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9
WE’RE MAKING
LIFE BETTER
ANNUAL REPORT 2019
Contact is the human
energy company with great
ideas and smart solutions
that make living easier for
customers, now and in
the future.
This Annual Report is dated 12 August 2019 and is signed on behalf of the Board by:
Robert McDonald
Chair
Dame Therese Walsh
Chair, Audit Committee
This report is printed on an environmentally responsible paper produced using Elemental Chlorine Free (ECF) FSC Certified
pulp sourced from Sustainable & Legally Harvested Farmed Trees, and manufactured under the strict ISO14001
Environmental Management System. The inks used in printing this report have been manufactured from vegetable oils
derived from renewable resources, and are biodegradable and mineral oil free. All liquid waste from the printing process has
been collected, stored and subsequently disposed of through an accredited recycling company.
CONTENTS
This Year In Review ............................................................................................................................................................................... 5
Chair’s review ....................................................................................................................................................................................................................................................... 6
Chief Executive Officer’s review .............................................................................................................................................................................................................. 7
Who We Are ............................................................................................................................................................................................. 9
Our Board ............................................................................................................................................................................................................................................................... 10
Our Leadership Team ..................................................................................................................................................................................................................................... 11
Contact at a glance ......................................................................................................................................................................................................................................... 12
Ngā tikanga ............................................................................................................................................................................................................................................................ 16
Focusing on what matters most ............................................................................................................................................................................................................... 17
Our reporting frameworks ............................................................................................................................................................................................................................ 18
Accessibility ............................................................................................................................................................................................ 19
Making access equitable .............................................................................................................................................................................................................................. 20
Giving customers what they want ............................................................................................................................................................................................................ 21
Reliability .................................................................................................................................................................................................. 23
Focus on financial performance ............................................................................................................................................................................................................. 24
Ensuring reliable renewable energy ....................................................................................................................................................................................................... 25
Growing talent, inclusiveness and diversity ...................................................................................................................................................................................... 27
Focusing on health and safety ................................................................................................................................................................................................................... 29
Environmental Sustainability............................................................................................................................................................. 31
Using water sustainably and respectfully .......................................................................................................................................................................................... 32
Taking action on climate change .............................................................................................................................................................................................................. 33
Protecting and enhancing biodiversity ................................................................................................................................................................................................. 35
Living and working in our local communities .................................................................................................................................................................................... 37
Governance Matters ............................................................................................................................................................................. 39
Contact’s Board ................................................................................................................................................................................................................................................. 40
Code of conduct ................................................................................................................................................................................................................................................ 42
Risk management and assurance .......................................................................................................................................................................................................... 42
Remuneration Report ........................................................................................................................................................................... 43
Directors’ remuneration ................................................................................................................................................................................................................................ 44
Chief Executive Officer remuneration ................................................................................................................................................................................................. 45
Employee remuneration ................................................................................................................................................................................................................................ 47
Other Disclosures .................................................................................................................................................................................. 49
Statutory ................................................................................................................................................................................................................................................................. 50
GRI index ................................................................................................................................................................................................................................................................ 59
Financial Statements ............................................................................................................................................................................ 63
Independent Auditor’s Report ........................................................................................................................................................... 87
Report on the audit of the consolidated financial statements .............................................................................................................................................. 88
Corporate Directory ............................................................................................................................................................................. 91
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THIS YEAR
IN REVIEW
5
It is pleasing to report a strong result
for FY19 following the transformation
programme we have successfully
executed in recent years which
included sector leading reductions
to operating and capital expenditure,
a deepening of the relationship with
our customers and the simplification
of our portfolio of assets
Contact | Annual Report 2019 THIS YEAR IN REVIEW
CHAIR’S REVIEW
It is my privilege to share my perspectives on Contact’s
FY19 performance and outlook.
This Annual Report is a step towards reporting our
performance using the globally recognised International
Integrated Reporting framework. We’ve chosen this
framework to clearly articulate how we create value
for all our stakeholders. The framework requires us to
think about value as more than just financial, and to include
the value that we create from and for our people, our brand,
intellectual property, our assets, natural resources, and our
customers, community and relationships.
As well as recording our performance in the context
of , this review shows what we are doing in the context
of the Energy Trilemma — Accessibility, Reliability and
Environmental Sustainability.
The energy sector is rapidly changing, with increasing
customer expectations and an increased focus on climate
change by policemakers as well as customers, our people
and the communities in which we operate.
Our people have risen to those challenges, and this year
we have taken positive steps to position Contact well for
the future, and delivered a strong business performance.
Contact’s Wholesale business is aiming to decarbonise
energy in New Zealand, and our Customer business is
aiming to be the most service and value focused retailer
in New Zealand.
We are laying the groundwork for a lower-carbon future,
while continuing to operate safely and efficiently in the
market realities of today. Our flexible generation assets,
our continuous improvement programme and our access
to stored gas helped us navigate this year’s acute thermal
fuel constraints.
Contact is actively helping all our customers to maintain
access to energy and to avoid incurring burdensome debt
with us. Today, we offer more product options and more
payment options than ever before, giving our customers
more choice, certainty and control over their energy costs
and new ways to engage with us. One example is the Basic
Plan, a competitive no frills proposition which sees Contact
moving away from prompt payment discounts.
The delivery of Contact’s operational efficiencies, the
quality of the generation assets and the strength of the
balance sheet were enhanced by the completion of two
major transactions in the year: the completion of the sale
of Ahuroa Gas Storage; and the sale of Rockgas LPG. Both
transactions provide significant flexibility for our business.
In the case of Ahuroa, we have retained long term access
to gas storage services and with Rockgas, we have retained
the ability to market LPG to our customers.
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The asset sales materially improved the strength of Contact’s
balance sheet and positions us well for future investment.
With continued confidence in the business’s ability to generate
cash flow, the Board changed the distribution policy so that we
target a payout of 100% of expected operating free cash flow.
This has seen the Board declare a final FY19 dividend of 23
cents per share, up 21% on last year, and target a full year FY20
dividend of 39 cents per share, in line with FY19. The full year
dividend declared is 39 cents per share.
We hold resource consents to develop New Zealand’s lowest
cost new generation build. Our commitment to a lower carbon
future and with increasingly unreliable and more expensive gas
supply were key factors in the Board’s approval of $30 million
to drill four appraisal wells on the Tauhara geothermal field near
Taupō. We expect to make the final investment decision on a
new power station in 2020.
Our commitment to helping large customers to reduce their
carbon footprint saw the Board support the acquisition of 49.9%
of Simply Energy – an innovative energy solutions company that
uses demand-side management tools to improve efficiency and
reduce emissions.
During the year the government initiated Electricity
Price Review panel consulted on two issues papers.
While I am pleased to note that the review panel confirmed
New Zealand’s electricity market is working well, it also
identified areas for improvement including ways to help
vulnerable customers, which Contact has been actively
supporting. I do note that there was a missed opportunity
to consider the role of rising distribution and transmission
costs in the costs of delivering electricity to our customers.
This year the membership of the Contact Board has changed.
Sir Ralph Norris and Sue Sheldon retired from the Board on
31 August 2018 and our succession planning culminated in the
appointment of three new directors – Dame Therese Walsh,
David Smol and Jon Macdonald. Each of these directors brings
valuable skills that complement the expertise of the longer
serving Board members.
Dennis Barnes will leave Contact in 2020, and the Board has
commenced a process to find his successor.
On behalf of the Board, I farewell Dennis and thank him for
his contribution as Chief Executive for the past eight years.
Dennis has presided over a period of significant modernisation
of the business while creating consistent value for stakeholders,
with a compound annual total shareholder return of 15.8%.
He has led over $2 billion of investment in renewable generation,
flexible thermal generation and enterprise-wide systems, and led
Contact to an outstanding safety culture, more highly engaged
employees, and customers advocating for it in greater numbers.
He leaves the company well positioned to continue to add
value to customers and to lead the decarbonisation of the
New Zealand energy sector.
Robert McDonald
Chair
Accessibility
Our Customer business has made good ground on our
strategy of being a service and value focused retailer,
connecting customers and communities to smart solutions
that make living easier.
This has included innovating to make it easier for customers
to connect with us online and with our mobile app, and helping
our most vulnerable customers keep the power on with
initiatives such as PrePay and flexible billing options.
CHIEF EXECUTIVE OFFICER’S REVIEW
This year has been notable for the completion of significant
transactions, progress in accelerating decarbonisation,
increasing customer value and strong financial performance.
We have helped our customers to avoid getting into difficult
credit positions, and intervened early if they did, which
delivered record low levels of outstanding debt.
We have delivered a solid financial result, improved capital
efficiency, deployed good risk management practices, and
again proved the value of the flexibility we have built into our
diverse generation portfolio.
Two major transactions strengthened our balance sheet
and enhanced the resilience of our operations. In October,
we completed the sale of the Ahuroa Gas Storage facility
to Gas Services New Zealand (GSNZ) for $200 million1
and, in November, we completed the sale of Rockgas LPG
to GSNZ for $260 million.
The Ahuroa sale gave us access to long term gas storage
services to meet our flexible thermal generation needs
without needing to own and operate the asset, and the
Rockgas sale freed us from the fulfilment aspects of the LPG
business while still being able to sell LPG to our customers.
We also acquired a 49.9% interest in New Zealand-owned
energy innovator Simply Energy. Investing in Simply Energy
gives us access to capability to deliver innovative solutions
that will help our Commercial and Industrial customers
transition to low carbon solutions sustainably and sooner.
Our vision is to create sustainable value for New Zealanders
by putting our energy where it matters. We have stood the
test of volatile wholesale markets and a competitive retail
sector to deliver on that commitment this year.
Our Wholesale business successfully managed periods
of low hydro inflows and constrained gas supply, reinforcing
the value of our diverse portfolio.
The Customer business has been digitising the customer
experience and building data, automation and integration
capability, while focusing on lowering operating expenses
and reinvesting savings in investment in our brand and
technology solutions.
Both businesses have demonstrated their capability
and flexibility to respond to complex market conditions,
the competitive environment and to contribute positively
to the Energy Trilemma of Accessibility, Reliability and
Environmental Sustainability.
The government initiated Electricity Price Review highlighted
this year that some New Zealand families are struggling to pay
for their energy and that the prompt payment discounts are
not fair to customers who are unable to pay their bills on time.
We have responded by accelerating plans to remove prompt
payment discounts and are replacing them with simple plans
such as our existing Basic Plan or guaranteed discounts.
Operating earnings (EBITDAF) in our Customer business
was $67 million, down $9 million from $76 million in FY18,
as continuing competitive pressures limited Contact’s ability
to recover higher costs for electricity and distribution networks
through customer price changes. The result was also impacted
by lower sales volumes to electricity customers.
7
Reliability
New Zealand is at the start of a transformation from reliance
on fossil fuels to renewable electricity. Contact is well placed
to meet the expected growth in renewable electricity demand,
which will result in meaningful reductions to carbon emissions.
This alignment with political and public sentiment underpins
our Wholesale business strategy of being ‘an innovative, safe
and efficient generator, working with business customers and
partners to decarbonise New Zealand’.
The increased price and reduced reliability of gas is
accelerating the case for replacing thermal plant with
new baseload geothermal. In this context, we are taking the
next step in developing the geothermal project we have
consented at Tauhara by committing to drill four appraisal
wells. The drilling will lay the groundwork for a final investment
decision for a new power station in early 2020.
We are actively partnering with our Commercial and Industrial
customers who are undoubtedly the prime decarbonisation
opportunity. Our target is to enable customers to switch
to electricity from their current energy sources, help them
be more energy efficient, reduce their costs and cut their
carbon emissions.
This year we successfully piloted our demand flexibility
platform, which rewards Commercial and Industrial customers
for reduced energy use at peak times, so we don’t have to
resort to fossil fuel generation to meet high demand.
1. Up to $10 million of this is contingent on GSNZ obtaining a favourable binding tax treatment ruling.
Contact | Annual Report 2019 THIS YEAR IN REVIEW
EBITDAF from our Wholesale business was $464 million
in the period, up $67 million from $397 million in FY18.
We rely on the dedication, passion and innovation of our
people to be able to keep delivering safe, dependable energy
and adding value for our customers and stakeholders.
This year we again measured the engagement of our people
with the Ask Your Team survey. Our overall engagement
score was 75%, which was well ahead of the 67% benchmark
for private companies but behind our 2018 score of 77%.
The survey results will help us keep adapting and improving
to raise engagement.
We are committed to being an inclusive and diverse
employer and this year we achieved Rainbow Tick
certification, recognising us as a workplace that accepts
and welcomes sexual and gender diversity.
We take pride in our excellent safety systems and generative
safety culture, where everyone is empowered to take
ownership of health and safety outcomes. Our results this
year evidence our good safety culture.
Environmental sustainability
This year we recommitted ourselves to a climate change
position, embedded a reporting tool enabling us more
oversight of our emissions targets. We were the first
New Zealand energy company to have emission reduction
targets approved by the Science Based Targets initiative
(SBTi). We are revising those targets to align with new
recommendations from the SBTi. We were also the first
company in New Zealand to sign up as an official supporter
of the Taskforce for Climate-related Financial Disclosures.
This internationally recognised transparent disclosure
regime is increasingly being relied on by the investment
community as a tool for understanding climate change risk.
We partnered with other New Zealand companies to invest
in forestry on marginal land to sequester carbon.
With the National Institute of Water and Atmospheric
Research (NIWA), we assessed the potential impact of
climate change on our business and used this baseline
data to identify climate change risks and opportunities.
We have maintained a strong focus on biodiversity
programmes, including supporting the development of
a National Policy Statement for Indigenous Biodiversity,
continuing to mitigate our impacts on fish migration around
our dams, and restoring and protecting habitats.
We also engaged with the Government appointed Interim
Climate Change Committee as they developed their report
into the Government’s renewable electricity aspirations.
And we continued to work collaboratively with tangata
whenua and the communities around our sites to involve
them, respect their interests, create opportunities and
give back in ways that are meaningful to them.
Despite our commitment to environmental sustainability,
a landslip at one of our geothermal storage ponds at Karapiti
sent sediment and geothermal fluid into the Waipuwerawera
Stream and Waikato River in February. We are thankful that
no one was hurt. However, the discharge did impact the river,
iwi and the community and we deeply regret that. We are
working with iwi and the local community to put things right
and to learn from the event.
Transition
Finally, I have made the Board aware of my intention to leave
Contact. In making this decision I know that the company is
in a strong position, with excellent prospects and a talented
and committed team in place.
It has been a privilege to lead Contact. I am proud of
many things Contact has delivered in the past eight years
and in particular the value we have returned to you, our
shareholders, including the distribution of nearly $2 billion.
