation’s supply chain
Significant changes regarding size, structure,
or ownership
Precautionary approach
External charters, principles, or other initiatives
Memberships in associations and advocacy
organizations
Installed capacity
Net energy output broken down by primary
energy source and by region
Number of customer accounts
Length of transmission and distribution lines
by region
Contact Energy Limited
Our business p. 14-15
Contact at a glance p. 12
Contact operates only in New Zealand
Listed New Zealand limited liability company
Contact at a glance p. 13
Total employees p. 43, contractor workforce data not available
Number of operations p. 12
Net revenue p. 50
GWh sold p.12
Total capitalisation broken down by debt and equity p.50-52
Quantity of products and services provided p.12
Sustainability data p. 43
11% of total Contact employees were covered by collective bargaining agreements
as at 30 June 2018. Contactor data not collected.
Our business p. 14-15
None
Not specifically addressed. Potential adverse environmental impacts are
addressed through adaptive management including official (often publicly notified)
resource consent assessments.
ISO14001
Sustainability data p. 40
Contact at a glance p. 13
Contact at a glance p. 13
Contact at a glance p. 12
Not applicable
Allocation of CO2 emissions permits
Zero allocations
IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES
102-45
Entities included in the organization’s
consolidated financial statements
Financial statements p. 50
102-46
102-47
Process for defining the report content
Material aspects identified
Focussing on what matters p. 16
Focussing on what matters p. 16
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Aspect boundaries within the organization
102-47
Aspect boundaries outside the organization
For the majority of our material topics, the impacts occur within our operational
boundary. For some topics, Biodiversity, Water, Climate Change and Access
to Energy, impacts can be felt downstream of our operational boundary, or we
are contributing to a larger issue. Health and safety impacts are also created
by companies in our supply chain. In all cases, our focus is on areas that we can
control or influence.
102-48
Restatements of information
FY17 emissions data p. 41
FY17 customer connections by account type p.12
102-49
Significant changes of aspect boundaries
compared to previous years
No significant changes
STAKEHOLDER ENGAGEMENT
102-40
102-42
102-43
102-44
Focussing on what matters most p. 16
Stakeholder groups
Focussing on what matters most p. 16
Stakeholder identification and selection
Approaches to stakeholder engagement
Focussing on what matters most p. 16
Key topics and concerns raised by stakeholders Focussing on what matters most p. 16
REPORT PROFILE
102-50
102-51
102-52
102-53
102-54
102-56
Reporting period
Date of most recent previous report
Reporting cycle
Contact point for questions
Chosen ‘In accordance’ option, GRI index
External assurance for the report
Financial year 2018
The previous report was dated 14 August 2017
Annual
Corporate directory p. 73
This report has been developed in accordance with the core GRI 2016 guidelines
Annual Report 2018 was not assured by an external assurer.
GOVERNANCE
102-18
Governance structure. Committee responsible for
decision making on economic, environmental and
social topics.
Governance, p. 29
ETHICS AND INTEGRITY
102-16
Organization’s values, principles, standards and
norms of behaviour, and codes of ethics
Our tikanga p. 11
SPECIFIC STANDARD DISCLOSURES
Material Aspect Description
Page
Omissions and explanations
DMA
303-1
303-1
DMA
304-3
304-3
DMA
305-1
305-2
305-3
305-4
305-5
Water
Total water withdrawal by source
Overall water usage for processing, cooling and
consumption in thermal power plants
Biodiversity
Habitats protected or restored
Describe what partnerships exist with third parties
Emissions
Direct (Scope 1) Greenhouse gas emissions
Gross location based Scope 2 emissions
Gross Scope 3 emissions
GHG emissions intensity
Reduction of GHG emissions
CATEGORY: SOCIAL
DMA
403-2
Occupational health and safety
Workplace injuries
TISR
Process safety data
Diversity and equal opportunity
Gender, age and ethnicity statistics
Ratio of the basic salary and rem of women to men
for each employee category
Staff engagement
Local communities
Community engagement and development
Customer experience
Reputation and trust
Customer satisfaction (Net Promoter Score)
Access (sector specific) – socio-economic
Reduction of customer debt expressed as
a percentage
Self-selected
Self-selected
DMA
405-1
405-2
Self-selected
DMA
413-1
DMA
Self-selected
Own measure
DMA
Own measure
46
p. 25
p. 25
p. 25
p. 26
p. 26
p. 26
p. 24-
25
p. 41
p. 41
p. 41
p. 41
p. 24
p. 22
p.23
p. 23
p. 23
p. 21, 43
p. 43
p. 22
p. 21
p. 27
p. 27
p. 17
p. 18
p. 17
p. 18
p. 19
Contractor data not available for absentee rate, occupational
disease rate and fatalities
We have community engagement plans for 50% of our sites by region
Contact Annual Report 2018
Independent Limited Assurance Statement to the
Management and Directors of Contact Energy Limited
Our Conclusion:
Ernst & Young (‘EY’, ‘we’) were engaged by Contact Energy Limited (“Contact Energy”) to undertake limited assurance as defined by
the International Standards on Assurance engagements (New Zealand), over Contact Energy’s Scope 1 and Scope 2 GHG emissions
data and associated disclosures in its FY18 Annual Report, for the year ended 30 June 2018. Based on our limited assurance
procedures, nothing came to our attention that caused us to believe that Contact Energy’s Scope 1 and Scope 2 GHG emissions data
and associated disclosures in its FY18 Annual Report, detailed in the table below, has not been prepared and presented fairly, in all
material respects, in accordance with the criteria defined below.
What our assurance covered
We reviewed Contact Energy’s Scope 1 and Scope 2 GHG
emissions data and associated disclosures for the year ended 30
June 2018 in its FY18 Annual Report, only. Each of the Scope 1 and
Scope 2 GHG emissions metrics covered by our assurance
procedures is detailed in the table below.
Emissions Data
Fuel used for generation (tCO2e-)
Fuel used in vehicles (tCO2e-)
Fugitive emissions - SF6 (tCO2e-)
Thermal Generation Emission Intensity (tCO2e- per MWh)
Total Generation Emission Intensity (tCO2e- per MWh)
Report
page
25, 41
Our procedures included, but were not limited to:
► Conducting interviews with personnel to understand the
business and reporting process.
► Checking that the flow of information from site metering or
monitoring through to calculation spreadsheets is accurate and
any calculations are appropriate.
► Identifying and testing assumptions supporting the
calculations.
► Tests of calculation, aggregation and controls.
► Comparing year on year activity-based greenhouse gas and
energy data where possible.
► Checking organisational and operational boundaries to test
completeness of greenhouse gas emissions sources.
► Checking that emissions factors and methodologies have been
correctly applied as per the criteria.
► Tests that statements to be included in the Annual Report are
Scope 2 emissions (tCO2e-)
25, 41
consistent with the data we have tested.
Criteria applied by Contact Energy
The criteria for our assurance engagement was Greenhouse Gas
Protocol: A Corporate Accounting and Reporting Standard (‘The
GHG Protocol’).
Scope 1 and Scope 2 emissions factors were sourced from the New
Zealand Ministry for the Environment’s Guidance for Voluntary
Corporate Greenhouse Gas Reporting – 2016.
Key responsibilities
EY’s responsibility and independence
Our responsibility was to express a conclusion on Contact
Energy’s Scope 1 and Scope 2 GHG emissions data and
associated disclosures in its FY18 Annual Report based on our
review.
We were also responsible for maintaining our independence and
confirm that we have met the requirements of the External
Reporting Board of New Zealand, and have the required
competencies and experience to conduct this assurance
engagement.
Contact Energy’s responsibility
Contact Energy’s management (“management”) was responsible
for selecting the Criteria, and preparing and fairly presenting the
Scope 1 and Scope 2 GHG emissions data and associated
disclosures in its FY18 Annual Report in accordance with that
Criteria. This responsibility includes establishing and maintaining
internal controls, adequate records and making estimates that are
reasonable in the circumstances.
Our approach to conducting the review
We conducted this review in accordance with the International
Standard on Assurance Engagements ISAE (NZ) 3000: Assurance
Engagements Other than Audits or Reviews of Historical Financial
Information and the terms of reference for this engagement as
agreed with Contact Energy on 17 May 2018.
Summary of assurance procedures performed
A limited assurance engagement consists of making enquiries and
applying analytical, appropriate testing, and other evidence-
gathering procedures.
A member firm of Ernst & Young Global Limited
We believe that the evidence obtained is sufficient and appropriate
to provide a basis for our limited assurance conclusions.
Limited Assurance
Procedures performed in a limited assurance engagement vary in
nature and timing from, and are less in extent than for, a reasonable
assurance engagement. Consequently the level of assurance
obtained in a limited assurance engagement is substantially lower
than the assurance that would have been obtained had a
reasonable assurance engagement been performed.
While we considered the effectiveness of management’s internal
controls when determining the nature and extent of our procedures,
our assurance engagement was not designed to provide assurance
on internal controls. Our procedures did not include testing controls
or performing procedures relating to checking aggregation or
calculation of data within IT systems.
Use of our Assurance Statement
We disclaim any assumption of responsibility for any reliance on
this assurance report to any persons other than management and
the Directors of Contact Energy or for any purpose other than that
for which it was prepared. You may not disclose this assurance
report externally without our prior written consent.
Ernst & Young Limited
Graeme Bennett
Partner - Assurance
Auckland
10 August 2018
47
Contact Annual Report 2018
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ABOUT THESE FINANCIAL STATEMENTS ...........................49
STATEMENT OF COMPREHENSIVE INCOME .....................50
STATEMENT OF CASH FLOWS ....................................................50
STATEMENT OF FINANCIAL POSITION .................................51
STATEMENT OF CHANGES IN EQUITY ..................................52
NOTES TO THE FINANCIAL STATEMENTS ..........................53
A. OUR PERFORMANCE ..................................................................53
A1. Adoption of new accounting policies ....................................... 53
A2. Segments...................................................................................................54
A3. Earnings ...................................................................................................... 54
A4. Free cash flow ......................................................................................... 56
A5. Held for sale disposal group and assets, and a
discontinued operation ............................................................................. 57
B. OUR FUNDING ..................................................................................58
B1. Capital structure.....................................................................................58
B2. Share capital ............................................................................................ 58
B3. Distributions ............................................................................................. 58
B4. Borrowings ................................................................................................ 59
B5. Net interest expense ......................................................................... 59
C. OUR ASSETS ....................................................................................60
C1. Property, plant & equipment and intangible assets ....... 60
C2. Goodwill and asset impairment testing ................................. 62
D. OUR FINANCIAL RISKS ...............................................................63
D1. Market risk .................................................................................................. 63
D2. Liquidity risk ............................................................................................. 64
D3. Credit risk .................................................................................................. 64
E. OTHER DISCLOSURES ...............................................................65
E1. Tax ...................................................................................................................65
E2. Operating expenses............................................................................65
E3. Inventory .................................................................................................... 65
E4. Trade and other receivables ......................................................... 65
E5. Provisions ................................................................................................... 66
E6. Profit to operating cash flows ....................................................... 66
E7. Financial instruments at fair value ............................................ 66
E8. Financial instruments at amortised cost .............................. 68
E9. Share-based compensation ........................................................ 68
E10. Related parties .................................................................................... 69
E11. New accounting standards ............................................................69
INDEPENDENT AUDITOR’S REPORT .......................................70
48
Contact Annual Report 2018
About these Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
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 and liabilities held for sale
reported at fair value less costs to sell
» using the same accounting policies for all reporting periods presented. The impact of the early adoption of NZ IFRS 15
Revenue from Contracts with Customers and NZ IFRS 16 Leases is shown in note A1.
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 (note E4)
» provision for future restoration and rehabilitation obligations (note E5)
» fair value measurement of financial instruments (notes D1 and E7).
The financial statements present Contact’s wholly owned subsidiary Rockgas Limited as a held for sale disposal group at 30
June 2018. The results of the disposal group have been presented as a discontinued operation. Note A5 provides information
on the held for sale disposal group and discontinued operation.
Certain comparative amounts in the Statement of Comprehensive Income have been restated either due to the early
adoption of NZ IFRS 15 Revenue from Contracts with Customers and NZ IFRS 16 Leases (note A1), or as a result of the
discontinued operation during the current financial year (note A5).
The financial statements were authorised on behalf of Contact’s Board of Directors on 10 August 2018.
Sir Ralph Norris KNZM
Chairman
Sue Sheldon CNZM
Director
49
Contact Annual Report 2018 Statement of Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2018
$m
Continuing operations
Revenue and other income
Operating expenses
Significant items
Depreciation and amortisation
Net interest
Profit before tax
Tax expense
Profit from continuing operations
Discontinued operation
Profit from discontinued operation after tax
Profit
Items that may be reclassified to profit/(loss):
Change in cash flow hedge reserve (net of tax) - continuing operations
Change in cash flow hedge reserve (net of tax) - discontinued operation
Comprehensive income
Profit per share (cents) - basic and diluted
Profit per share (cents) from continuing operations
Profit per share (cents) from discontinued operation
Statement of Cash Flows
FOR THE YEAR ENDED 30 JUNE 2018
$m
Receipts from customers
Payments to suppliers and employees
Tax paid
Operating cash flows
Purchase of assets
Proceeds from sale of assets
Interest received
Investing cash flows
Dividends paid
Proceeds from issues of shares
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
50
Note
A3
A3
A3
A3
B5
E1
A3
A5
B3
Note
E6
B3
B4
2018
2,160
(1,711)
3
(215)
(84)
153
(41)
112
20
132
11
3
146
18.4
Restated
2017
1,959
(1,494)
11
(203)
(93)
180
(51)
129
22
151
(15)
-
136
21.0
15.6
18.0
2.8
3.0
2018
2,281
(1,791)
(33)
457
(82)
6
1
(75)
(201)
1
118
(217)
(79)
(7)
(385)
(3)
6
3
Restated
2017
2,072
(1,527)
(37)
508
(118)
9
1
(108)
(186)
-
115
(226)
(88)
(14)
(399)
1
5
6
Contact Annual Report 2018
Statement of Financial Position
AT 30 JUNE 2018
$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
Liabilities held for sale
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
2018
Restated
2017
B4
E4
E3
C1
D1
A5
E3
C1
C1
C2
D1
B4
D1
E5
A5
B4
D1
E5
E1
B2
E7
3
175
35
10
14
299
536
23
4,253
262
179
51
7
4,775
5,311
172
7
513
17
11
42
762
972
44
48
751
7
1,822
2,584
2,727
1,520
1,194
7
6
6
197
46
11
8
-
268
24
4,611
321
182
38
11
5,187
5,455
202
4
391
50
14
-
661
1,158
52
50
749
7
2,016
2,677
2,778
1,515
1,263
(8)
8
2,727
2,778
51
Contact Annual Report 2018
Statement of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2018
$m
Balance at 1 July 2016
Adjustment on adoption of new IFRS
Restated opening balance at 1 July 2016
Profit
Change in cash flow hedge reserve (net of tax)
Lapsed share scheme awards
Share-based compensation expense
Dividends paid
Restated balance at 30 June 2017
Profit
Change in cash flow hedge reserve (net of tax)
Exercised share scheme awards
Share-based compensation expense
Change in share capital
Dividends paid
Balance at 30 June 2018
Note
A1
E9
B3
E9
B2
B3
Share
capital
1,515
-
1,515
-
-
-
-
-
1,515
-
-
-
-
5
-
Retained
earnings
1,294
2
1,296
151
-
2
-
(186)
1,263
132
-
-
-
-
(201)
Other
reserves
Shareholders'
equity
14
-
14
-
(15)
(2)
3
-
-
-
14
(4)
3
-
-
2,823
2
2,825
151
(15)
-
3
(186)
2,778
132
14
(4)
3
5
(201)
1,520
1,194
13
2,727
52
Contact Annual Report 2018
A. Our Performance
Notes to the financial statements for the year ended 30 June 2018
A1. ADOPTION OF NEW ACCOUNTING POLICIES
Contact has elected to early adopt NZ IFRS 15 Revenue from Contracts with Customers (‘revenue standard’) and NZ IFRS 16
Leases (‘leases standard’) for the year ended 30 June 2018. Both standards have been adopted using the full retrospective
approach with an adjustment to retained earnings on 1 July 2016.