At the same time we have transformed into a leading
New Zealand business investing to reduce our carbon
emissions by more than 50% and providing more choice,
certainty and control to customers than ever before.
I thank the Board and the many people I’ve worked with
and wish you a prosperous future.
Ngā mihi mahana, nā Dennis
Dennis Barnes
CEO
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WHO WE ARE
9
889
employees
1.3k
bondholders
4
thermal stations
6.5 TWh
contracted
electricity sales
493k
customer connections
62.5k
shareholders
0
Tier 1
process safety incidents
2
hydro stations
5
geothermal stations
8.9 TWh
generated
$2.8 billion
of net assets
$99 million
in tax paid
39 cents
per share dividend declared
83%
renewable generation
991k tCO2e
of Scope 1 emissions
+27
Net Promoter Score
96%
gender pay ratio
81.5 kg
of elver transferred
at the Roxburgh Dam
All figures at 30 June 2019 or for FY19 year.
WHO WE ARE
Contact is led by an experienced and diverse Board and Leadership Team who are committed
to our customers, communities, shareholders and people.
OUR BOARD
From left to right:
Elena Trout, Independent Non-Executive Director
Term of office: Appointed director 3 October 2016,
last elected 2016 annual meeting.
Board committees: Member of the Health, Safety
and Environment Committee.
Victoria Crone, Independent Non-Executive Director
Term of office: Appointed director 12 November 2015,
last elected 2017 annual meeting.
Board committees: Member of the Audit Committee.
Jon Macdonald, Independent Non-Executive Director
Term of office: Appointment effective 1 November 2018,
last elected 2018 annual meeting.
Board committees: Member of the People Committee.
Dame Therese Walsh, Independent Non-Executive Director
Term of office: Appointed director 1 September 2018,
last elected 2018 annual meeting.
Board committees: Chair of the Audit Committee and
Member of the People Committee.
David Smol, Independent Non-Executive Director
Term of office: Appointed director 1 October 2018,
last elected 2018 annual meeting.
Board committees: Member of the Health, Safety
and Environment Committee.
Whaimutu Dewes, Independent Non-Executive Director
Term of office: Appointed director 22 February 2010,
last re-elected 2018 annual meeting.
Board committees: Chair of the Health, Safety and
Environment Committee and Member of the Audit Committee.
Robert McDonald, Independent Non-Executive Chair
Term of office: Appointed director 12 November 2015,
last elected 2017 annual meeting.
Board committees: Chair of the People Committee.
For more information about our board, including the
skills matrix, go to Contact’s Board in the Governance
Matters section.
For the full biographies of our board please see our website.
BACK TO CONTENTS PAGE
OUR LEADERSHIP TEAM
James Kilty
Chief Generation & Development Officer
Venasio-Lorenzo (Vena) Crawley
Chief Customer Officer
Dorian Devers
Chief Financial Officer
Dennis Barnes
Chief Executive Officer
Catherine Thompson
General Manager, External Relations and General Counsel
Absent: Megan Curry
Acting Chief People Officer
For the full biographies of our leadership team please see our website.
11
Contact | Annual Report 2019 WHO WE ARE
CONTACT AT A GLANCE
Hawea
Clyde
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Auckland
Te Rapa
Stratford
Ohaaki
Te Mihi
Whirinaki
Te Huka
Poihipi
Wellington
Wairakei
Levin
Dunedin
Roxburgh
Head office
Geothermal power station
Hydroelectric power station
Thermal power station
Storage lake
Offices and call centres
Customer connections and volume sold by energy type at 30 June
Electricity
Natural gas
Broadband
Total
Connections
413,500
66,500
12,500
492,500
2019
Volume sold
(GWh)(1)
6,550
860
Connections
416,500
65,000
1,800
483,300(2)
2018
Volume sold
(GWh)
6,997
806
1. GWh = gigawatt hours.
2. Figure restated to include Broadband customers from FY18.
Customer connections by account type at 30 June
Generation by type for the year ended 30 June
Residential
Business
Other
Total
2019
2018(1)
Generation type
(GWh)
418,000
493,300
Hydro
59,000
3,000
75,800
Geothermal
1,600(2)
Thermal
480,000
570,700
Total
1. 2018 data included LPG. LPG was not included in 2019 as we had no
LPG customers at 30 June as we had sold the Rockgas business.
2. Includes LPG connections where data on account type was unavailable.
Generation by station
2019
2018
4,231
3,256
1,421
8,908
3,479
3,323
1,812
8,614
13
Output
Commissioned Type
Name
Ohaaki
Geothermal
1989
Poihipi
Geothermal
1996
Stratford
Thermal
Stratford
Thermal
1998
2011
Te Huka
Geothermal
2010
Te Mihi
Geothermal
Te Rapa
Thermal
2014
1999
Flash steam
Flash steam
Location
Waikato
Waikato
Combined-cycle gas turbine
Taranaki
Peaker, gas turbine
Binary cycle
Flash steam
Open-cycle gas turbine co-
generation
Taranaki
Taupō
Taupō
Waikato
Wairakei
Geothermal
1958, 2005
Flash steam / binary cycle
Taupō
Whirinaki
Thermal
Clyde
Hydro
2004
1992
Conventional
Diesel fuel, open-cycle turbine Hawke’s Bay
Otago
Otago
Roxburgh
Hydro
1956–1962
Conventional
1. MW = megawatts.
Capacity
(MW)(1)
2019
Generation
(GWh)
2018
Generation
(GWh)
44
55
377
210
28
166
44
132
155
432
320
310
388
1,013
207
186
1,382
196
991
5
2,339
1,892
280
411
1,071
528
198
1,372
211
1,062
3
1,912
1,567
Contact | Annual Report 2019 BACK TO CONTENTS PAGE
We generate energyWe trade We sell and serveAs a retailer we sell products and services to thousands of individuals and businesses to meet their energy needs.We connect customers, partners, suppliers and communities to find smart solutions that make living easier for them. We are an innovative, safe and efficient generator working with customers, partners and suppliers to decarbonise New Zealand's energy sector.Our value creationWe own and operate 11 power stations and produce 83% of our electricity from our renewable hydro and geothermal stations. Our natural gas and diesel fired power stations operate to ensure the lights stay on for New Zealanders when intermittent renewable plants like hydro and wind cannot operate.Our brand and intellectual propertyWe leverage our relationships, networks, partnerships and culture to create brand value and deliver on our strategy.Our peopleOur people are at the heart of our business. 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.Our assetsWe have a diverse mix of assets to maintain a reliable, affordable and environmentally sustainable electricity supply for New Zealand.Natural resourcesWe rely on many natural resources to run our business. It is important that we look after these resources to ensure they are available for future generations to enjoy.Financial capitalWe require funds to use in the production of goods and services in our business. We have shareholders and bondholders who help us to deliver sustainable financial returns now and into the future.Our relationshipsWe rely on relationships with a wide variety of stakeholders. We respect the rights and interests of everyone we work with by listening to them, working collaboratively and being the neighbour you’d want to have. We sell the electricity we generate on the wholesale electricity market. We purchase goods and services from more than 2,000 suppliers. We also trade a range of financial products to manage our risk and create value.We innovate We ensure our natural resource use is sustainable and respectful. We always strive to protect, maintain and enhance these taonga to ensure they are available for future generations.We listen carefully to the aspirations of the communities in which we live, work and operate, focusing our energy, time and resources on delivering meaningful partnerships that support those aspirations.Contact is one of New Zealand’s biggest electricity generators and digital retailers. Our supply chain shows how we create value by focusing on what matters.Our Tikanga guides us in our aim to create sustainable value for New Zealanders by putting our energy where it matters.At Contact, we focus on ensuring we deliver great value to all of our stakeholders. We are always looking to the future, staying a step ahead and anticipating the things that are going to matter – not just to our business but to New Zealand.OUR CAPITALSOUR BUSINESSWe respect our environmentWe value our communitiesWe interact with various iwi and hapu who have a special relationship with the resources that we use. We acknowledge their role as kaitiaki and the richness of their knowledge, and value the relationships and partnerships we have developed.We value tangata whenua relationshipsTogether the capitals represent stores of value that are the basis of our value creation. 15
Contact | Annual Report 2019We generate energyWe trade We sell and serveAs a retailer we sell products and services to thousands of individuals and businesses to meet their energy needs.We connect customers, partners, suppliers and communities to find smart solutions that make living easier for them. We are an innovative, safe and efficient generator working with customers, partners and suppliers to decarbonise New Zealand's energy sector.Our value creationWe own and operate 11 power stations and produce 83% of our electricity from our renewable hydro and geothermal stations. Our natural gas and diesel fired power stations operate to ensure the lights stay on for New Zealanders when intermittent renewable plants like hydro and wind cannot operate.Our brand and intellectual propertyWe leverage our relationships, networks, partnerships and culture to create brand value and deliver on our strategy.Our peopleOur people are at the heart of our business. 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.Our assetsWe have a diverse mix of assets to maintain a reliable, affordable and environmentally sustainable electricity supply for New Zealand.Natural resourcesWe rely on many natural resources to run our business. It is important that we look after these resources to ensure they are available for future generations to enjoy.Financial capitalWe require funds to use in the production of goods and services in our business. We have shareholders and bondholders who help us to deliver sustainable financial returns now and into the future.Our relationshipsWe rely on relationships with a wide variety of stakeholders. We respect the rights and interests of everyone we work with by listening to them, working collaboratively and being the neighbour you’d want to have. We sell the electricity we generate on the wholesale electricity market. We purchase goods and services from more than 2,000 suppliers. We also trade a range of financial products to manage our risk and create value.We innovate We ensure our natural resource use is sustainable and respectful. We always strive to protect, maintain and enhance these taonga to ensure they are available for future generations.We listen carefully to the aspirations of the communities in which we live, work and operate, focusing our energy, time and resources on delivering meaningful partnerships that support those aspirations.Contact is one of New Zealand’s biggest electricity generators and digital retailers. Our supply chain shows how we create value by focusing on what matters.Our Tikanga guides us in our aim to create sustainable value for New Zealanders by putting our energy where it matters.At Contact, we focus on ensuring we deliver great value to all of our stakeholders. We are always looking to the future, staying a step ahead and anticipating the things that are going to matter – not just to our business but to New Zealand.OUR CAPITALSOUR BUSINESSWe respect our environmentWe value our communitiesWe interact with various iwi and hapu who have a special relationship with the resources that we use. We acknowledge their role as kaitiaki and the richness of their knowledge, and value the relationships and partnerships we have developed.We value tangata whenua relationshipsTogether the capitals represent stores of value that are the basis of our value creation. WHO WE ARE
NGĀ TIKANGA
Our purpose is to touch lives, to make life better. Our Tikanga guides how we live our purpose and is expressed as Principles,
Commitments and Behaviours.
Our Principles
• We act professionally at all times, in accordance with laws and regulations.
• 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.
• We put our energy into things that really matter by:
adding value to the resources that come under our control
being inclusive, encouraging diversity and expression of ideas and opinions
(in line with our Commitments and Behaviours)
creating value for our stakeholders
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.
• We’re authentic. We make sound decisions knowing they’ll be subject to scrutiny.
Our Commitments
• Creating value for our customers and communities by developing smart solutions that make living easier for them now,
and in the future.
• Creating a rewarding workplace for our people by valuing everyone’s contribution, encouraging personal development,
recognising good performance and fostering equality of opportunity.
• 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 respectful of the rights and interests of our business partners so we work collaboratively to create valued,
rewarding partnerships.
• Delivering market-leading performance for shareholders by identifying, developing, operating and growing
value-creating businesses.
• Staying a step ahead, anticipating the things that are going to matter, not just to our business, but to New Zealand.
Our Behaviours
• Pointed focus sharpens us.
• Human kindness connects us.
• Curiosity propels us.
• ‘Progressive’ defines us.
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FOCUSING ON WHAT MATTERS MOST
We manage our business by understanding what matters most to our stakeholders. This ensures we focus on the key things
to deliver sustainable value.
We regularly engage with all our stakeholders to ensure the social, cultural, economic, environmental and political
sustainability of our business (the five sustainability pillars).
Here’s what our stakeholders have told us they care about the most:
Customers
Personalisation, making life easier, saving money and having more choice, control and certainty.
Investors
Management of business risks, including climate-related risks; efficient capital management by
delivering an appropriate dividend while positioning our business for the future to grow earnings.
Our people
Doing what we say we will, caring for our stakeholders, and being valued, respected and safe.
Partners and
suppliers
Communities
Maintaining positive relationships, collaborating to deliver value, and partnership.
Being a good neighbour, looking after our natural and shared resources, and delivering benefits and
value to the communities we operate in.
Tangata whenua
Partnership, protection and participation in the management of natural resources alongside social,
cultural and economic development.
Government
Transitioning to a low-carbon future, while ensuring a reliable, renewable and affordable supply of
electricity for all New Zealanders.
17
As well as engaging with stakeholders year-round, we have an annual stakeholder council meeting with representatives from
across the five sustainability pillars, to help identify and prioritise our material topics. We take their top issues along with global
trends and research and other feedback, to inform Contact’s strategy formation process.
While all of the issues identified in the matrix below are important to Contact, this report focuses on issues in the top right
shaded corner.
s
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s
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I
100
80
60
40
ACCESS TO ENERGY
CUSTOMER EXPERIENCE
WATER
Materiality
LOCAL COMMUNITIES
CLIMATE CHANGE
RELIABLE,
RENEWABLE ENERGY
BIODIVERSITY
FINANCIAL SUSTAINABILITY
LEADERSHIP ISSUE,
CHAMPIONSHIP
EMPLOYEE SAFETY
INEQUALITY
HEALTH AND WELLBEING
PARTNERSHIPS
PEOPLE DEVELOPMENT
TECHNOLOGY
CUSTOMER WELLBEING
CHANGING
EXPECTATIONS
DIVERSITY
GOVERNMENT
SUSTAINABILITY
RELIABILITY
ACCESSIBILITY
60
80
100
Significance of the impact or opportunity
Contact | Annual Report 2019
WHO WE ARE
How we impact the Sustainable
Development Goals
We’ve also mapped the material topics that matter most
to our business and stakeholders against the Sustainable
Development Goals to identify which of these goals we have
the most impact on or influence over. The United Nations set
the 17 Sustainable Development Goals to address the most
significant global challenges and achieve a better and more
sustainable future for everyone.
While all of the Sustainable Development Goals are important
to Contact, the goals where we have identified we can make
the most positive difference are:
OUR REPORTING FRAMEWORKS
We report on material environmental, social and
governance factors and practices in accordance with
the Global Reporting Initiative (GRI) guidelines (Core option).