With the adoption of the revenue standard the incremental costs incurred to acquire new customers are capitalised as a
contract asset instead of being expensed as incurred. The contract asset is amortised to operating expenses over the
expected life of the customer relationship. Incentives given to customers are also capitalised as a contract asset and
amortised to revenue, which is consistent with the previous accounting treatment. The amortisation period has been revised
from the contract term to the expected life of the customer relationship. At 30 June 2018 contract assets totalled $13 million
(2017: $12 million) (note E4).
The adoption of the leases standard results in those leases previously classified as operating leases being recorded on
balance sheet. All other arrangements will be considered under the leases standard when the contract is amended or
renewed. On 1 July 2016 Contact recognised lease assets and lease obligations that represent the present value of future lease
payments for the minimum lease term and all lease renewal options that Contact is reasonably certain to exercise. Lease
payments are recorded as a repayment of the lease obligation and interest expense, instead of as an operating expense.
Lease assets are depreciated over the lease term.
The effect of these changes in accounting policies are shown below:
$m
Statement of Comprehensive Income
Revenue and other income
Operating expenses
Depreciation and amortisation
Net interest expense
Tax expense
Profit
Statement of Financial Position
Contract assets (Trade and other receivables)
Lease assets (Property, plant and equipment)
Lease obligations (Borrowings)
Deferred tax liability
Retained earnings
2017
2,080
(1,586)
(204)
(92)
(59)
150
5
25
19
748
1,260
NZ IFRS 15
Revenue
NZ IFRS 16
Leases
Restated
2017
(1)
3
-
-
(1)
1
7
-
-
1
5
-
5
(4)
(1)
-
-
-
19
22
-
(2)
2,079
(1,578)
(208)
(93)
(60)
151
12
44
41
749
1,263
The adjustment on adoption of these new IFRS standards, on 1 July 2016, resulted in an increase in lease obligations of $26
million, lease assets of $23 million, contract asset of $6 million, deferred tax liability of $1 million and retained earnings
of $2 million.
53
Contact Annual Report 2018
A2. SEGMENTS
Contact reports activities under two operating segments; being the Generation segment and the Customer segment.
There have been no significant changes to Contact’s operating segments in the current year.
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 energy, and costs to service
and distribute energy to the customer. The presentation of the Customer segment in note A3 excludes the discontinued
operation.
The Customer segment purchases electricity from the Generation segment at a price fixed in a manner similar to transactions
with third parties.
A3. 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 reported under
NZ GAAP.
2018
$m
Mass market electricity
Commercial & Industrial electricity
Wholesale electricity
Inter-segment electricity sales
Gas
LPG
Steam
Total revenue
Other income
Total revenue and other income
Electricity purchases
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
Transition costs
Remediation for Holidays Act non-compliance
Tax on significant items
Profit
Underlying profit per share (cents)
54
C1
D1
B3
Note Generation
Customer Eliminations
Total
continuing
operations
Discontinued
operation
-
8
718
587
4
-
25
884
444
-
-
71
-
-
1,342
1,399
3
1,345
(681)
-
(108)
-
(48)
(9)
(112)
(15)
(973)
372
4
1,403
-
(587)
(16)
-
(587)
(37)
(97)
(2)
(1,326)
77
(1)
-
-
(587)
-
-
-
(588)
-
(588)
-
587
-
-
-
-
1
-
588
-
883
452
718
-
75
-
25
2,153
7
2,160
(681)
-
(124)
-
(635)
(46)
(208)
(17)
(1,711)
449
(215)
(84)
(40)
110
3
-
-
(1)
112
15.4
-
-
-
-
-
121
-
121
2
123
-
-
-
(73)
-
-
(15)
(3)
(91)
32
(5)
-
(7)
20
-
-
-
-
20
2.7
Total
883
452
718
-
75
121
25
2,274
9
2,283
(681)
-
(124)
(73)
(635)
(46)
(223)
(20)
(1,802)
481
(220)
(84)
(47)
130
3
-
-
(1)
132
18.1
Contact Annual Report 2018
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 changes in the fair value of financial
instruments and other 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.
Restated 2017
$m
Mass market electricity
Commercial & Industrial electricity
Wholesale electricity
Inter-segment electricity sales
Gas
LPG
Steam
Total revenue
Other income
Total revenue and other income
Electricity purchases
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
Transition costs
Remediation for Holidays Act non-compliance
Tax on significant items
Profit
Underlying profit per share (cents)
C1
D1
B3
Note Generation
Customer Eliminations
Total
continuing
operations
Discontinued
operation
-
8
492
596
-
-
25
1,121
6
1,127
(460)
-
(101)
-
(48)
(8)
(119)
(8)
892
465
-
-
66
-
-
1,423
6
1,429
-
(596)
(14)
-
(590)
(36)
(110)
(1)
(1)
-
-
(596)
-
-
-
(597)
-
(597)
-
596
-
-
-
-
1
-
(744)
383
(1,347)
82
597
-
891
473
492
-
66
-
25
1,947
12
1,959
(460)
-
(115)
-
(638)
(44)
(228)
(9)
(1,494)
465
(203)
(93)
(49)
120
23
(7)
(5)
(2)
129
16.8
-
-
-
-
-
119
-
119
1
120
-
-
-
(67)
-
-
(15)
(2)
(84)
36
(5)
-
(9)
22
-
-
-
-
22
3.1
Total
891
473
492
-
66
119
25
2,066
13
2,079
(460)
-
(115)
(67)
(638)
(44)
(243)
(11)
(1,578)
501
(208)
(93)
(58)
142
23
(7)
(5)
(2)
151
19.9
55
Contact Annual Report 2018
A4. 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
Change in working capital net of non-cash, investing and financing activities
Non-cash items included in EBITDAF
Significant items, net of non-cash amounts
Operating cash flows
Net interest paid
Stay in business capital expenditure
Operating free cash flow
Proceeds from sale of assets
Free cash flow
Operating free cash flow per share (cents)
Note
A3
E6
B3
2018
481
(33)
(7)
17
(1)
457
(78)
(78)
301
6
307
42.0
Restated
2017
501
(37)
35
17
(8)
508
(87)
(116)
305
9
314
42.6
Stay in business capital expenditure is required to maintain our business operations and includes major plant inspections and
replacements of existing assets.
56
Contact Annual Report 2018
A5. HELD FOR SALE DISPOSAL GROUP AND
ASSETS, AND A DISCONTINUED OPERATION
Financial position of the disposal group
$m
Note
2018
Held for sale disposal group and discontinued
operation
At 30 June 2018 the sale of Rockgas Limited, a wholly owned
subsidiary of Contact, was highly probable resulting in the
assets and liabilities of Rockgas Limited being classified as
held for sale in the Statement of Financial Position for the
current reporting period. On 31 July 2018 Contact entered
into a conditional sale agreement with Gas Services NZ
Midco Limited for the Rockgas Limited business for $260
million plus adjustments on completion for working capital
movements and net debt balances.
As Rockgas Limited represents a major line of business for
Contact it is classified as a discontinued operation in the
current financial year. The comparative amounts in the
Statement of Comprehensive Income have been restated to
show the discontinued operation separately from continuing
operations.
Results of the discontinued operation
The profit from the discontinued operation is provided on the
face of the Statement of Comprehensive Income and a
breakdown in note A3.
The change in cash flow hedge reserve net of tax of $3
million (2017: nil) in the Statement of Comprehensive Income
is comprised of the movement in the fair value of LPG price
derivatives and foreign exchange contracts.
Net cash flows of the discontinued operation
The Statement of Cash Flows, free cash flow (note A4) and
the reconciliation of profit to operating cash flows (note E6)
include the cash flows for continuing operations and the
discontinued operation.
The cash flows for the discontinued operation are
presented below.
$m
2018
2017
Net operating cash flows
35
30
Net investing cash flows
(6)
(7)
Net cash flows from
discontinued operation
29
23
Operating free cash flow and free cash flow from the
discontinued operation is $29 million (2017: $23 million).
Trade and other receivables
Inventories
Derivative financial instruments
Property, plant and equipment
Goodwill
Other non-current assets
Assets held for sale
Trade and other payables
Tax payable
19
4
4
81
C2
3
3
114
16
7
Borrowings (lease obligations)
B4
9
Provisions
Deferred tax
Liabilities held for sale
Net assets held for sale
2
E1
8
42
72
Rockgas is exposed to LPG price risk on its LPG commodity
purchases and may use derivatives to fix the price of LPG. At
30 June 2018, Rockgas had LPG price derivatives in an asset
position of $2 million, maturing in December 2018, for
exposure of 27,600 tonnes (2017: nil). Rockgas also uses
foreign exchange derivatives to mitigate the risk of payments
in US dollars. These derivatives are in an asset position of $2
million at 30 June 2018 (2017: nil).
There were capital expenditure commitments at 30 June
2018 in relation to the Rockgas disposal group of $1 million.
These are due within one year of the reporting period end.
Held for sale assets
In addition to the Rockgas Limited disposal group assets
($114 million), assets classified as held for sale include the
Ahuroa Gas Storage Facility ($185 million). The Ahuroa Gas
Facility assets comprise generation plant and equipment,
land and buildings, gas storage rights and cushion gas (being
the level of gas required to maintain pressure in the reservoir
to enable injection and extraction) and costs to sell.
In December 2017 Contact entered into an agreement to sell
the Ahuroa Gas Storage Facility to GSNZ SPV1 Limited for
$200 million. The sale remains subject to a number of
conditions being satisfied. The Ahuroa Gas Storage Facility
is expected to be sold within one year of the reporting
period end.
57
Contact Annual Report 2018
B. Our Funding
Notes to the financial statements for the year ended 30 June 2018
B1. CAPITAL STRUCTURE
B3. DISTRIBUTIONS
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
its 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
its business.
Note
B4
$m
Borrowings
Shareholders' equity
Total capital funding
Gearing ratio
2018
1,494
2,727
4,221
35.4%
Restated
2017
1,549
2,778
4,327
35.8%
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 30 June 2017
Balance at 1 July 2017
Share capital issued
Note
Number
715,525,756
715,525,756
760,814
Balance at 30 June 2018
716,286,570
Comprised of:
Ordinary shares
Contact Share
715,898,925
E9
387,645
$m
1,515
1,515
5
1,520
1,521
(1)
Earnings and operating free cash flow per share
Cents per share
Profit - basic
Profit - diluted
Underlying profit - basic
Operating free cash flow - basic
Weighted average
2018
18.4
18.4
18.1
42.0
Restated
2017
21.0
21.0
19.9
42.6
Number of shares - basic
716,075,154
715,525,756
Number of shares - diluted
716,154,227
715,586,571
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 may 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
Cents per share
2016 final
2017 interim
30 June 2017
2017 final
2018 interim
30 June 2018
15.0
11.0
15.0
13.0
$m
107
79
186
107
93
201
On 10 August 2018, the Board resolved to pay a fully imputed
final dividend of 19 cents per share on 18 September 2018.
On 10 August 2018, Contact had nil imputation credits
available. Future tax payments will cover the full imputation of
the final dividend.
58
Contact Annual Report 2018
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).
Borrowings denoted with an asterisk (*) are Green Debt
Instruments under Contact’s Green Borrowing Programme,
which has been certified by the Climate Bond Initiative.
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.
Contact’s total bank facilities (including undrawn facilities of
$364 million at 30 June 2018) have a range of maturities:
Restated
2017
Maturity $m
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
More than 3 years
2018
160
160
175
100
595
2017
150
265
30
155
600
$m
Maturity Coupon
2018
Bank overdraft
< 3 months Floating
* Commercial paper
< 3 months Floating
* Bank facilities
Lease obligations
Various Floating
Various Various
USPP notes - US$40m
Mar 2018
5.55%
USPP notes - US$25m
Apr 2018
7.13%
Wholesale bonds
May 2018
4.80%
2
140
231
38
-
-
-
* Retail bonds - CEN020
May 2019
5.80%
222
* Wholesale bonds
May 2020
5.28%
* USPP notes - US$56m
Dec 2020
3.46%
* Retail bonds - CEN030
Nov 2021
4.40%
* 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%
50
70
150
100
28
64
61
73
62
68
22
29
38
3
180
113
41
71
43
50
222
50
70
150
100
28
64
61
73
62
75
22
29
38
Total borrowings at face value
Deferred financing costs
Total borrowings at amortised cost
1,448
1,545
(6)
(7)
1,442
1,538
Fair value adjustment on hedged borrowings
52
11
Carrying value of borrowings
1,494
1,549
Current
Non-current
Liabilities held for sale - Lease obligations
513
972
9
391
1,158
-
A summary of the changes in Contact’s borrowings is
provided below:
These bank facilities form part of Contact’s Green Borrowing
Programme, with exception of an $100 million facility due
within one year (fully drawn at 30 June 2018).