We have also started to use the International Integrated
Reporting Framework as we continue to seek best
practice in sustainability reporting and to give a balanced
view of our performance. We report our climate change
risks using the Task Force on Climate-Related Financial
Disclosures (TCFD) framework.
This year we have structured our Annual Report around
the Energy Trilemma, to report on our performance
in the context of energy accessibility, reliability and
environmental sustainability.
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ACCESSIBILITY
19
Robust energy systems must balance being
reliable, accessible and environmentally sustainable.
Maintaining this balance is challenging with the rapid
transition to decentralised, decarbonised and digital
systems, and consumers having more choices in how
they buy and manage their energy.
We play a vital role in the lives of hundreds
of thousands of individuals and businesses
in New Zealand who rely on the electricity, gas,
and broadband that we supply. We help them warm
their homes, power their businesses, and connect
with their communities and the world.
We listen to what our customers want and align our
services and our people capability and culture to
meet that. We’re using our human energy to make
access fair, easy and customer-centric.
Contact | Annual Report 2019 ACCESSIBILITY
MAKING ACCESS EQUITABLE
Helping to combat energy hardship
We partnered this year with other energy companies,
community organisations and the government to launch
EnergyMate, a free in-home mentoring service helping
families at highest risk of energy hardship to reduce
electricity costs and live in warmer homes.
The idea initially came from a Contact-led design thinking
initiative, and the Electricity Retailers Association of
New Zealand rolled out the pilot in April to 150 families
in South Auckland, Rotorua and Porirua. Experienced
financial mentors visit people in their homes to offer a range
of services, including ensuring they are on the right energy
plan, helping them access funding and services such as
insulation grants and curtain banks, improving energy
awareness, testing appliances and water heating, and
providing LED lighting and temperature/humidity sensors.
While most of New Zealand has physical access to energy,
we still have economic barriers to access for some people.
Those barriers aren’t solely about energy prices, but
incomes and other disparities. An energy company can’t
solve energy or financial hardship in isolation but we can
use our human energy and work with others to make energy
more accessible, especially for vulnerable and low-income
families. We have a role in helping those most in need to keep
their lights on and their homes warm.
‘One-size-fits-all’ isn’t the best way to serve our customers
or New Zealand so we’re offering a range of products to suit
all customers.
The government-initiated independent Electricity Price
Review highlighted that some New Zealand families are
struggling to pay for their energy and that the prompt payment
discounts offered by many energy companies are seen as not
fair to customers who are unable to pay their bills on time.
In response, we’ve accelerated plans to remove prompt
payment discounts and are replacing them with simple plans
such as our existing Basic Plan or guaranteed discounts.
This is a complex issue, but for us, it’s about listening and
doing what’s right for our customers.
One way we can ensure access to energy for our customers
is to help them avoid getting into debt, and to intervene early
if they do. As a result of our efforts to manage debt, 93%
of energy bills are now paid on time, and we’ve reduced the
total overdue debt by 20% (to $15.4m at 30 June) and debt
over 90 days by 40% (to $1.8m at 30 June). This means
that when customers are disconnected as a last resort,
the amount they owe is much lower. The average balance
at disconnection for the final quarter of FY19 was $489 –
down 16% on the same time the previous year.
We also work hard to reconnect customers within 24 hours
of disconnection, and in the final quarter of FY19 we achieved
this for 54% of disconnected customers–up from 46% for
the same time last year.
Giving more payment options
This year we made it easier for customers to budget for their
power with new billing options and PrePay.
Customers now have the option to pay their bills weekly,
fortnightly, or monthly to match their wage or salary cycles.
About 1,300 customers have now chosen weekly or
fortnightly payment plans.
We’ve also had more than 2,000 customers sign up for
PrePay since we launched it in September 2018. More than
80% of these customers would not have previously been
able to access energy from us because of their credit history.
PrePay operates like a prepaid mobile phone, so customers
control how much they pay and when they pay. They can
even build up credit to use over winter when people tend to
use more energy. PrePay customers are able to access all
the same products, prices, discounts and rewards as post
pay customers. We’ve also found PrePay is a good way to
help customers manage outstanding debts while continuing
to access energy.
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Checking home insulation
GIVING CUSTOMERS WHAT THEY WANT
Poor insulation in New Zealand houses is a major issue for
energy use, so Contact has partnered with the New Zealand
Green Building Council to sponsor HomeFit — a simple
online assessment and certification programme for homes.
A HomeFit rating gives buyers and renters confidence that
a home meets ventilation, insulation, heating and energy
efficiency standards.
Since HomeFit went live in November 2018, we’ve promoted
it to our customers and through social media. We’re looking
at how we can further engage our customers and our own
people to raise awareness, show the benefits and deliver
those benefits to more households.
We know that great service and products lead to positive
customer experience and improved loyalty. This in turn
lowers our cost to acquire new customers and look after
existing ones. We have seen great improvements across
most of the customer metrics we track, reinforcing that our
customers think we are on the right track.
These metrics include our customer switching rates,
which were down 0.8% on FY18 and 1.7% below the market
average. And our Net Promoter Score (a measure of whether
customers will advocate for us) has increased significantly,
averaging +27 over the past 12 months, up from +18 the
year before.
21
Net Promoter Score1
FY15
-8
-3
FY16
FY17
FY18
FY19
14
18
27
1.We use the relational Net Promoter Score.
We use ongoing brand tracking and regular customer
panels to find out what our customers want and need, and
use that information and insight to decide where to put our
focus. Customers have told us they want us to show them
that we know them, bundle products and services to make
their lives easier and help them pay less and ultimately save
money. They want fairness and equity. They also want easy
access and, by and large, they want it digitally.
We’ve been responding in a number of ways, including
making it easier to do business with us online.
Our customers now have less need to call us because
they’re satisfied with the service they’re receiving, and
they’re able to interact with us whenever they want using
our new website and mobile app. Service calls to our call
centre dropped from over 950,000 calls in FY18 to about
850,000 in FY19.
Increasing self service options
We’re giving our customers more options for self service
with our mobile app, My Account and online services, and
we’re continuing to enhance these services with new and
interesting features. We’ve recently added features for
customers to manage their SmoothPay, PrePay and post
pay payments, including changing their bill frequency,
making partial payments and adding direct debit. We’ve
also simplified how customers join us, add new products
and let us know they’re moving home.
We launched our new and improved mobile app in
November 2018, and in June we recorded 6,600 average
daily users and more than 50,000 active mobile app users
— up from 19,400 monthly users for our previous app in
June 2018. The number of mobile app interactions was
nearly three times higher in June 2019 than December
2018 and the number of transactions completed via the
mobile app more than doubled over the same time period.
We’ve increased sales across our digital channels by 60%
in the last year.
Contact | Annual Report 2019 ACCESSIBILITY
Offering plans to suit different needs
Moving customers to the best plan for them
Sometimes customers find themselves on plans that
aren’t the best fit for their situation or lifestyle, so we review
customers each year to make sure they’re on the right plan.
In January we switched about 16,000 customers to a low
user plan after we contacted them to advise it would save
them money. On average these customers will save $110
each year on their new plans.
We’re offering more diverse products and services to meet
different customers’ needs and make life better. Some of our
popular new plans and services include:
• Basic — a simple, hassle-free plan, with no rewards or
other added discounts, no fixed term and no break fees.
More than 6,000 customers have signed up for our
Basic plan, with no prompt payment discount, since it
launched in mid-February.
• Bundle with broadband — customers can keep
things simple and get discounts by getting one bill for
broadband, electricity and gas, or broadband and gas.
More than 10,000 customers have added broadband
this year, making it one of our fastest growing products.
• Rewards — we joined the AA SmartFuel (AASF)
scheme in 2017 so our customers can sign up to plans
that give them fuel discounts. More than 45,000
customers are now receiving AASF rewards. We made
changes to the advertising of AASF after the Commerce
Commission charged Contact with breaches of the Fair
Trading Act in relation to the launch of our AASF
advertising campaign. Contact has fully co-operated
with the Commerce Commission on this.
• Take a month off — an innovative new campaign we
tested for a few months this year where customers
can choose any month of the year to waive their entire
energy bill for that month.
We have a range of plans to suit our customers, which are all
on our website.
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RELIABILITY
23
Contact works hard to be a
safe, efficient and reliable energy
provider that delivers value to our
customers and makes their lives
better, while also delivering good
financial returns. We’ve weathered
volatile wholesale markets and
a competitive retail sector to
perform strongly this year.
We’re committed to continuing
our transition to renewable energy
and to finding innovative ways to
meet our customers’ needs, and
ensuring we have the right people,
with the right skills and experience
to do that.
Contact | Annual Report 2019 RELIABILITY
FOCUS ON FINANCIAL PERFORMANCE
Our investors rely on us to deliver sustainable financial
returns now and into the future.
Our focus needs to extend beyond short term financial
performance so that we create sustainable value for
New Zealanders.
This year we’ve achieved capital efficiency by reducing
stay in business capital expenditure, good working capital
management from improved debt collection, with the
strong performance delivering good operating free cash
flow in the year.
We are focused on reducing operational expenses to
take costs out of the Customer business while at the same
time developing new products, improving the customer
experience and selectively investing in robotics and
automation. In our Wholesale business, we’ve moved
to a leaner operating model while unlocking fuelling
constraints at our geothermal power stations, which
has delivered immediate benefits including increased
output at Ohaaki.
Our quality portfolio of low-cost, long-life renewable
generation assets and strong balance sheet have informed
our distribution policy with the Board targeting a payout
of 100% of expected operating free cash flow. For FY19
we have declared a full year dividend of 39 cents per share.
This is an increase from 32 cents in FY18. We aim to maintain
consistency in the dividend despite variable hydrology,
costs to maintain our plant, and volatile market conditions.
We value the flexibility provided by our investment grade
credit rating, which enables the company to withstand
variable market conditions.
Sales of Rockgas and Ahuroa Gas Storage
provide flexibility
On 30 November 2018 Contact finalised the sale of Rockgas
to Gas Services New Zealand (GSNZ) for $260 million.
The sale allowed us to reduce debt while maintaining our
position as the leading provider of mass market products by
selling LPG on behalf of GSNZ. This model of partnering with
GSNZ to deliver products and services to our customers is
similar to our how we sell broadband and is likely to be a
common feature of our future.
On 1 October 2018 we also finalised the sale of the Ahuroa
Gas Storage facility and associated assets to GSNZ for
$200 million1. GSNZ is now operating the facility as Flex
Gas. As part of the transaction Contact retained access
to competitive long term gas storage services.
Regulator rejects Undesirable Trading
Situation claim
Low hydro levels and a shortage of gas led to high
wholesale prices during the year, which some retailers
and their customers felt more than others. This resulted
in a group of energy market participants filing a claim of
an Undesirable Trading Situation (UTS) with the Electricity
Authority (EA) against larger generators including Contact.
A UTS, if validated, would have been an extraordinary event
that threatened the integrity of the wholesale market.
The EA announced on 28 February 2019 that it had found
there was no UTS. It found that spot electricity prices had
been unusually high, however it said these prices reflected
underlying supply and demand.
Supply was able to meet demand during this period as the
high spot prices suppressed some demand and because
more expensive generating plant became economic to run.
Contact’s diverse generation portfolio gave us the flexibility
to meet higher demand and optimise returns. This included
running our thermal plants and deferring a planned outage at
Wairakei geothermal power station.
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 declared(2)
Total assets
Total liabilities
Total equity
Gearing ratio
Unit
$m
$m
$m
$m
$m
cps
$m
cps
cps
$m
$m
$m
%
2019(4)
2,519
2,001
518
345
176
24.6
341
47.5
39
4,954
2,172
2,782
28
2018(4)
2,275
1,794
481
132
130
18.1
301
42.0
32
5,311
2,584
2,727
35
2017(3)
2,079
1,578
501
151
142
19.9
305
42.6
26
5,455
2,677
2,778
36
2016
2,163
1,640
523
(66)
157
21.7
352
48.5
26
5,652
2,829
2,823
38
2015
2,443
1,918
525
133
161
21.9
338
46.6
76
6,089
2,918
3,171
36
1. Up to $10 million of this is contingent on GSNZ obtaining a favourable binding ruling on the tax treatment of the main assets
2. FY15 included a special dividend of 50 cents per share.
3. Figures have been restated for the adoption of NZ IFRS 15 Revenue from Contracts with Customers and NZ IFRS 16 Leases.
4. Figures above reflect the combined result and position for the continuing operations and discontinued operation, and certain 2018 amounts have
been reclassified to conform to the current year’s presentation.
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ENSURING RELIABLE
RENEWABLE ENERGY
Our Wholesale business is focused on being an innovative,
safe and efficient generator working with business
customers, partners and suppliers to decarbonise
New Zealand’s energy sector.
83% of the energy we generated came from renewable
geothermal and hydro sources, and the remainder from
thermal generation.
Predicting future energy demand is complex, however
most forecast data shows that in the near-term demand
will grow at about 1% per year. As New Zealand and
customers look to low-carbon solutions we believe this
will increase longer-term demand for reliable renewable
energy, and our decarbonisation strategy ensures we are
well placed to meet this demand.
Decarbonising energy in New Zealand
To decarbonise energy, we aim to lead by example, lead our
market and lead business.
We lead by example by making our operations more efficient,
minimising any adverse impact on communities and the
environment, and walking the talk – if we expect our
customers to decarbonise, we must take the journey
ourselves. Go to Taking action on climate change in the
Environment sustainability section for more information.
We are leading our market by closing higher carbon
generation assets and developing new, low carbon ones.
Since 2008 we’ve closed thermal power stations in Otahuhu
and New Plymouth and we’ve developed New Zealand’s
only underground gas storage facility at Ahuroa, geothermal
generation at Te Mihi and Te Huka, and two gas fired peaking
plants at Stratford. We also acquired a thermal peaking
plant at Whirinaki. Our thermal peaking capacity supports
increased use of renewables by providing back-up when
there’s too little wind, rain or sun.
We’re preparing for the market of the future and maximising
low carbon energy by building a demand flexibility platform,
developing low carbon solutions for customers, and
advocating for regulatory settings that will facilitate the
transition of New Zealand’s energy system away from fossil
fuels. We are also investigating developing our geothermal
resources and monitoring other renewable generation
sources as options for the future.
We help our customers find energy efficiencies and with
new products and renewable substitutes to transition from
higher carbon fuels to low carbon fuels. We aim to displace
1PJ of industrial heat with electricity by 2022 — roughly the
equivalent of the electricity used by all the houses in Taupō
in a year.