Lease obligations
Contact’s leases are mostly for property and connections to
the national electricity grid. These assets are included in the
carrying value of property, 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 lease obligations 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 2018,
this collateral was $3 million (2017: $6 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
Borrowings at the start of the year
Net cash borrowed/(repaid)
Non-cash change in lease obligations
Non-cash change in deferred financing costs
Non-cash change in fair value adjustment
2018
1,549
(99)
3
1
40
Restated
2017
$m
Note
Interest expense on borrowings
Unwind of discount on provisions
E5
Interest income
Net interest expense
1,723
(111)
(2)
1
(62)
Restated
2017
(90)
(5)
2
(93)
2018
(80)
(5)
1
(84)
Borrowings at the end of the year
1,494
1,549
59
Contact Annual Report 2018
C. Our Assets
Notes to the financial statements for the year ended 30 June 2018
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 and geothermal wells and pipelines.
» other plant and equipment: LPG reticulation networks, bulk tanks, cylinders and meters used to deliver LPG to our
customers, motor vehicles and electricity meters
» computer software: our SAP system that is used for customer service and billing, finance functions and generation
asset management, which has a value of $239 million (2017: $260 million) and a remaining life of 11 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 and equipment
$m
Generation plant
and equipment
Other land and
buildings
Other
plant and
equipment
Capital work
in progress
Leases
Total
Cost
Balance at 1 July 2016
Additions
Transfers from capital work in progress
Disposals
5,655
28
27
(2)
30
-
-
-
240
6
1
(7)
218
31
(28)
-
77
-
-
(2)
6,220
65
-
(11)
Restated balance at 30 June 2017
5,708
30
240
221
75
6,274
Balance at 1 July 2017
Additions
Transfers from capital work in progress
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Depreciation and impairment losses
Balance at 1 July 2016
Depreciation charge
Disposals
Restated balance at 30 June 2017
Balance at 1 July 2017
Depreciation charge
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Carrying value
Restated at 30 June 2017
At 30 June 2018
5,708
25
90
(180)
(50)
5,593
(1,294)
(158)
1
(1,451)
(1,451)
(167)
30
50
(1,538)
4,257
4,055
30
-
-
(5)
(3)
22
(15)
(2)
-
(17)
(17)
(3)
2
3
(15)
13
7
240
5
2
(160)
(1)
86
(159)
(10)
7
(162)
(162)
(7)
91
1
(77)
78
9
221
28
(92)
(6)
-
151
(1)
-
-
(1)
(1)
-
-
-
(1)
220
150
75
3
-
(18)
-
60
(27)
(5)
-
(32)
(32)
(5)
9
-
6,274
61
-
(369)
(54)
5,912
(1,496)
(175)
8
(1,663)
(1,663)
(182)
132
54
(28)
(1,659)
43
32
4,611
4,253
60
Contact Annual Report 2018
Intangible assets
$m
Cost
Balance at 1 July 2016
Additions
Disposals
Balance at 30 June 2017
Balance at 1 July 2017
Additions
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Amortisation
Balance at 1 July 2016
Amortisation charge
Disposals
Balance at 30 June 2017
Balance at 1 July 2017
Amortisation charge
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Carrying value
At 30 June 2017
At 30 June 2018
Current
Non-current
Computer software
and capital
work in progress
Gas storage
rights
Carbon emission
units
405
37
-
442
442
8
(2)
(1)
447
(118)
(32)
-
(150)
(150)
(37)
2
-
(185)
292
262
-
262
35
-
-
35
35
-
(35)
-
-
(5)
(1)
-
(6)
(6)
(1)
7
-
-
29
-
-
-
16
3
(8)
11
11
15
-
(16)
10
-
-
-
-
-
-
-
-
-
11
10
10
-
Total
456
40
(8)
488
488
23
(37)
(17)
457
(123)
(33)
-
(156)
(156)
(38)
9
-
(185)
332
272
10
262
Commitments
At 30 June 2018, Contact was committed to $6 million of
capital expenditure (2017: $11 million) and $27 million of
carbon forward contracts (2017: $7 million), of which $29
million is due within one year of the reporting period end and
$4 million is due between one to two years of the reporting
period end.
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 and
held 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.
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.
Management estimates an asset’s useful life or EOH and this
is reviewed annually. The useful life changes identified in the
current reporting period did not result in a material change in
depreciation.
Land, capital work in progress and carbon emission units are
not depreciated or amortised. The depreciation and
amortisation rates for all other assets are:
Asset
Generation plant and equipment:
- Straight line
- Equivalent operating hours
Other buildings, plant and equipment
Computer software
Gas storage rights
Rate/hours
1 - 33%
8,000 - 100,000
2 - 33%
5 - 33%
3%
61
Contact Annual Report 2018
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 (2017: $95 million) related to future generation developments not allocated to a CGU.
Every reporting period management estimates the value in use expected to be recovered from Contact’s CGUs and future
generation development in CWIP. Held for sale assets and disposal groups are measured at the lower of their carrying value
and fair value less costs to sell. An impairment is recognised when the recoverable amount or fair value less costs to sell is
lower than the 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 between 7 and 8% to arrive at the present value, or
recoverable amount, of each CGU. The future generation development valuations use the same key inputs as the Generation
CGU plus an estimate of plant commissioning costs.
The LPG CGU is a disposal group at 30 June 2018 (refer note A5). The expected net sale proceeds from the sale agreement
entered into on 31 July 2018 is higher than the carrying value of the LPG CGU. The expected net sale proceeds for the held for
sale Ahuroa Gas Storage Facility assets (refer note A5) is greater than the carrying value of $185 million.
No impairments were recognised in the current or prior period.
The key inputs to CGU and future generation development cash flows are:
Retail CGU
Generation CGU and future generation development
Customer numbers
and churn
Actual customer numbers adjusted for historical
churn data and expected market trends
Generation
volume and mix
Generation strategy based on expected demand,
hydro volumes and expected market pricing
Margin per
customer
Actual margin per customer adjusted for
expected market changes
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
Cost of purchased
energy
ASX future electricity prices adjusted for location
and seasonal shape.
Gas price
Contracted gas prices otherwise Contact’s best
estimate of future prices
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 and 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.
62
Contact Annual Report 2018 D. Our Financial Risks
Notes to the financial statements for the year ended 30 June 2018
Summary of hedged exposures
A summary of Contact’s notional market risk exposure
excluding the discontinued operation at the reporting period
end is provided below:
Derivative used
Unit
Maturities
CCIRS
Foreign exchange
IRS - floating exposure
IRS - fixed exposure
$m 2020 - 2028
$m
$m
$m
2018
2019 - 2022
2018 - 2025
Electricity price
GWh
2018 - 2022
2018
447
4
394
1,014
9,141
2017
560
25
521
979
8,290
The notional market risk exposure maturities and amounts for
electricity price derivatives in the table above does not
include fixed price, variable volume contracts and options
not yet called.
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.
$m
Favourable/(unfavourable)
2018
2017
Hedging impact on cash flow hedge reserve (CFHR)
Forward electricity prices
Forward foreign exchange rates
+10%
-10%
+10%
-10%
Hedging impact on post-tax profit/(loss)
Forward interest rates
Forward electricity prices
+100bps
-25bps
+10%
-10%
(14)
14
-
-
20
(5)
2
(5)
(14)
14
(1)
1
20
(5)
(19)
-
Contact’s financial risk management system mitigates the
exposure to market, credit and liquidity risks by ensuring that
material risks are identified, the financial impact is
understood and tools and limits are in place to manage
exposures. Written policies provide the framework for
Contact’s financial risk management system.
D1. MARKET RISK
Interest rate risk
Contact has issued fixed and floating rate debt and 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 interest 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.
Foreign exchange risk
Contact is exposed to movements in foreign exchange rates
through its commitments to pay certain suppliers and USPP
note holders.
To mitigate the risk, forward foreign exchange contracts are
used to fix future cash flows in NZD terms. Foreign debt is
hedged through the use of CCIRS, which convert foreign
currency principal and interest payments to NZD at a fixed
foreign exchange rate.
Commodity price risk
Contact is exposed to electricity price risk through the sale
and purchase of electricity on the wholesale electricity
market. Contact’s integrated generation and retail business
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.
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 natural gas price risk on
purchases of natural gas. Short and long term gas purchase
contracts are used to fix the price of gas. These are not
derivative financial instruments.
63
Contact Annual Report 2018
Fair value of derivatives
The fair value of derivatives used to hedge risk, excluding
held for sale derivatives for the current reporting period,
categorised by accounting treatment is provided below:
$m
Fair value hedges
CCIRS
IRS
Cash flow hedges
CCIRS - margin
Electricity price derivatives
Derivatives not designated in
hedge relationships
IRS
Electricity price derivatives
Current
Non-current
2018
Asset
2018
Liability
2017
Asset
2017
Liability
47
5
-
9
2
2
65
14
51
(2)
-
(2)
(1)
(54)
(2)
(61)
(17)
(44)
33
8
2
-
-
3
46
8
38
(30)
-
(6)
(6)
(53)
(7)
(102)
(50)
(52)
The change in fair value of derivatives is provided below.
The fair value movements in the cash flow hedge reserve
(CFHR) includes the discontinued operation in both periods.
$m
CCIRS
IRS
Fair value adjustment to
borrowings
Fair value hedges
CCIRS - margin
Foreign exchange derivatives
Electricity price derivatives
Tax on change in fair value
Cash flow hedges
IRS
Electricity price derivatives
Derivatives not designated in
hedge relationships
Total fair value movement
2018
Profit/
(loss)
2018
CHFR
42
(3)
(41)
(2)
-
-
-
-
-
1
4
5
3
-
-
-
-
2
1
16
(5)
14
-
-
-
14
2017
Profit/
(loss)
(52)
(6)
62
4
-
-
-
-
-
23
(4)
19
23
2017
CHFR
-
-
-
-
(2)
4
(23)
6
(15)
-
-
-
(15)
Further information on fair value and accounting for
derivatives is provided in note E7
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 and excludes held for sale
assets and liabilities for the current reporting period.
CCIRS cash flows are included within Borrowings in the table below. US dollar inflows on the CCIRS offsets the US dollar
outflow on the USPP.
2018
$m
Trade and other payables
Borrowings
Electricity price derivatives - net settled
IRS - net settled
Foreign exchange derivatives - inflow
Foreign exchange derivatives - outflow
Restated 2017
Trade and other payables
Borrowings
Electricity price derivatives - net settled
IRS - net settled
Foreign exchange derivatives - inflow
Foreign exchange derivatives - outflow
D3. CREDIT RISK
Total contractual
cash flows
Less than
1 year
1-2 years
2-5 years
More than
5 years
(170)
(1,689)
7
(37)
4
(4)
(1,889)
(201)
(1,857)
(40)
(51)
25
(25)
(2,149)
(170)
(559)
6
(10)
4
(4)
(733)
(201)
(473)
(10)
(14)
25
(25)
(698)
-
(129)
-
(10)
-
-
(139)
-
(343)
(6)
(11)
-
-
(360)
-
(516)
1
(15)
-
-
(530)
-
(412)
(12)
(24)
-
-
(448)
-
(485)
-
(2)
-
-
(487)
-
(629)
(12)
(2)
-
-
(643)
Total credit risk exposure, excluding the held for sale assets, is measured by the notional amount of financial instruments in an
asset position of $227 million (2017: $234 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.
64
Contact Annual Report 2018
E. Other Disclosures
Notes to the financial statements for the year ended 30 June 2018
E1. TAX
E3. INVENTORY
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 before tax - continuing operations
Tax at 28%
Tax effect of adjustments:
- Non-taxable sale of land
- Other
- Prior period adjustments
Tax expense - continuing operations
Current tax expense
Deferred tax expense
Restated
2017
180
(50)
1
(2)
-
(51)
(33)
(18)
2018
153
(43)
-
(1)
3
(41)
(36)
(5)
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.
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
2018, Contact expects to use 50% of the gas held in storage
within one year of the reporting period end (2017: 50%).
$m
Inventory gas
Consumables and spare parts
LPG
Diesel fuel
Current
Non-current
2018
46
9
-
3
58
35
23
2017
54
10
2
4
70
46
24
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.
Derivative
financial
instruments Other
Total
E4. TRADE AND OTHER RECEIVABLES
$m
Restated balance at 1 July
2016
Recognised in profit/(loss)
Recognised in OCI
Restated balance at 30
June 2017
Recognised in profit/(loss)
Recognised in OCI
Deduct held for sale
liabilities
Balance at 30 June 2018
PP&E and
intangible
assets
(777)
(6)
-
(783)
(7)
-
10
(780)
19
(7)
6
18
-
(5)
1
14
21
(5)
-
16
2
-
(3)
15
(737)
(18)
6
(749)
(5)
(5)
8
(751)
$m
Trade receivables
Unbilled receivables
Provision for impairment
Net trade receivables
Contract assets
Prepayments
Other receivables
2018
Restated
2017
65
96
(2)
159
13
3
-
175
78
100
(3)
175
12
3
7
197
E2. OPERATING EXPENSES
Other operating expenses (note A3) include total labour
costs of $99 million (2017: $103 million). Labour costs include
contributions to KiwiSaver of $3 million (2017: $3 million).
Audit fees paid to Contact’s auditors (KPMG) comprise of
$520,000 for review of the interim, and audit of the year end,
financial statements (2017: $480,000), and $2,500 for
scrutineering at the Annual meeting (2017: $2,150).
Trade and unbilled receivables are recognised net of
discounts based on past experience of the amount of
discounts taken up by customers. Unbilled receivables
represent Contact’s best estimate of retail sales for unread
electricity and gas meters at the end of the reporting period.
The estimate uses the consumption history of customer
meters to determine the relevant unbilled amount for
the period.
65
Contact Annual Report 2018
Provision for impairment
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.
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%.
Ageing of trade receivables not impaired is:
$m
Not past due
0-30 days past due
30-90 days past due
Over 90 days past due
Restated
2017
2018
141
15
1
2
159
149
18
4
4
175
Bad debts net of recoveries of $6 million (2017: $7 million)
were recognised during the reporting period.