We are helping customers transition to lower-carbon
electricity by enabling on-site generation and storage,
electrifying industrial heat, electrifying transport, offering
long term renewable electricity supply agreements and
offering more customers geothermal direct heat.
25
We supply geothermal direct heat to Taupō businesses
around our geothermal power stations, including the Prawn
Park, Tenon, Wairakei Terraces, Ohaaki Heat, Nature’s Flame
and Wairakei Resort. We are also working with Geo40 who
are using new technology for the sustainable production of
industrial silica products from geothermal fluids.
Prawn Park
Contact | Annual Report 2019 RELIABILITY
We’re helping customers with audits to show how they’re
using energy and to identify and implement opportunities
to reduce their emissions. In FY19 the Energy Efficiency
and Conservation Authority (EECA) contributed $174,000
towards 17 customer energy audits, and $484,000 to help
review and electrify customer vehicle fleets, and our own
vehicles. Our own fleet is now close to 40% EV, and in
August we partnered with ChargeNet and Wellington City
Council to install three electric vehicle fast charging stations
in Wellington to make EV charging more accessible.
Investigating options to develop
geothermal resources
We announced that we’ll drill four new exploratory wells
on the Tauhara geothermal field near Taupō in August 2019,
as part of a programme to understand the economics of
developing a new power station.
Contact has had options to further develop Tauhara since
2010, when we obtained resource consents for a 250 MW
plant on the field. This followed the construction of the
28 MW Te Huka plant the same year.
We haven’t progressed with development of Tauhara since
2010 because of flat electricity demand. However, the cost
of new geothermal power is reducing at the same time
that customers and the country are looking to reduce
their reliance on fossil fuels. The cost of running existing
thermal stations is also increasing – improving the relative
economics of Tauhara.
We’ve reconsidered Tauhara in this light and believe
that a new geothermal power station on this field is now
New Zealand’s cheapest and most attractive option for
renewable baseload electricity generation. The planned
drilling will tell us more about the reservoir’s characteristics.
Investigating the potential to further develop Tauhara aligns
with our decarbonisation strategy and with New Zealand’s
climate goals. Geothermal energy is important in the
transition to a low carbon economy because it’s a low
emissions energy that provides baseload generation,
unlike weather dependent wind, solar or hydro. It can also
provide a supply of direct heat for industrial processes
and we are working with a number of interested parties
on prospective developments.
We will continue to work closely with the local community
in Taupō, who have told us that they would like to share
the benefits of geothermal developments. These sorts of
geothermal developments can be sensitive as historically
there have been impacts on land, waterways and biodiversity,
however modern adaptive management techniques ensure
that effects can be identified early and operational changes
can be made to reduce any negative impacts.
Rewarding customers for demand flexibility
We ran a pilot this year for our demand flexibility platform
— technology we’ve built that enables us to pay large
electricity users to reduce power use at peak times.
The platform automatically communicates with customers’
equipment to reduce electricity use when the grid is facing
high demand, most commonly during winter spikes in
electricity use. This means we can reduce our use of
fossil fuel generation, which is typically used to meet high
electricity demand.
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Customers are rewarded financially for their flexibility, and
are also motivated by the fact they’re contributing to a more
sustainable, resilient and lower cost grid electricity supply.
We initially piloted the platform on Contact equipment,
and now have five contracted customers. Given its success,
we will extend the scheme in 2020.
Contact was a finalist in the 2018 Energy Excellence Awards
for Innovation in Energy for the development and piloting of
the platform.
Investment in Simply Energy adds to capability
Contact announced in June this year that we’ve acquired
an interest (49.9%) in Simply Energy. Simply Energy has
a strong reputation for developing innovative technology
and data solutions and for opening up new market
opportunities. They have an agile customer engagement
platform that we can leverage to help us deliver market-
leading customer experiences.
Investing in Simply Energy allows us to evolve from
‘commodity seller’ to a ‘trusted, innovative solutions provider’
— the type of deep partnership our Commercial and
Industrial customers are looking for and which positions us
to help our customers achieve decarbonisation.
The transaction includes an option for Contact to buy
the remaining shares in Simply Energy to take full ownership
in the future.
Responding to gas constraints
The wholesale market experienced fuel production
constraints during the past financial year, which led at times
to significant increases in wholesale market prices, fuel
scarcity and increased volatility. However, our wholesale
portfolio performed well during this time, highlighting the
value of gas storage at Ahuroa Gas Storage.
While we sold Ahuroa during the year to Gas Services
New Zealand (GSNZ), we have retained access to
competitive long term gas storage services for 15 years.
GSNZ has committed to expand Ahuroa storage and this
should be completed early next year. This will play a valuable
role for New Zealand as our electricity market moves from
coal and gas generation to more flexible and short term gas
generation. In July 2019 GSNZ confirmed they had sold
capacity in Ahuroa to a third party.
In June this year, we secured gas supply from Taranaki-
based gas producer OMV for 40 TJ/day of gas for the 2019
winter. The agreement also provides for the supply of Maui
gas at the same price for 2020 to 2024, with volumes
subject to field deliverability. Our thermal power stations will
play a key role in providing affordable and reliable electricity
when weather-dependent wind, solar, or hydro generation
is not available.
GROWING TALENT, INCLUSIVENESS
AND DIVERSITY
We rely on the dedication, passion and innovative ideas of our
people to deliver safe, dependable energy and add value for
our customers in an ever changing and challenging market.
We support our people to do their best work, and we keep
them here by rewarding them with competitive salaries and
benefits. We also work hard to be a workplace where people
from all walks of life are embraced and valued.
We believe an inclusive culture and diverse workforce leads
to diversity of thought, better decision-making, stronger
business performance, and a better world. Our Inclusion
and Diversity Policy provides the framework for inclusion
and diversity initiatives at Contact. We still have work to do
to be a truly inclusive and diverse company, and we’re taking
some good steps in the right direction.
We get the best out of our people and support better lives
for them by providing flexible working practices, including
our flexible working initiative ContactFlex, which customises
working solutions to individual circumstances.
We’re a member of Champions for Change, a group of
New Zealand CEOs and Chairs on a mission to accelerate
inclusive and diverse leadership. Champions share their
inclusion and diversity reporting, which helps give us a
benchmark. Overall, our team is 47.1% female (up 4% from
2018), compared with an average of 44.9% across the 39
Champion group members that participated in 2019.
We have seen improvements in gender diversity across
most levels in Contact and we continue to focus on executive
positions, other management roles, and plant operational
roles, where we’re not yet meeting the measure of 40-60%
female, for gender balance.
To ensure we’re attracting the right people, we’ve developed
a new talent acquisition model. The model is about
predicting our future talent needs and having great people
ready and waiting to join our team. It puts more emphasis on
candidate care, engagement with the business, removing
bias, and better use of technology and automation such as
artificial intelligence. It’s also building understanding of our
employer value proposition — what’s special about working
at Contact.
Getting the Rainbow Tick
Contact received Rainbow Tick certification this year
for being a safe and inclusive workplace for lesbian,
gay, bisexual, transgender and intersex (LGBTI) people
— an important step for us in creating a culture where
all voices are heard, valued and considered.
To achieve certification, we went through an international
best practice assessment that looked at policy, internal
and external engagement, organisational development,
and monitoring. Our focus over the next 12 months is
educating our people, raising awareness, and getting
our people involved in rainbow networking opportunities
internally and externally. Our aim is to create an environment
where our people feel comfortable talking about their sexual
orientation, gender identity and ethnicity.
Attracting women into operational roles
We continued to foster inclusion and diversity by supporting
the Connexis ITO’s Girls with Hi-Vis programme by hosting
events at our Stratford and Wairakei power stations. Girls
with Hi-Vis aims to attract more women into the trades by
giving them the opportunity to see first hand options in the
energy sector.
27
Wellington Pride Parade 2019
Contact | Annual Report 2019 RELIABILITY
For the past four years, Contact supported Girls with Hi-Vis by
hosting an event at the Clyde Power Station and promoting the
initiative to other organisations. This was so successful that the
programme was extended to the North Island this year.
Gender
Contact is a global partner for WING (Women in Geothermal),
a not-for-profit global organisation promoting education,
professional development and the advancement of women in
the geothermal industry. We’re excited to support scholarship
programmes, networking opportunities and development
opportunities for WING’s participants, with the goal of
attracting more women to work in geothermal.
Growing diversity through internships
Last summer, we hosted six interns through Summer of Tech,
a not-for-profit programme investing in New Zealand’s next
generation of tech talent. Following the summer internships,
one of our interns joined our team full-time and one is working
for us part-time while continuing to study. We’re sponsoring
Summer of Tech again in 2019/2020, and this year we’ll also
have access to Tupu Tek, a new internship programme for
Pacific tech students. We’ve also signed up to Summer of
Biz, so we can now provide internships for tertiary students
studying marketing and human resources too.
Since 2015 we’ve also run a Māori internship programme.
This has helped foster trust between ourselves and our iwi
partners, grow our cultural capability, and advance our goal
to be inclusive and diverse. We structure the programme to
give interns projects aligned with their studies and interests.
They also help our business by sharing Te Ao Māori —
including Te Reo lessons, marae protocol, and Treaty of
Waitangi understanding and the significance for our business.
Each year our interns report back to the hapū and iwi of
Tuwharetoa and Ngāti Tahu on what they’ve achieved during
their internships. The hapū and iwi appreciate hearing about
the projects interns have worked on and what they’ve learnt.
Growing our people
Our people are the human energy that powers our business
and we’re committed to giving them opportunities to learn,
grow and stretch as individuals. Our approach to development
is about meeting people’s different needs — everyone on our
team is unique and different areas of the business in need
people with varied skills and attributes.
We believe that most learning happens through experience,
so we look for on-the-job opportunities, secondments and
projects for our people. This includes opportunities outside
Contact, such as working with our partners.
Growing our people also includes formal training, coaching
and mentoring, initiatives to raise awareness about sexual and
gender diversity as part of our Rainbow Tick accreditation,
and leadership training for people leaders. We invest in growing
leadership for women through Global Women programmes.
And we’re developing a new leadership programme to ensure
we have collaborative leaders who can lead innovation and
adapt to the changing environment we work in.
Our engagement survey measures how our leaders are doing,
including questions on leadership, culture, performance
development and internal communication.
Our average leadership score across Contact this year was
81% which tells us we are in the upper quartile.
BACK TO CONTENTS PAGE
53%
Males
47%
Females
Gender
Age diversity of employees
1%
undisclosed
23%
aged under 30
45%
aged 30–50
31%
aged over 50
A ge groups
Ethnicity1
1%
AMELA2
2%
Pasifika
7%
Asian
8%
Māori
26%
Undisclosed
40%
European
31%
Other
1.Total % adds up to more than 100%. This is because individuals can
choose to identify multiple ethnicities.
2. African, Middle Eastern & Latin American.
Ethnicity
Measuring engagement
We believe that our people’s experience is our customers,
experience and our culture is our brand. Having satisfied
customers starts with having satisfied and engaged people.
One of the ways we monitor the engagement of our people is
with an annual Ask Your Team survey.
This year 91% of our people completed the survey and our
overall engagement score was 75% (which is in the upper
quartile for organisations that use the survey), slightly behind
our May 2018 score of 77%. We use the insights from our
surveys to stay informed about our people’s experiences
and to focus on what we can do to make this the best place
possible to work.
For more diversity information go to Sustainability in the
Disclosures section.
29
FOCUSING ON HEALTH AND SAFETY
Gaining more insight into wellbeing
Our health, safety and environmental management system
is designed to keep our most important assets — our
people, our plant and the environment — safe.
The sale of Rockgas has seen our safety risk landscape
change, and our largest safety risks are now in our Wholesale
business. In our Customer business, the safety risks are
mostly on our customers’ sites (things like unfriendly dogs
and old meter boards) so we work closely with our service
delivery partners to manage those risks.
As we continue our safety journey, our focus is to have
robust systems to be able to fail safely when incidents
occur — because we’re human and mistakes do happen.
We’ve been putting initiatives in place to make the ‘H’ in
‘HSE’ bigger over the past couple of years. This year we’ve
increased access to our occupational health services and
implemented a Wellbeing 360 survey that enables our
people to gain more insight into their wellbeing and helps
us improve the support we offer.
As a company that’s built on human energy, we rely on
a healthy and well workforce.
We ran a Wellbeing 360 Survey this year to help us
understand and support our people’s needs. The survey
measures mental, physical, work and social wellbeing, and
provides each person with personalised results and ideas for
improving their wellbeing. We had a great participation rate
of 77% — well above the benchmark of 50% — which gives
us an opportunity to address issues our people face.
One of the issues we’re responding to is mental health
awareness and support. We’ve introduced the GoodYarn
programme to build a community in Contact with the
knowledge and skills to identify mental health issues
and approach and support colleagues in a caring and
respectful way. We’ve made a three year commitment
to the programme and so far have trained 10 people from
across the business as GoodYarn facilitators.
The survey also gave us insights about how our people feel
about our Employee Assistance Programme (EAP); RedMed,
our discounted medical insurance benefit with Southern
Cross; and ContactFlex which allows our people to work more
flexibly. This is helping to direct our ongoing efforts to improve
how we support our people’s wellbeing. At site and team levels
our people are also owning initiatives that make a difference to
them – like setting up a gym or running support groups.
Contact | Annual Report 2019 RELIABILITY
We are proud of our Customer business being a finalist in
the Wellbeing category of the Deloitte Energy Excellence
Awards for their Building Better Workdays programme.
The programme is about ensuring our people are healthy
and happy — so they’re enjoying their work, delivering world
class customer experiences and feeling a greater sense of
connection with what we do.
Measuring our HSE performance
Contact uses several ways to measure and monitor HSE
and we use Total Recordable Injury Frequency Rate (TRIFR)
and an HSE Index as our safety performance indicators.
The HSE Index is derived from questions in our Ask
Your Team survey. Our people score on how well we’re
empowering and involving them in process improvement
and performance reliability, how safe they feel to speak up
and be honest, how well and consistently we support them
when things are challenging or go wrong, and how effective
our supplier and contractor relationships are. This gives a full
picture of our safety journey.
TRIFR is a lagging indicator — it looks back, and although it
is based on a count of actual injuries, it takes no account of
the risk potential. As our TRIFR has reduced it is becoming
less relevant as a way of understanding how our systems and
culture are working effectively to keep our people, plant and
the environment safe.
From next year we’ll fully adopt the HSE Index as our safety
performance indicator. We’ll also continue to measure and
monitor TRIFR because it’s a global measure that can be
benchmarked and it’s our injury measure.
In our Wholesale business, we’ll continue to measure Total
Incident Severity Rate (TISR), an internally created measure
that gives us a much better idea of exposure to risk by
assessing the potential severity of both HSE and process
safety incidents.
Controlled TRIFR1
FY16
FY17
FY18
FY19
1.3
2.9
2.4
3.3
1. We have removed Rockgas from our data for comparative purposes.
Monitored TRIFR
FY16
FY17
FY18
FY19
10.3
6.6
20.5
18.8
Our year to date TRIFR for controlled activity (work done
under our HSE management system, e.g. at our sites or by
our people) was 1.3 against a target of 1.2. This included three
minor injuries (minor knocks and strains) and is the lowest
number of injuries we have had. Our TRIFR measure is
calculated based on the hours worked (2.26m in FY19) and
the number of injuries, and we didn’t meet our target this year
because even though we’d set a target of three injuries, that
was against more forecast hours than actually worked.
Our TRIFR for monitored activity (work done by our service
delivery partners using their own HSE systems) was 18.8
against a target of 6.8, and included five injuries related
to property access issues (slips, trips and a dog bite). Our
target was based on two injuries in the hours our service
delivery partners worked (0.27m for FY19). We are working
proactively with our partners to learn from these incidents
and improve their systems.
Our HSE Index result this year was 71% which was behind the
target we set ourselves of 81%. We are exploring the result with
our people to understand what we need to focus on improving.
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
was 3,900 within controlled activity in FY19 (compared
with 3,200 in FY18). We also measure and monitor TISR in
monitored activity and this was 4,700 for FY19 (compared
with 11,100 in FY18).
Process safety
Tier 1
Tier 2
Tier 3
FY19
0
2
58
FY18
0
0
56
FY17
0
0
49
FY16
0
1
58
FY15
1
1
33
Note: This table represents the number of process safety incidents
across our operations. The figures exclude any incidents occurring
in the Ahuroa Gas Storage facility or Rockgas LPG facilities.
We use international guidelines to identify and categorise
process safety incidents as tier 1 (a significant loss of
containment of hazardous material or energy), tier 2 (a lesser
loss of primary containment or a significant degradation of
barriers), or tier 3 (learning events where issues have been
identified in our process safety barriers or controls).
We’ve had no tier 1 incidents since 2014. In FY19 we
had two tier 2 incidents, which included a potential for a
significant water hammer event in a geothermal steam line,
and a reduction in steam safety valve capacity at a thermal
station. The incidents resulted in no injuries or plant damage.
About a quarter of the 66 tier 3 incidents related to
automatic protection operating as designed to keep our
plant safe, about a quarter related to minor loses of primary
containment of material, a quarter related to anomalies in
our work control processes, and the remainder were
equipment faults or minor procedural issues.
BACK TO CONTENTS PAGE
ENVIRONMENTAL
SUSTAINABILITY
31
Our business, our people, our customers
and our communities rely on New Zealand’s
natural resources, and it’s important
we look after them. Environmental
sustainability is crucial to ensuring
our natural and shared resources are
available to future generations, and
essential to the continued operation
of our power stations and meeting the
expectations of our stakeholders.
We are constantly evaluating our
relationship with, and impact on the
environment, and we report on our
environmental performance to the
Board Health, Safety and Environment
Committee. This reporting includes our
key material issues: climate change, water,
biodiversity, consent compliance and
tangata whenua relationships.
Contact | Annual Report 2019 ENVIRONMENTAL
SUSTAINABILITY
USING WATER SUSTAINABLY AND
RESPECTFULLY
Total water usage for year ended 30 June 2019(1)
Source / water use
Withdrawal (ML)(2) Discharge (ML)
Water has an important role in Contact’s business. Our
geothermal operations use fresh water for activities such
as cooling and drilling, and we discharge geothermal fluid
to the Waikato River. Our thermal power stations use fresh
water for cooling and to reduce discharges to air. In our hydro
operations, we pass water through dams.
Geothermal reservoir
River and surface water
Water from third parties
Council
Discharge from all sources
Total
105,914
2,089
312
42
108,357
17,982
17,982
Water is also a vital resource for the wellbeing of our
communities. We have developed a position on water
which guides our actions. It’s about ensuring that our
use is sustainable and respectful, both culturally and
environmentally. To support our sustainable management
of freshwater resources, our internal dashboard monitors
water use across our operations. Our future focus is to
create a more holistic measure of water that shows our wider
impacts on waterways.
This financial year we used 17,955,223 megalitres of
water, which is significantly higher than previous years due
to increased water inflows in our hydro catchment. Of this
water, 99% was returned to rivers (after passing through
our power stations) or to 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 1,486 megalitres.
Non-consumptive water usage (ML)(1) for year ended
30 June 2019
Source / water use
Clutha Mata-Au River water
Geothermal reservoir
Geothermal cooling water
Total
1. ML = megalitres
(ML)
17,145,185
68,494
309,205
17,828,884
1. Management of the use and impact on water is largely done through
our resource consent compliance activities.
2. ML = megalitres
Taking responsibility for our impacts
An event at one of our geothermal sites in Taupō this year
led to a discharge of sediment and geothermal water into
the Waipuwerawera Stream and on into the Waikato River,
discolouring the Huka Falls.
As soon as we discovered the discharge, we took
immediate steps to contain the site, clean up and prevent
further slippage or water flow into the stream, and to engage
openly with the local iwi and wider community.
We have investigated to understand what caused the event
and to ensure we improve our systems to prevent further
incidents like this. The Waikato Regional Council is also
investigating this incident.
We are also continuing to talk with iwi and affected
stakeholders to respond to any ongoing concerns and
remediate residual effects. Water is a precious, shared
resource and our access is a privilege that we never
take for granted.
BACK TO CONTENTS PAGE
TAKING ACTION ON CLIMATE CHANGE
Action to limit the extent and impacts of global warming is
stepping up in New Zealand and globally, at regulatory and
community levels.
Both the projected physical impacts of climate change
and the transitional risks (such as regulatory changes,
consumer behavioural shifts and wider societal responses),
have significant potential impacts on our business.
Contact has taken steps to ensure we appropriately
recognise and account for these risks and opportunities,
and in the last year we have:
• formalised the Board’s oversight of climate related
matters through the Board Health, Safety and
Environment Committee
• thoroughly reviewed risks and opportunities associated
with climate change on our business
• recommitted ourselves to a climate change position;
• embedded an emissions reporting tool enabling more
oversight of our wider emissions
• established verified science-based emissions
reduction targets
• embedded decarbonisation into our business strategy.
We are proud to be the first company in New Zealand
to sign up as an official supporter of the Taskforce for
Climate-related Financial Disclosures and the first
company to establish a Green Borrowing Programme
in New Zealand. We’ve also joined with other business
leaders as part of the Climate Leaders Coalition to
demonstrate our commitment to action and we report
carbon information through the Climate Disclosure Project.
Modelling climate change scenarios
Climate change exacerbates existing risks in some areas,
while also posing new risks. We identified a number of
transitional risks as the world adapts to a new climate,
including effects on the New Zealand electricity market,
which is largely dependent on weather to provide fuel,
increased pressure on our business to reduce our emissions
and transition to lower carbon options, and potential costs
resulting from regulatory interventions.
Risks of a changing climate also included additional health,
safety and wellbeing hazards for our people working in
these conditions; physical impacts on our existing plant
including the design of our stormwater systems, increased
maintenance requirements and changes to asset
management planning; and the availability of, increased
pressure on, and access to fresh water for operational use.
Hotter temperatures also reduce the efficiency of plant
and the capacity of the transmission system to carry current
volumes of electricity, so this will need to be carefully
managed over the longer term. For more detail on these risks
go to the Climate related risks in Other Disclosures section.
Contact is well positioned to manage these risks, as well
as some opportunities, through the implementation of our
decarbonisation strategy.
Our decarbonisation strategy aims to replace our
thermal generation assets once they are uneconomic
with renewable assets and to increase overall electricity
demand by helping our customers transition from higher
carbon fuels to electricity.
33
Partnering for carbon credits
We entered a partnership in March 2019 to invest in creating
a geographically diversified forest portfolio to sequester
carbon on marginal land.
Drylandcarbon is a limited liability partnership with Contact,
Air New Zealand, Genesis Energy and Z Energy.
We engaged the National Institute of Water and Atmospheric
Research (NIWA) this year to model likely changes from
climate change across each of the regions we operate in
and for New Zealand generally.
The partnership aims to produce a stable supply of
forestry-generated New Zealand Unit (NZU) carbon credits
to support fulfilling our annual requirements under the
New Zealand Emissions Trading Scheme over the long term.
We modelled two scenarios: a business as usual scenario
where greenhouse gas concentrations continue unabated
(Representative Concentration Pathway (RCP) 8.5); and
a mitigation scenario with a global effort to heavily reduce
concentrations (RCP 2.5). This planning identified that in
either scenario most of our sites will experience a tripling
of the number of hot days, and that spring and summer
are expected to become drier and winter wetter. Our hydro
catchment is likely to have increased inflows, with potential
for hydro generation increasing – especially under the
business as usual scenario.
The partnership intends to purchase or license marginal,
unproductive and often erosion-prone land and convert
it to sustainable forestry for carbon farming. Through the
partnership, Contact is committed to positive sustainable
outcomes for the environment, for the farming economy and
for the rural communities in which Drylandcarbon will operate.
Drylandcarbon’s afforestation plans are closely aligned
to a number of key Government objectives and will deliver
a range of environmental and sustainable development
benefits to our regions.
Contact | Annual Report 2019 ENVIRONMENTAL
SUSTAINABILITY
Emissions from electricity generation (tCO2e)
Total greenhouse gas emissions by Scope (tCO2e)
2, 500,000
2, 000,000
1, 500,000
1, 000,000
500,000
0
FY12
FY13 FY14 FY15 FY16 FY17
FY18 FY19
Scope 3
35.3%
Scope 2
0.1%
Scope 1
64.5%
Tracking emissions from generation
Revising our emission reduction targets
We follow the Greenhouse Gas Protocol, a global
standardised framework for reporting on our emissions,
which categorises emissions as Scope 1 (produced
directly through our operations), Scope 2 (emissions from
purchased electricity) and Scope 3 (emissions in our wider
supply chain). Our complete emissions inventory can be
found on our website and for a fuller summary go to
Emissions data in the Other Disclosure section.
The majority of our emissions fall into Scope 1, from
electricity generation at our thermal and geothermal
operations and through our vehicle use. We monitor our
direct emissions and other discharges to air in line with
resource consents and reporting requirements under
the New Zealand Emissions Trading Scheme. Accurate
monitoring enables us to track progress against targets
and ensure transparency in our operations.
This year, our emissions from electricity generation
decreased by 16% on the prior year as a result of increased
hydro catchment inflows and a nationwide shortage in gas
supply which restricted thermal generation.
This year we verified our emission reduction targets through
the Science Based Targets initiative to ensure they are in line
with the science required to limit global warming to 2 degrees.
All targets have a base year of 2018. Our current target is:
• to reduce our Scope 1 and 2 greenhouse gas emissions
by 30% by 2030
• to reduce Scope 3 emissions from use of sold products
by 15% by 2030.
In addition to our science based targets, Contact has set the
following business targets:
• to displace 1 PJ of fossil fuel with renewable energy
by 2022
• to reduce our emissions intensity by 36% by 2030.
In late 2018, the Intergovernmental Panel on Climate Change,
the United Nations’ body for assessing science related to
climate change, released a report saying that a 2 degree limit
is not enough to prevent significant damage to society. In light
of this, we are reviewing our current targets as part of our
commitment to leading by example.
Delivering these targets requires us to execute our
decarbonisation strategy to build more renewable generation
to displace thermal generation. This means demand may
increase before we have built new renewable generation,
so we may see small increases in our emissions from using
thermal generation to meet that need, before we see
significant long term reductions.
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35
PROTECTING AND ENHANCING
BIODIVERSITY
Our operations can have wide-ranging impacts on water,
rivers, birds, animals and plant life and we believe it’s our
responsibility to protect, maintain and enhance biodiversity
in the areas we operate in.
The diversity of our generation operations means a range
of different impacts in different regions. We have site specific
management plans for local biodiversity impacts and we
report on progress on those to the Board Health, Safety
and Environment Committee.
We worked with government and conservation
representatives, subject matter experts and energy
peers during the drafting of the National Policy Statement
for Indigenous Biodiversity, which was released by the
Biodiversity Collaborative Group in October 2018. Overall
we are supportive of the draft statement, which sets out
policies to manage natural and physical resources to
maintain indigenous biological diversity under the Resource
Management Act. Some draft policies may restrict the
development of new geothermal and wind generation in
New Zealand, so we’ve continued to do work to provide
further options that enhance and protect native vegetation
and wildlife while still enabling New Zealand to meet climate
change targets.
Reducing our impacts on fish migration
We’ve had good results this year from our work to help native
tuna (longfin eel) make their seasonal migrations in the areas
around our dams.
Our most significant impact on biodiversity is the impact
of our dams on the passage of native fish, including their
seasonal migrations. Our dams were built many years ago
without considering fish movements. So this is now a focus
of our work in the Clutha catchment, and we’re working with
the Department of Conservation, Ngāi Tahu and the South
Island eel industry to ensure our efforts are best practice.
The latest elver (juvenile eel) season, in January and
February, was the most successful transfer of elvers
upstream and beyond the Roxburgh Dam on the Clutha
River since consistent records began in 2012. We caught
and transferred 81.5 kilograms of elvers at the Roxburgh
Dam, and about 90% of those were caught in a new trap
installed in 2017.
We trap the elvers below the Roxburgh Dam and release
them at four different locations upstream, in consultation
with iwi and other stakeholders. The migrating elvers will swim
upstream from their point of release and into high country
lakes or rivers such as the Manuherikia River or Lake Wanaka.
Contact | Annual Report 2019 ENVIRONMENTAL
SUSTAINABILITY
We also need to assist the downstream movement of adult
eels when they are ready to migrate to breed. This summer
we contracted a commercial fisher who caught 36 migrant
eels from Lake Wanaka and Lake Dunstan and transported
them to below the Roxburgh Dam so that they could head
out to sea to spawn. We also caught 101 eel above 4kg
(the maximum size a commercial eeler can take) and
released them below the Roxburgh Dam to support these
eels to migrate to the ocean to spawn once they mature.
Restoring and protecting habitats
In addition to our trap and transfer effort with eels, we have
restored riparian habitat in the Clutha catchment to support
native fish species including tuna (eel), kanakana (lamprey),
inanga (whitebait) and giant kokopu. These restoration
projects have all been in partnership with the Department
of Conservation. They are on private land and have all
been enthusiastically supported by those landowners.
Our geothermal operations can have indirect impacts on
the habitat of at-risk or threatened thermotolerant species.