Contract assets
Contact capitalises the incremental costs incurred to
acquire new customers and amortises these costs to
operating expenses over the expected life of the customer
relationship. Incentives given to customers are also
capitalised as a contract asset and amortised to revenue
over the same period.
$m
Opening balance
Additions
Amortised to revenue
Amortised to operating expenses
Closing balance
Restated
2017
2018
12
9
(5)
(3)
13
9
9
(3)
(3)
12
Of the total contract assets balance, $7 million (2017: $6
million) is expected to be amortised within one year of the
reporting period and the remainder between one to three
years of the reporting period end.
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 $4 million (2017: $5 million) for
remediation of the Holidays Act non-compliance.
Restoration/
environmental
rehabilitation
(55)
-
1
7
(5)
2
(50)
(5)
(45)
Other
(9)
(1)
-
1
-
-
(9)
(6)
(3)
Total
(64)
(1)
1
8
(5)
2
(59)
(11)
(48)
$m
Balance at 1 July 2017
Created
Released
Utilised
Unwind of discount
Deduct held for sale liabilities
Balance at 30 June 2018
Current
Non-current
66
E6. PROFIT TO OPERATING CASH FLOWS
A reconciliation of profit to operating cash flows for continuing
and discontinued operations is provided below. Refer to note A5
for the operating cash flows for the discontinued operation.
$m
Profit
Depreciation and amortisation
Amortisation of contract assets
Change in fair value of financial instruments
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 and intangible assets
Trade and other payables
Tax
Restated
2017
151
208
6
(23)
5
93
10
18
3
(2)
(7)
35
7
4
2018
132
220
8
(3)
-
84
7
5
3
(2)
(16)
9
-
10
Operating cash flows
457
508
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, excluding held for sale derivatives for the
current reporting period, are:
$m
CCIRS
CCIRS - margin
Foreign exchange
derivatives
IRS
Electricity price derivatives
2018
Asset
2018
Liability
2017
Asset
2017
Liability
45
-
-
6
10
61
-
(2)
-
(53)
(2)
(57)
26
-
-
8
3
37
(23)
(4)
-
(53)
(13)
(93)
Fair value
Contact uses discounted cash flow valuations with market
observable data, to the extent that it is available, in estimating
the fair value of all derivatives and borrowings. 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 (based on the
forward IRS curve adjusted for counterparty risk).
Contact Annual Report 2018
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
» when quoted prices are not available or relevant (i.e.
long dated and large contracts), Contact’s best
estimate of the cost of new supply is used. This is
derived using key unobservable inputs, relevant
wholesale market factors and management
judgement.
Additional key inputs and assumptions used to determine
the fair value of electricity derivatives include Contact’s best
estimate of volumes called over the life of electricity options,
forward quoted commodity prices (e.g. aluminium and
carbon) and calibration adjustments as a consequence of
initial recognition differences.
The following table provides a breakdown of the fair value of
derivatives, excluding held for sale derivatives in the current
reporting period, by the source of key valuation inputs:
$m
Sourced from market data
Derived from market data
Electricity price estimates
2018
2017
-
(2)
6
4
(3)
(45)
(8)
(56)
The electricity price derivatives most affected by estimates
are reconciled below:
$m
Opening balance
Gain/(loss) in profit/(loss):
- wholesale electricity revenue
- change in fair value of financial instruments
(Loss)/gain in OCI
Instruments issued
Closing balance
2018
(8)
2017
9
1
2
6
5
6
(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 12 years and is recognised as an
electricity price derivative at fair value.
In addition, Contact has entered into a new agreement with
Meridian Energy Limited for the supply of 18.75MW of
electricity required by New Zealand Aluminium Smelters to
operate the fourth potline at its Tiwai smelter. The term
commences on commissioning date of the fourth potline
until 31 December 2022.
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:
$m
Opening difference
Initial differences in new hedges
Volumes expired and amortised
Changes for future prices and time
Closing difference
2018
(33)
3
8
23
1
2017
(17)
-
(1)
(15)
(33)
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, $50 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.
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
2018
(8)
15
5
-
(5)
7
2017
7
(29)
11
(3)
6
(8)
Derivatives not in hedge relationships
These include IRS not attached to specific debt, 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).
67
Contact Annual Report 2018
The table below provides a reconciliation for the number of
outstanding PSRs and DSRs. The exercise price of these
awards is nil.
E8. FINANCIAL INSTRUMENTS AT
AMORTISED COST
The value of financial instruments carried at amortised cost,
excluding held for sale assets and liabilities in the current
reporting period, is provided in the table below.
Number outstanding
Balance at 1 July 2016
$m
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Restated
2017
Granted
Lapsed
6
182
Balance at 30 June 2017
Granted
(201)
Exercised
2018
3
159
(170)
(1,433)
(1,538)
Lapsed
Balance at 30 June 2018
PSRs
DSRs
294,316
314,170
285,054
345,720
(43,067)
(64,654)
536,303
595,236
274,347
309,212
-
(276,784)
(43,085)
(39,452)
767,565
588,212
For disclosure purposes, the fair value of borrowings,
excluding held for sale, is $1,503 million (2017: $1,572 million).
This fair value is derived from market data.
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, or there is a company change in control, 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 or by
utilising the option of a facility which cancels the options in
return for a reduced number of issued shares. There are no
loans available. There are no holding/retention periods or
ownership requirements for employees who exercise equity.
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.
Share options had a weighted average remaining life of one
year and 10 months (2017: one year, seven months), PSRs had
two years and nine months (2017: three years, five months)
and DSRs had 11 months (2017: 11 months).
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, may 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.
The table below provides a reconciliation of the number of
outstanding options and their weighted average exercise price.
Number outstanding
Balance at 1 July 2016
Balance at 1 July 2016
Granted
Lapsed
Balance at 30 June 2017
Granted
Exercised
Lapsed
Balance at 30 June 2018
Options
Number outstanding
11,000,987
1,157,407
(2,511,733)
9,646,661
1,148,119
(4,318,578)
(330,834)
6,145,368
Price
$5.34
$4.98
$5.37
$5.28
$5.54
$5.24
$5.30
$5.36
At 30 June 2018, 3,050,726 share options were exercisable.
The exercisable share options have a weighted average
exercise price of $5.55.
68
Shares purchased and issued
Transferred to employees
Balance at 30 June 2017
Shares purchased and issued
Transferred to employees
Balance at 30 June 2018
Contact Share
402,430
139,071
(138,128)
403,373
105,471
(121,199)
387,645
These shares have a weighted average remaining life of one
year and three months (2017: one year, four months).
Share-based compensation expense
The current reporting period’s expense was $3 million (2017:
$3 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:
$m
Share options
PSRs
DSRs
Contact Share
2018
0.42
3.03
4.88
5.54
2017
0.44
2.91
4.50
4.98
Contact Annual Report 2018 Key inputs in determining the fair values are:
$m
Risk-free interest rate
Expected dividend yield
Expected share price volatility
2018
2%
6%
20%
2017
2%
6%
21%
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.
Related party transactions are disclosed in the table below.