These sites have very special biodiversity values as the
available habitat is limited to certain temperature and
chemical conditions. In our experience, the success
of thermotolerant species can be enhanced through
pest management and the removal of invasive species.
This year, in collaboration with the Waikato Regional Council,
we removed wilding pines from approximately 25 hectares
of geothermally significant land in Taupō and are creating a
management plan for the long term sustainability of the site.
Our geothermal operations require vast amounts of land,
some of which we lease out to third parties for forestry
or farming activities. During the last year, a forestry block
in Karapiti was harvested, and instead of replanting the site
in pine forest, we trialled replanting using mānuka. Mānuka
is a native species that helps to establish regenerating
native forest.
We have remained focused on pest management across
all of our sites and have successfully removed 1,528 pests
(including rats, stoats, hedgehogs, and other mammals) in
the last year. We are encouraged by our increasing catch
numbers and our people have reported seeing bird life
return to natural areas.
Over the past year we have planted 28,415 native trees.
Since our restoration and protection programmes began,
we have protected 126 hectares of land.
Kiwi kids meeting kiwis
We’re helping to build the next generation of sustainability
champions by supporting a programme to get schoolchildren
up close and personal with our national bird, the kiwi.
Kiwi Contact is a programme run by the national kiwi
conservation charity Kiwis for Kiwi, to give Taupō primary
and intermediate schoolchildren the opportunity to interact
with kiwi chicks at the sanctuary at Wairakei golf course.
Our 2018 pilot programme was so successful that we renewed
our sponsorship for 2019.
BACK TO CONTENTS PAGE
LIVING AND WORKING IN OUR LOCAL
COMMUNITIES
Generating electricity is a significant operation and we
understand that we have a big impact on our communities.
We want that impact to be a positive one.
We foster open, respectful, reciprocal relationships
with the communities we operate in, and ensure that
we understand their needs and aspirations, that they
understand our business, and that we give back in ways
that are meaningful to them.
Through our site sponsorship programmes, we enable our
people to get involved in local initiatives that are important
to them and the community they are a part of.
Engaging with tangata whenua
Tangata whenua have a special relationship with the
natural resources that we rely on to generate electricity
for New Zealand. We interact with various iwi and hapū
around our operational sites. We aim to have positive and
respectful relationships and we have a tangata whenua
strategy which guides us in maintaining those relationships.
In 2019, we reached a milestone in our relationship with
Ngāi Tahu through formally establishing the Mata-Au Trust.
The trust is a mechanism established as part of our 2002
resource consents to operate on the Clutha river, and
supports us to mitigate the impacts of our operations
on the iwi. Over the past year we have worked to develop
our relationship with the iwi and local Papatipu Rūnaka and
we’re collaborating on projects such as eel management.
In Taupō, we have continued our programme to refresh
and improve relationships with Wairakei and Tauhara hapū.
This has included working with Tauhara hapū towards the
establishment of a Kaitiaki Reference Group to formally
represent the interests of the hapū in relation to our
development plans at Tauhara. We are also pleased
to have a commercial partnership with a local Māori
Lands Trust, Tauhara Moana, for geothermal access rights.
At Ohaaki, we continue to maintain our relationship with
the iwi and landowners Ngāti Tahu. This year we partnered
with the iwi and NIWA to hold a wānanga (gathering) for their
community, to help them understand the impact that climate
change may have on them and to be prepared for the future.
We embrace the diverse cultures that make our communities
unique, and encourage opportunities to learn and share
more about each other. This year we celebrated Matariki
(Māori New Year) in a unique way with our geothermal team.
We provided a traditional hāngī for our people, cooked
in a new steam hāngī pit installed on our site. This hāngī
pit enables local hapū to continue their cultural practice
of using geothermal steam for cooking, while reconnecting
them with the geothermal resource in the area.
Preparing for Tauhara development
Contact has had a significant presence in the Taupō
community since geothermal energy operations began
at Wairakei more than 60 years ago. At our Wairakei sites,
we employ around 80 people, most of whom live in Taupō
and are passionately part of the community through
Community Contact, our staff volunteering programme.
We enable our team to get behind initiatives that are
important to them as often as they like.
We recognise that the local iwi, hapū and community
have a special interest in any future developments at
Tauhara. Not only would a new development bring significant
investment and jobs to the region, it would provide
opportunities for partnership and collaboration on joint goals.
We intend to engage early to identify mutually beneficial
opportunities that may help shape the project and its
delivery. Contact is confident that if an investment decision
is made, the project would not only be New Zealand’s
most attractive option for renewable baseload electricity
generation, but would also contribute to the prosperity
of the Waikato region.
Supporting local initiatives in our communities
Our community programmes are based around developing
regional sponsorships and local initiatives that contribute
positively to the places we call home. In addition to the
Kiwis for Kiwi and Girls with High-Vis programmes, we
support a number of other community initiatives. In FY19
we spent over $350,000 on community sponsorships.
Funding lunches for tertiary students
We partnered with Toi Ohomai this year to support their free
lunch initiative for tertiary students at the Taupō campus.
The free lunch programme helps students struggling to meet
the cost of living while studying. As well as funding about 50
lunches each week, we provided some of the students with
safety gear, stationery and unpaid work experience at our
geothermal stations.
Electricity for the night shelter
We helped support Rotorua’s first homeless night shelter
‘Sanctuary Manaakitanga’ by making a one-off donation of
$5,000 worth of power to keep the lights on and everyone
warm last winter.
Learning through nature
Kids Greening Taupō empowers students to be actively
involved with projects to increase biodiversity and solve
environmental problems. Instilling a sense of connection
between our children and the natural environment is an
important part of ensuring we’re helping to build the next
generation of sustainability champions. We provide support
to a Take Action Fund which provides funding to enable
students to get out there planting.
37
Contact | Annual Report 2019 Over 15,000 attend blossom festival
Since 2004, Contact has been a major sponsor of the
colourful Alexandra Blossom Festival, which takes place
close to our Clyde Dam. This year more than 15,000 people
turned out to join the festivities, and through our support
almost 1,500 children enjoyed fairground rides at Contact
Party in the Park.
620 take part in ultimate mountain biking challenge
The Contact EPIC is a major highlight in the local Hawea
community each year and we are proud to have been its
principal partner since 2008. This year 620 riders took
part in the gruelling event, and through a community fund
established in collaboration with the event’s organisers,
$20,000 has been raised over the last three years. This
fund is now available to support applications for funding
from community based organisations and individuals.
Supporting Excellence in Education in the Environment
We’re committed to supporting New Zealanders working
hard to protect our environment, so this year we partnered
with the Taranaki Regional Council, becoming a key sponsor
of their 2018 Environmental Awards Excellence in Education
category. We will continue the sponsorship this year.
Funding 30,000 swimming lessons
Our long-standing sponsorship of SwimWell Taupō provides
access for every school aged child in the district to free
swimming and water safety lessons, helping children to
develop the skills and confidence they need to stay safe
while having fun in the water. Each year our support enables
more than 30,000 swimming and water safety lessons to be
delivered to 3,500 local children, aged 5–12 years.
BACK TO CONTENTS PAGE
GOVERNANCE
MATTERS
39
At Contact we believe that good corporate governance matters because it protects the interests
of all stakeholders and enhances short term and long term value. We regularly review our
corporate governance systems and always look for opportunities to improve how we do things.
Contact | Annual Report 2019 GOVERNANCE
MATTERS
At 30 June, we comply with the recommendations of the
NZX Corporate Governance Code in all material respects.
Our full reporting against the NZX Code is set out in our
Corporate Governance Statement, which is available on
our website.
This section of the Annual Report gives a summary of our
corporate governance practices. All information in this
section is current at 30 June 2019 unless otherwise stated.
CONTACT’S BOARD
The Board’s role and responsibilities
The Board is responsible for the governance, direction,
management and performance of Contact.
Specific responsibilities include:
• setting and approving Contact’s strategic direction
• monitoring financial performance
• appointing the CEO and monitoring CEO and senior
management performance
• ensuring appropriate systems to manage risk
• reviewing and approving compliance systems
• overseeing our commitment to our Tikanga, sustainable
development, the community and environment, and the
health and safety of our people.
Strategic Focus
Expertise Governance Capabilities
Board composition
The membership of the Contact Board changed this year.
Sir Ralph Norris and Sue Sheldon retired from the Board
and our succession planning process culminated in the
appointment of three new directors – Dame Therese Walsh,
David Smol and Jon Macdonald – who were all confirmed by
shareholders at the annual meeting in November. Each of
these directors brings valuable skills that complement the
expertise of the longer serving Board members. The Board
now consists of seven directors, all of whom are independent
(i.e. none of the factors described in the NZX Corporate
Governance Code that may impact a director’s
independence apply to any Contact director).
The Board has refreshed Contact’s director skills matrix,
which sets out the skills necessary for Contact’s success
and assesses the skills of each director against the desired
skills. It’s not expected that every director will be an expert in
every area, but all skills should be represented in the Board
as a whole.
The matrix shows the expertise and secondary skills among
current directors, which is considered a good spread.
In addition to the skills in the matrix, all seven Contact
directors have strong governance expertise.
customer experience
r Next generation
e
m
o
t
s
u
C
Energy sector
including regulation,
generation and
renewable energy
Deep customer insight and advocacy. Understands generation changes and the impact on customer
drivers. Retail transformation expertise including customer centric experience design, data analytics,
digital marketing, sales, and agile retail. Skills to support and challenge progress towards improving the
customer experience and reducing cost to serve.
Broad leadership experience across the energy sector including a generation portfolio and regulation/
government engagement. Core understanding of generation and key drivers in moving towards a high
quality renewable energy business model. Operational risk management including health and safety.
Skills to support and challenge in strategic risk management, growth strategy and sustainability
including anticipation of market needs.
e
l
a
s
e
l
o
h
W
o
i
l
o
f
t
r
o
P
d
n
a
e
t
a
r
o
p
r
o
C
Physical
infrastructure
Experience successfully leading sector adjacent companies (e.g. physical infrastructure, engineering
and construction), large scale projects, investment and management. Skills to support and challenge
in project investment, build and industrial maintenance.
Capital markets —
investment community
knowledge and
connections
Portfolio efficiency
Significant investment community experience. This spans finance, communications, marketing and
securities law to enable the most effective two-way understanding of, and communication between,
the company and the financial community — ultimately contributing to fair valuation and ability to gain
buy-in for future strategic shifts (e.g. divestment/expansion/international mergers and acquisitions).
Expertise in cost base reduction and increasing flexibility of an asset portfolio in a sustainable manner.
Proven track record in cost out, improving reliability and resource utilisation while maintaining safety
in an adjacent sector. Ideally experience in optimising and automating processes and lowering cost in
resource environments.
Iwi connection/
relationships
Iwi connection in order to predict sentiments and utilise relationships to influence outcomes
for the organisation.
Financial expertise
IT/technology
Primary
Secondary
Accounting and finance, experience in a scale regulated entity including transformation and cost
optimisation. Meets criteria to chair Audit Committee. Brings expertise in wholesale commodity markets.
Contemporary digital ecosystem experience-platforms and systems development to support lean
operations, automation, security management and innovation. Skills to support and challenge in digital
capital investment plan, systems-enabled operational efficiencies and customer service improvements.
BACK TO CONTENTS PAGE
Board performance
We recognise the value of professional development and
the need for directors to remain current in industry and
corporate governance matters. Contact assists directors
with their professional development in a number of ways,
including an induction programme for new directors,
briefings to upskill the Board on new developments,
workshops on key issues and Board study tours.
A fund is available for director development opportunities,
and the Chair may approve allocations from the fund
for opportunities that benefit both Contact and an
individual director.
Attendance at Board and committee meetings
Sir Ralph Norris and Sue Sheldon retired from the Board
on 31 August and Robert McDonald was appointed Chair.
Dame Therese Walsh, David Smol and Jon Macdonald
joined the Board on 1 September, 1 October and 1 November,
respectively. Accordingly, the membership of Board
committees changed during the year.
The table below records director attendance at Board
and committee meetings. In addition, a number of directors
attended meetings of committees that they were not a
member of as an observer. The Chair of the Board attended
every board committee meeting held during the year.
Meeting attended1
Board
Audit
Committee
HSE
Committee
People
Committee2
Current
directors
Robert
McDonald
10/10
Victoria Crone
10/10
Whaimutu
Dewes
Jon Macdonald
David Smol
9/10
7/7
8/8
Elena Trout
10/10
1/1
3/3
4/4
1/1
3/3
2/2
3/3
Dame Therese
Walsh
Outgoing
directors
Sir Ralph Norris
Sue Sheldon
8/9
3/3
1/1
1/1
1/1
41
2/2
1/1
2/2
1/2
1/1
1/1
1. This table records the number of Board and committee meetings
each director attended as a member of the Board or relevant
committee, alongside the number of meetings held while that
director was a member.
2. The Remuneration and Nominations Committee became the People
Committee from September 2018.
We regularly review the performance of the Board to ensure
the Board as a whole and individual directors are performing
to a high standard. A comprehensive review is carried out
approximately every two years.
Board committees
The Board has established three committees to perform
work and provide specialist advice in areas of focus.
The Audit Committee helps the Board fulfil its
responsibilities relating to Contact’s external financial
reporting, internal control environment, internal and external
audit functions, and risk management practices. In FY20, the
Audit Committee will become the Audit and Risk Committee,
with increased responsibility for risk management.
The Health, Safety and Environment (HSE) Committee
oversees Contact’s HSE policies and management system.
It helps the Board set targets for HSE performance and
oversees climate-related matters.
To reflect the importance of people to Contact’s success,
the Remuneration and Nominations Committee became
the People Committee in September, with a broader
mandate to support and advise the Board in fulfilling its
responsibilities across all aspects of Contact’s people and
capability strategies, policies and practices. In addition to its
expanded role, the People Committee retains responsibility
for Board composition, performance and remuneration, and
CEO appointment, performance and remuneration.
The current members of the committees are:
Committee
Audit Committee
Health, Safety and
Environment Committee
People Committee
Members
Dame Therese Walsh (Chair)
Victoria Crone, Whaimutu Dewes
Whaimutu Dewes (Chair)
David Smol, Elena Trout
Robert McDonald (Chair)
Jon Macdonald, Dame Therese Walsh
The committee charters are on our website and more
detailed information about the role and responsibilities
of each committee is available in our Corporate
Governance Statement.
Contact | Annual Report 2019 GOVERNANCE
MATTERS
CODE OF CONDUCT
RISK MANAGEMENT AND ASSURANCE
We expect all of our people to act honestly, with integrity,
in Contact’s best interests and in accordance with the law,
all the time. This expectation is enshrined in our Code of
Conduct, which underpins our corporate policy framework.
In FY19, our annual entity level controls review focused on
culture and conduct.
We set new corporate policies to address key risks and set
expected standards of behaviour for our people. Information
about how our key policies operate is in our Corporate
Governance Statement and the policies themselves are
on our website.
We have a whistleblower hotline, operated by an external
independent reporting service, to help ensure we’re aware
of any breaches of the Code of Conduct, our policies or any
other illegal or unethical activity.
Anyone at Contact who is concerned about any incident
or behaviour can use the hotline to report that matter,
anonymously if they choose. Any disclosures made
through the whistleblower hotline are reported to the
CEO and where appropriate, the Chair. We have a
Protected Disclosure (Whistleblowing) Policy, which
offers protections for employees who disclose serious
wrongdoing in accordance with the process in the policy.
Risk management
Our Board has established a robust risk management
framework, which is aligned to the International Standard
ISO 31000 Risk Management–Guidelines. Our framework
ensures we have appropriate systems in place to identify
material risks. We make sure we understand the potential
impact of identified risks and that, where applicable, the
Board sets appropriate tolerance limits.
Our framework ensures we assign responsibilities to
individuals to manage identified risks and we monitor any
material changes to Contact’s risk profile.
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, and
draws on external expertise where required.
The team brings 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 of Contact’s
departments, records and systems, 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. Our external
auditor is KPMG and David Gates has been our audit
partner for four financial years.
Our External Audit Independence Policy sets out the
framework we use to ensure the independence of our
external auditors is maintained and their ability to carry out
their statutory audit role is not impaired. Under this policy,
the external auditor may not do 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, and approval will only be given
where KPMG’s independence will not be compromised.
KPMG did no non-audit work for Contact this year.
Representatives from KPMG attend Contact’s annual
shareholder meeting, where they’re available to answer
shareholders’ questions relating to the audit.
BACK TO CONTENTS PAGE
REMUNERATION
REPORT
43
Rewarding our people for delivering
great business outcomes is a
fundamental part of Contact’s
success. Attracting, keeping and
inspiring our people is essential for
a vibrant and innovative business
and long term shareholder value.
So we aim to make sure that the
remuneration of our Directors,
the CEO, Leadership Team and
all of our people is competitive,
reinforces achievement and
motivates high performance.
Getting this right means we’ll
hire the best people for the job,
which is good for Contact, our
people and our shareholders.
Contact | Annual Report 2019 REMUNERATION
REPORT
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 People Committee.
The remuneration scale for directors for the year ending 30 June 2019 is set out below. Between FY18 and FY19, base
director fees increased by 1.5%, with an 8% reduction to the Board Chair’s fee and approximately 30% reduction to the
Audit Committee fees.
Board of Directors(1)
Audit Committee
Health, Safety and Environment Committee
People Committee
1. No additional fees are paid to the Board Chair for committee roles.
2. Took effect 1 September 2018.
FY19
Chair per annum
Member per annum
$275,000(2)
$45,000(2)
$25,000
$25,000
$135,000
$22,500(2)
$12,750
$12,750
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 FY19 are as follows:
Directors1
Sir Ralph Norris
(Chair until 31 August 2018)
Robert McDonald
(Chair from 1 September 2018)
Victoria Crone
Whaimutu Dewes
Jon Macdonald
Sue Sheldon
David Smol
Elena Trout
Dame Therese Walsh
Total
Board fees
Audit Committee
Health, Safety
and Environment
Committee
People
Committee2
Total
Remuneration
$50,000
$251,667
$135,000
$135,000
$90,000
$22,500
$101,250
$135,000
$112,500
$1,032,917
$5,500
$16,875
$24,250
$10,250
$37,500
$94,375
$3,187
$25,000
$9,563
$12,750
$50,500
$4,250
$8,500
$2,125
$9,563
$24,438
$50,000
$257,167
$159,312
$184,250
$98,500
$34,875
$110,813
$147,750
$159,563
$1,202,230
1. Sir Ralph Norris and Sue Sheldon resigned from the Board with effect from 31 August 2018.
Dame Therese Walsh was appointed to the Board with effect from 1 September 2018.
David Smol was appointed to the Board with effect from 1 October 2018.
Jon Macdonald was appointed to the Board with effect from 1 November 2018.
2. The Remuneration and Nominations Committee became the People Committee from September 2018.
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CHIEF EXECUTIVE OFFICER REMUNERATION
Dennis Barnes’s remuneration is reviewed by our Board each year. The Board works closely with and is advised by Contact’s
People Committee. Dennis’s remuneration reflects the complexity of the role and the wide-ranging skills needed to do it
well. We also consider market remuneration data benchmarks, look at the achievement of performance goals and factor in
creating long term sustainable shareholder value. His total remuneration is made up of a fixed remuneration component which
includes cash salary and other employment benefits, and pay for performance remuneration containing short term incentives
(cash and equity awarded through deferred share rights). In October 2018 equity awards for Dennis Barnes for FY18 and FY19
were agreed with the Board as noted below. This agreement amended FY18 equity awards that had been noted in the previous
Annual Report.
CEO remuneration for performance periods ended 30 June 2018 and 30 June 2019
Fixed remuneration
Pay for performance remuneration
Total remuneration
Salary paid $ Benefits(1) $
Subtotal $
Cash STI $
Equity STI $
Equity LTI $
Subtotal $
FY19
FY18
976,539
958,306
46,485
44,202
1,023,024
1,002,508
764,792(2)
529,100(3)
-
1,500,000(4)
-
-
764,792
2,029,100
$
1,787,816
3,031,608
1. Benefits include 3% KiwiSaver contribution and Health Insurance.
2. Short term incentive for FY19 period, paid in FY20.
3. Short term incentive for FY18 period, paid in FY19.
4. Equity – based on fair value allocation, performance hurdles tested 2019, if met will be paid in shares.
Pay for performance remuneration breakdown for the year ended 30 June 2019
Scheme
Cash STI
Description
Cash STI is a discretionary
scheme based on achievement
of KPIs.
Maximum potential set at 100%
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 and HSE Index.
40% based on individual KPIs being engagement, costs, corporate
reputation and executive capability.
Percentage awarded
78%
(payable in September 2019)
45
CEO remuneration
The scenario chart below demonstrates the elements of the CEO remuneration design for the year ended 30 June 2019.
Maximum potential remuneration
On-plan remuneration
Fixed remuneration
Base salary & benefits
Short term incentive - cash
$0
$500k
$1,000k
$1,500k
$2,000k
$2,500k
Contact | Annual Report 2019 REMUNERATION
REPORT
Five year CEO remuneration summary
Total
Remuneration
Paid1 $
1,787,816
3,031,608
2,081,641
1,875,951(3)
Percentage Cash
STI awarded against
maximum %
78%
55%
50%
45%
Percentage vested
Equity STI against
maximum %
100%
100%
0%
100%(2)
Span of Equity
STI performance
period
2016–2018
2015–2017
n/a
2014–2016
Percentage vested
Equity LTI against
maximum %
0%
0%
0%
100%
FY19
FY18
FY17
FY16
FY15
1,210,145 (3)
35%
0%
n/a
0%
Span of Equity LTI
performance period
n/a
n/a
n/a
2010–2013
2011–2014
2012–2015
2013–2016
2014–2017
n/a
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.
Five year summary TSR1 performance graph
40%
35%
30%
25%
20%
15%
10%
5%
0%
30 Jun 15
30 Jun 16
30 Jun 17
30 Jun 18
30 Jun 19
Company
NZX50
Peer group2
1. TSR calculated using the volume-weighted average price for the three months prior to year end, in line with the equity scheme rules.
2. Peer group is a simple average of Meridian, Genesis, Mercury, Vector and Trustpower. Trustpower’s FY16/17 data not included.
BACK TO CONTENTS PAGE
47
EMPLOYEE REMUNERATION
We’re committed to paying market rates for all our roles,
making sure our people are being rewarded for their
performance and experience.
There are three parts to employee remuneration — fixed
remuneration, pay for performance remuneration and other
benefits. These work together to attract, reward and keep
high performing employees.
Fixed remuneration
Fixed remuneration is based on the responsibilities of a role,
individual performance and experience, and current 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 is made up of 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 recognise and reward high
performance with cash incentives for our eligible
people, and deferred share rights through Contact’s
equity scheme for some higher level roles. The STIs,
which have a maximum potential level set reflecting
the person’s position grade, are based on performance
measured against key performance indicators (KPIs)
which generally consist of 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 performance share rights
through Contact’s equity scheme to senior and key talent
people. 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 2019 there were 85 participants in Contact’s
equity scheme. For more 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, go to note E10 of the Financial
statements section.
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).
We have remediated underpayments to our current and
ex-employees following a review of how we applied the
regulations in the Holidays Act 2003.
Contact | Annual Report 2019 REMUNERATION
REPORT
Other benefits
Employee remuneration over $100,000 for FY19
Grand total
42
36
39
30
37
44
34
17
18
15
11
5
11
2
6
1
2
1
3
1
3
3
3
2
2
1
1
1
3
1
2
1
1
1
1
1
382
We know that rewards mean more than just money, so we
also offer our people a range of benefits. Some of these have
eligibility criteria and are made up of:
• discounts for home energy, including electricity,
natural gas
• employer subsidised health insurance
• an employee share ownership plan called ‘Contact
Share’, (for details of Contact Share go to note E10
of the financial statements)
• and additional benefits and offers from retailers
and services providers.
The table shows the number of our people (and any who
have left Contact) who received remuneration and other
benefits during FY19 of at least $100,000 for the year ended
30 June 2019.
The value of remuneration benefits analysed includes:
• fixed remuneration including allowance/overtime
payments
• employer superannuation contributions
• short term cash incentives relating to FY18 performance
but paid in FY19
• the value of equity-based incentives received during FY19
• the value of Contact shares received during FY19
• redundancy and other payments made on termination
of employment.
The figures do not include amounts paid post 30 June 2019
that relate to the year ended 30 June 2019. The remuneration
(and any other benefits) of the CEO, Dennis Barnes, is
disclosed in the CEO remuneration section.
Pay equity
Pay equity is monitored and reported on, comparing pay
by gender in roles at the same grade levels (i.e. people with
similar sized jobs and skills, knowledge and accountabilities).
At 30 June 2019 our pay equity sits at 96%. We make
adjustments to individual salaries where appropriate to
address pay equity, while applying our grading structure.
We changed our remuneration system at the beginning of
FY19 and this resulted in a reduced number of pay grades,
impacting our pay equity unfavourably by 1%.
Band
$100,001 – $110,000
$110,001 – $120,000
$120,001 – $130,000
$130,001 – $140,000
$140,001 – $150,000
$150,001 – $160,000
$160,001 – $170,000
$170,001 – $180,000
$180,001 – $190,000
$190,001 – $200,000
$200,001 – $210,000
$210,001 – $220,000
$220,001 – $230,000
$230,001 – $240,000
$240,001 – $250,000
$250,001 – $260,000
$260,001 – $270,000
$270,001 – $280,000
$280,001 – $290,000
$290,001 – $300,000
$310,001 – $320,000
$320,001 – $330,000
$330,001 – $340,000
$340,001 – $350,000
$350,001 – $360,000
$370,001 – $380,000
$380,001 – $390,000
$390,001 – $400,000
$410,001 – $420,000
$420,001 – $430,000
$460,001 – $470,000
$540,001 – $550,000
$550,001 – $560,000
$660,001 – $670,000
$700,001 – $710,000
$750,001 – $760,000
BACK TO CONTENTS PAGE
OTHER
DISCLOSURES
49
Contact | Annual Report 2019 David Smol
New Zealand Transport Agency
Victoria Link Limited
Rimu Road Consulting Limited
Elena Trout
Callaghan Innovation
Government Inquiry of the ‘Auckland Fuel
Disruption’
Ngāpuhi Asset Holding Company Limited and
various subsidiaries
Joint NZ Defence Force and Ministry of Defence
Capability Governance Board
Energy Efficiency and Conservation Authority (EECA)
Low Emission Vehicles Fund (a fund from
EECA budget)
Harrison Grierson Holdings Limited
Marsden Maritime Holdings Limited
Motiti Investments Limited
Dame Therese Walsh
TVNZ
Air New Zealand
ASB Bank
Antarctica NZ
Wellington Regional Stadium
Director
Director
Director
Director
Chair
Director
External Advisory
Member
Director
Chair
Director
Director
Director
Chair
Director
Director
Director
Trustee
Victoria University of Wellington
Pro-Chancellor
Therese Walsh Consulting Limited
On Being Bold
Director
Director
Wellington Homeless Women’s Trust
Ambassador
Information used by directors
No director issued a notice requesting to use information
received in his or her capacity as a director that would not
otherwise be available to the director.
Indemnity and insurance
In accordance with section 162 of the Companies Act
1993 and the constitution of the company, Contact
has continued to indemnify and insure its directors
and officers, including directors of subsidiaries, against
potential liability or costs incurred in any proceeding,
except to the extent prohibited by law.
OTHER DISCLOSURES
STATUTORY
Disclosures of interests by directors
The following are particulars of general disclosures
of interest by directors holding office at 30 June 2019,
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.
There were no specific disclosures made during the year
of any interests in transactions entered by Contact or any
of its subsidiaries.
Robert McDonald
Fletcher Building Limited
Sovereign Assurance Company Limited
Chartered Accountants Australia & New Zealand
University of Auckland Business School
Advisory Board
McDonald Family Trust
Victoria Crone
Callaghan Innovation
Figure.NZ
Whaimutu Dewes
Sealord Group Limited
Kura Limited
Pupuri Taonga Limited
Aotearoa Fisheries Limited
Ngāti Porou Forests Limited
Ngāti Porou Whanui Forests Limited
Ngāti Porou Fisheries Limited
Ngāti Porou Seafoods Limited
Real Fresh Limited
Whainiho Developments Limited
Jon Macdonald
Mitre 10 (New Zealand) Limited
NZX Limited
Titan Parent New Zealand Limited (ultimate NZ
owner of Trade Me Group Limited) and various
subsidiaries
Trade Me Group Limited
NZ Technology Training Trust
Director
Director
Director
Chair
Trustee
Chief Executive
Officer
Chair
Chair
Chair
Director
Chair
Chair
Chair
Chair
Director
Director
Managing Director/
Shareholder
Director
Director
Director
CEO1
Trustee
The Champ Trust
Trustee/Beneficiary
1. Jon Macdonald ceased to be CEO of Trade Me Group Limited on 26
July 2019.