Received/(paid) $m
Rockgas Timaru Limited
Sale of LPG - discontinued operation
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
2018
2017
2
(1)
(5)
(1)
(1)
2
(1)
(6)
(1)
(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 has chosen not to early adopt NZ IFRS 9 Financial
Instruments (NZ IFRS 9), which is effective for the year
ending 30 June 2019.
NZ IFRS 9 addresses the classification and measurement of
financial assets and liabilities, the impairment of financial
assets and hedge accounting.
The adoption of NZ IFRS 9 will permit Contact to reduce
reported volatility in the Statement of Comprehensive
Income as NZ IFRS 9 enables Contact to hedge account for
interest rate swaps that could not be hedge accounted under
the current accounting standards. This change to the hedge
accounting rules aligns more closely with Contact’s interest
rate risk management activity. While this is expected to
reduce profit/(loss) volatility over time, the interest rate
swaps in place on transition to NZ IFRS 9 may not be fully
effective hedges and may continue to accounted for as
derivatives not designated in a hedge relationship.
Changes in the fair value of the cost to convert foreign
currency to NZD of Contact’s CCIRS will be separately
accounted for as a cost of hedging and recognised within a
new reserve within equity (cost of hedging reserve).
No other significant changes are expected as a result of the
adoption of NZ IFRS 9.
69
Contact Annual Report 2018
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 which it has control or joint control (the group) on
pages 48 to 69:
i. present fairly in all material respects the Group’s
financial position as at 30 June 2018 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 2018;
» 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)’). 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 our report.
Our firm has also provided other services to the group 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 2018. The group had a
continued focus on implementing its cost efficiency
programme and improvements in customer operating
performance as it seeks to realise benefits from its
investments in its retail customer business. There also
remains an ongoing focus on the portfolio of long life
generation assets in light of potential sector developments
and an 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 $8.2 million determined with reference to a benchmark of
group profit before tax from continuing operations. 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
Key audit matters: Carrying value of cash-generating units
Note C1 and 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 focussed 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.
70
Contact Annual Report 2018 The significant assumptions in the generation 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.
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 by comparing forward electricity prices to external
market projections, comparing future generation volumes to
historical volumes, comparing operating costs and asset
renewal costs to historical levels and budgets 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 rates.
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 renewal
costs, terminal growth rate and discount rate assumptions
used by Management were within acceptable ranges and in
line with the current market view.
As an overall test we compared the Group’s net assets at 30
June 2018 of $2.7 billion to its market capitalisation of $4.2
billion at 30 June 2018 and noted an implied headroom of
$1.5 billion.
Key audit matters: 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 the Tauhara geothermal project
and wells that are 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; 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. The strategy towards development of low emission
generation assets is supported by external sector factors.
Key audit matters: Revenue recognition
Notes A1 and A3 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 receivables 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.
For the year ended 30 June 2018 the Group has early
adopted NZ IFRS 15 Revenue from Contracts with
Customers. The early adoption of this accounting standard
has impacted both how the Group recognises revenue and
the treatment of costs to obtain customer contracts.
Our focus has been on the recognition of revenue in respect
of:
» accounting for retail customer product offerings,
including cash incentives, loyalty programmes and
service fees; and
» accounting for material commercial and industrial
contracts that included multiple performance
obligations that exist under the contract.
The other area of focus was on the incremental customer
acquisition costs incurred to obtain a customer and direct
customer incentives. These are capitalised as contract
assets and recognised over the expected life of the
relationship with of customers.
The early adoption has been retrospectively applied with
comparative periods being restated in the financial
statements.
How the matter was addressed in our audit
We assessed the control environment for capturing
customer revenue and compared each revenue stream to
our expectation which was supported by internal and
external factors. We agreed wholesale electricity to third
party documentation.
Our audit procedures to assess the estimate of unbilled
electricity and gas 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 verifying a sample of
commercial and industrial unbilled receivables to
subsequent invoices.
We found that the estimate of unbilled revenue and
receivables to be in line with our expectation.
Our procedures to assess the appropriate level of revenue to
be recognised in accordance with the transition to NZ IFRS
15 Revenue from Contracts with Customers included:
» Comparing on a portfolio basis, the mass market
customer performance obligations identified were
consistent with the standard terms and conditions
within underlying contracts;
» Comparing on a sample basis, the commercial and
industrial electricity customer performance
obligations identified were consistent with the terms
and conditions within underlying contracts; and
71
Contact Annual Report 2018 » Evaluating the appropriateness of the transaction
price allocation, which includes variable
consideration, to the performance obligations
identified.
Our procedures to assess the contract assets included:
» Agreeing a sample of capitalised acquisition costs
to invoice and external contracts to ensure that the
capitalised costs were incremental in nature and
incurred in the process of obtaining a customer
contract;
» Evaluating the appropriateness of the expected life
of the relationship with the customer by observing
historical customer information; and
» Assessing whether contract assets are
appropriately recognised over the expected life of
the relationship with the customer.
We have agreed the restatement in note A1: Adoption of new
accounting policies to the underlying calculations and
re-performed those calculations.
Our procedures did not identify any significant findings
surrounding the adoption of NZ IFRS 15 Revenue from
Contracts with Customers.
Other information
The Directors, on behalf of the group, are responsible for the
other information included in the entity’s Annual Report.
Other information includes the directors’ report, statutory
information, sustainability reporting, five year summary and
statistics and corporate governance policies. Our opinion on
the consolidated financial statements does not cover 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 independent auditor’s 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 independent auditor’s report, or any of the
opinions we have formed.
Responsibilities of the Directors for the
consolidated financial statements
The Directors, on behalf of the company, 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.
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:
http://www.xrb.govt.nz/standards-for-assurance-
practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent
auditor’s report.
The engagement partner on the audit resulting in this
independent auditor’s report is David Gates
David Gates
For and on behalf of KPMG
Wellington, 10 August 2018
72
Contact Annual Report 2018 Corporate directory
BOARD OF DIRECTORS
Sir Ralph Norris (Chairman) KNZM
Victoria Crone
Whaimutu Dewes
Rob McDonald
Sue Sheldon CNZM
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
COMPANY NUMBERS
NZ Incorporation 660760
ABN 68 080 480 477
AUDITOR
KPMG
PO Box 996
Wellington 6140
REGISTRY
Change of address, payment instructions and investment
portfolios can be viewed and updated online:
investorcentre.linkmarketservices.co.nz
investorcentre.linkmarketservices.com.au
New Zealand Registry
Link Market Services Limited, PO Box 91976, Auckland 1142
Level 11, Deloitte Centre, 80 Queen Street, Auckland 1010
contactenergy@linkmarketservices.co.nz
Phone: + 64 9 375 5998
Fax: +64 9 375 5990
Australian Registry
Link Market Services Limited, Locked Bag A14, Sydney
South, NSW 1235
680 George Street, Sydney, NSW 2000
contactenergy@linkmarketservices.com.au
Phone:+61 2 8280 7111
Fax: + 61 2 9287 0303
INVESTOR RELATIONS ENQUIRIES
Matthew Forbes
Investor Relations Manager
investor.centre@contactenergy.co.nz
Phone: +64 4 462 1323
SUSTAINABILITY ENQUIRIES
Genelle Palmer
Senior Sustainability Advisor
genelle.palmer@contactenergy.co.nz
Assurer
Ernst & Young
2 Takutai Square
Britomart
Auckland 1010
73
Contact Annual Report 2018