BACK TO CONTENTS PAGE
Directors’ security participation
Shareholder statistics
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 2019
Director
Robert McDonald
Victoria Crone
Whaimutu Dewes
Jon Macdonald
Elena Trout
Dame Therese Walsh
Bonds
35,000
Ordinary shares
30,000
17,550
20,011
20,000
20,000
10,000
Securities dealings of directors
During the year, the directors disclosed in respect of section
148(2) of the Companies Act 1993 that they acquired or
disposed of a relevant interest in securities as follows:
Director
Victoria Crone
Date of
acquisition
Nature of
transaction
21/09/18 On-market
purchase
Consideration
per share
$5.82
Number
of shares
acquired
5,150
12/10/18 On-market
purchase
19/10/18 On-market
purchase
05/03/19 On-market
purchase
23/04/19 On-market
purchase
Jon
Macdonald
Elena Trout
Twenty largest shareholders at 30 June 2019
Number of
ordinary
shares
% of
ordinary
shares
HSBC Nominees (New Zealand) Limited
79,658,604
Citibank Nominees (NZ) Limited
54,656,408
HSBC Nominees (New Zealand) Limited
52,696,037
JP Morgan Chase Bank
47,228,596
National Nominees New Zealand Limited
35,269,733
Accident Compensation Corporation
30,915,357
Cogent Nominees Limited
FNZ Custodians Limited
HSBC Custody Nominees (Australia)
Limited
New Zealand Superannuation Fund
Nominees Limited
23,165,184
22,646,857
19,619,260
19,219,586
J P Morgan Nominees Australia Pty Limited
18,048,242
Tea Custodians Limited
JB Were (NZ) Nominees Limited
$5.63
7,950
Custodial Services Limited
$5.62
4,450
BNP Paribas Nominees NZ Limited
Custodial Services Limited
$6.35
20,000
Premier Nominees Limited
17,322,209
10,539,594
10,057,559
9,806,515
8,714,297
8,224,328
$6.86
4,000
New Zealand Permanent Trustees Limited
8,106,928
Dame Therese
Walsh
5/09/18 On-market
purchase
$5.56
10,000
Citicorp Nominees Pty Limited
Private Nominees Limited
7,015,011
6,978,801
Subsidiary company directors
The following people held office as directors of Rockgas
Limited during FY19. No director of Rockgas Limited
received additional remuneration or benefits in respect
of their directorships.
Directors
Dennis Barnes
Graham Cockroft
Jacqui Nelson
Term during FY19
Size of holding
1 July 2018 - 30 November 2018
1 – 1,000
1 July 2018 - 24 August 2018
1 July 2018 - 30 November 2018
Catherine Thompson
24 August 2018 - 30 November 2018
Total for top 20
489,889,106
68.35
Distribution of ordinary shares and shareholders at
30 June 2019
Number of
shareholders
% of
shareholders
Number of
ordinary
shares
% of
ordinary
shares
28,635
28,646
3,103
1,900
134
94
45.81
18,673,793
45.83
51,448,197
4.96
21,812,107
3.04 36,266,235
0.21
9,567,993
2.61
7.18
3.04
5.06
1.33
0.15 579,006,457
80.78
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Total
62,512
100.00 716,774,782 100.00
11.11
7.63
7.35
6.59
4.92
4.31
3.23
3.16
2.74
2.68
2.52
2.42
1.47
1.40
1.37
1.22
1.15
1.13
0.98
0.97
51
Contact | Annual Report 2019 OTHER DISCLOSURES
Substantial product holders
According to notices given under the Financial Markets
Conduct Act 2013, no persons were substantial product
holders of the company as at 30 June 2019.
Bondholder statistics
Retail fixed rate bonds (CEN030) at 30 June 2019
Number of
bondholders
% of
bondholders
Number of
bonds
% of
bonds
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Total
59
139
414
71
90
773
7.63
17.98
295,000
1,315,000
53.56
11,869,000
9.19
5,843,000
11.64 130,678,000
0.20
0.88
7.91
3.89
87.12
Retail fixed rate bonds (CEN040) at 30 June 2019
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Number of
bondholders
% of
bondholders
Number of
bonds
% of
bonds
35
76
189
27
38
9.59
20.82
175,000
733,000
51.78
5,094,000
7.40
2,072,000
0.18
0.73
5.09
2.07
10.41
91,926,000
91.93
Total
365
100.00 100,000,000 100.00
Twenty largest CEN040 bondholders at 30 June 2019
Number of
CEN040 bonds
% of CEN040
bonds
100.00 150,000,000 100.00
Citibank Nominees (NZ) Limited
28,034,000
28.03
FNZ Custodians Limited
Cogent Nominees Limited
11,380,000
5,400,000
Investment Custodial Services Limited
5,214,000
HSBC Nominees (New Zealand)
Limited
Custodial Services Limited
Private Nominees Limited
Custodial Services Limited
Custodial Services Limited
Custodial Services Limited
FNZ Custodians Limited
5,038,000
4,146,000
3,189,000
2,707,000
2,375,000
2,281,000
2,269,000
Forsyth Barr Custodians Limited
2,012,000
Bnp Paribas Nominees NZ Limited
1,520,000
JP Morgan Chase Bank
Forsyth Barr Custodians Limited
JB Were (NZ) Nominees Limited
Custodial Services Limited
Forsyth Barr Custodians Limited
Pt (Booster Investments) Nominees
Limited
1,400,000
1,388,000
1,275,000
973,000
805,000
800,000
Investment Custodial Services Limited
800,000
11.38
5.40
5.21
5.04
4.15
3.19
2.71
2.38
2.28
2.27
2.01
1.52
1.40
1.39
1.27
0.97
0.81
0.80
0.80
Twenty largest CEN030 bondholders at 30 June 2019
Forsyth Barr Custodians Limited
18,670,000
12.45
Number of
CEN030 bonds
% of CEN030
bonds
FNZ Custodians Limited
17,452,000
Investment Custodial Services Limited
11,796,000
Cogent Nominees Limited
Citibank Nominees (NZ) Limited
NZ Permanent Trustees Limited Group
Investment Fund No 20
Custodial Services Limited
Custodial Services Limited
Custodial Services Limited
10,610,000
9,022,000
6,184,000
5,302,000
315,6500
3,079,500
Forsyth Barr Custodians Limited
2,935,000
Lynette Therese Erceg & Darryl
Edward Gregory & Catherine
Agnes Quinn
Private Nominees Limited
Custodial Services Limited
2,500,000
2,431,000
2,203,000
JB Were (NZ) Nominees Limited
2,090,000
Tappenden Holdings Limited
2,000,000
University of Otago Foundation Trust
1,985,000
Custodial Services Limited
FNZ Custodians Limited
Tea Custodians Limited
1,884,000
1,601,000
1,599,000
BNP Paribas Nominees NZ Limited
1,545,000
11.63
7.86
7.07
6.01
4.12
3.53
2.10
2.05
1.96
1.67
1.62
1.47
1.39
1.33
1.32
1.26
1.07
1.07
1.03
BACK TO CONTENTS PAGE
Retail fixed rate bonds (CEN050) at 30 June 2019
NZX waivers
Size of holding
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 and over
Number of
bondholders
% of
bondholders
Number of
bonds
% of
bonds
5
47
102
23
29
2.43
22.82
25,000
455,000
49.51
2,773,000
11.16
1,751,000
0.03
0.45
2.77
1.75
14.08 94,996,000
95.00
Total
206
100.00 100,000,000 100.00
Twenty largest CEN050 bondholders at 30 June 2019
HSBC Nominees (New Zealand)
Limited
Number of
CEN050 bonds
% of CEN050
bonds
12,500,000
12.50
FNZ Custodians Limited
8,005,000
BNP Paribas Nominees NZ Limited
7,530,000
Tea Custodians Limited
Citibank Nominees (NZ) Limited
National Nominees New Zealand
Limited
7,460,000
6,050,000
5,000,000
Forsyth Barr Custodians Limited
4,953,000
Custodial Services Limited
Custodial Services Limited
HSBC Nominees (New Zealand)
Limited
JB Were (NZ) Nominees Limited
Custodial Services Limited
Risk Reinsurance Limited
Custodial Services Limited
Cogent Nominees Limited
4,202,000
3,998,000
3,730,000
3,548,000
3,383,000
3,000,000
2,667,000
2,470,000
Investment Custodial Services Limited
2,358,000
Westpac Banking Corporation
2,000,000
JB Were (NZ) Nominees Limited
Custodial Services Limited
Private Nominees Limited
1,300,000
1,289,000
1,000,000
8.01
7.53
7.46
6.05
5.00
4.95
4.20
4.00
3.73
3.55
3.38
3.00
2.67
2.47
2.36
2.00
1.30
1.29
1.00
There were no waivers granted by NZX or relied on by
Contact in the 12 months preceding 30 June 2019.
Stock exchange listings
Contact’s ordinary shares are listed and quoted on the
NZX Main Board (NZSX) and the Australian Securities
Exchange (ASX) under the company code ‘CEN’. Contact
has three issues of retail bonds listed and quoted on the
NZX Debt Market (NZDX) under the company codes
‘CEN030’, ‘CEN040’ and ‘CEN050’. 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
9.9.3 in relation to Contact during FY19.
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 FY19 was $509,000,
$2,500 for scrutineering at the Annual meeting and
$3,500 for supervisor reporting. There was no non-
assurance work undertaken by KPMG during the year.
53
Donations
In accordance with section 211(1)(h) of the Companies
Act 1993, Contact records that it donated $4,000 in FY19.
Donations are made on the basis that the recipient is not
obliged to provide any service such as promoting Contact’s
brand and are separate from Contact’s sponsorship activity.
No political contributions were made during the year.
Credit rating
Contact Energy Limited has a Standard & Poor’s long term
credit rating of BBB/stable and short term rating of A-2.
The $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.
The $100 million unsubordinated, unsecured fixed rate bonds
issued in March 2019 are rated BBB by Standard & Poor’s.
Contact | Annual Report 2019
OTHER DISCLOSURES
SUSTAINABILITY
The sustainability aspects reported in this Annual Report cover the operations of Contact Energy Limited and its subsidiary
Rockgas1 for the period 1 July 2018 to 30 June 2019.
Contact does not have a policy on the assurance of non-financial or sustainability data. Data throughout this report has been
checked by an independent party for accuracy.
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)
Business New Zealand
Gas Industry Company
Business New Zealand Energy Council
Electricity Authority Market Development Advisory Group
The Sustainable Business Council
NZ Hydrogen Association
Land and Water Forum
Liquefied Petroleum Gas Association
Liquigas
ERANZ Retailer Revenue Assurance Advisory Forum
ERANZ Retailers’ Operational Forum
ERANZ Vulnerable Customer & Medically Dependent Customer (VCMDC)
Working Group
ERANZ Policy Committee
ERANZ Communications Committee
ERANZ Data Working Group
NZ Hydrogen Association
Generator Forum
ENA Technical Implementation Working Group
ENA Joint Implementation Working Group
Climate Leaders Coalition
Champions for Change
External commitments
Organisation/Group
Climate Leaders Coalition
Date of adoption Commitment
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 degrees of warming.
• To work with our suppliers to reduce their greenhouse gas emissions.
• We support the Paris Agreement and New Zealand’s commitment to it.
• We support the introduction of a climate commission and carbon budgets enshrined in law.
Science Based Targets
initiative - Committed
March 2018
• We commit to progressing emission reduction in line with verified target.
Emissions data as at 30 June 2019
Contact uses the Greenhouse Gas Protocol to guide its emissions reporting. Emissions are reported on an operational control
basis with a base year of FY18, which represents the first year of Contact’s reporting of Scope 1, 2 and 3 emissions. 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. The sale of Rockgas on 30 November has not triggered our recalculation policy as we still created emissions
during the first half of the year and continue to sell LPG on their behalf.
1. Contact sold Rockgas on 30 November 2018.
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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 5th assessment report.
• Scope 3 – Category 1 and 2 emissions factors are sourced from the Carnegie Mellon University Economic Input-Output
Life Cycle Assessment.
For more detail on FY19 emissions refer to the Greenhouse Gas Inventory document on our website.
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
(tCO2e)
FY18
Thermal Generation Emission
Intensity (tCO2e per MWh)
FY18
FY19
Total Generation Emission
Intensity (tCO2e per MWh)
FY18
FY19
FY19
Fuel used for
thermal generation
Fuel used for
geothermal generation
782,123
960,926
207,436
213,772
Total fuel used for generation
989,559
1,174.698(1)
0.550
0.534
0.111
0.137
Fuel used in vehicles
Fugitive emissions – SF6
(3)
880
122(4)
1,072
2
Total
990,561
1,175,772(2)
1. FY18 figure updated due to finalised data becoming available (estimates were used previously).
2. FY18 figure updated due to finalised data becoming available (estimates were used previously).
3. SF6 is used to insulate high voltage switchgear. The gas is vacuum sealed inside the switchgear and the pressure levels inside are monitored
so that leaks can be detected and rectified.
4. FY19 emissions from SF6 are significantly higher than previous years due to the failure of two circuit breakers.
55
Scope 2 and 3 emissions
Scope
Category
FY19 tCO2e
FY18 tCO2e
Indirect Emissions (Scope 2) (Audited)
Electricity Consumption
Indirect Emissions (Scope 3) (Unaudited)
Purchased Goods and Services
Capital Goods
Fuel & Energy
Upstream Transportation
Waste
Business Travel
Employee Commuting
Use of Sold Products
Downstream Leased Assets
Franchises
Subtotal
Total (Scope 1, 2 and 3)
1. FY18 Scope 2 figure restated due to additional data set being identified.
2. FY18 use of products sold figure restated due to additional data set being identified.
1,360
35,267
6,536
175,811
628
148
1,256
2
301,640
445
2,069
523,802
1,534,506
1,397(1)
47,507
13,899
77,049
116
134
1,182
2
370,168(2)
586
4,536
515,146
1,701,939
Contact | Annual Report 2019 OTHER DISCLOSURES
Climate related risks
This table presents an overview of Contact’s most material climate-related risks and opportunities in the short, medium and
long term. We have rated these as low, medium or high, based on the likelihood, time-horizon and potential impact/size of the
opportunity or risk.
We use our existing risk management systems to capture, monitor and report on climate-related risks. Risks rated high are
also monitored by Senior Management and the Audit and Risk Committee.
Time frame
Short term (now-2021)
Medium term (2021-2035)
Long term (2035-onwards)
These may impact near-term financial
results, including those that may materialise
within the current reporting cycle.
May materially impact financial results over the
longer term and may require us to adjust our
strategy.
Risks that could fundamentally
impact the long term strategy
and business model.
Market transition risks and opportunities
Contact’s
emissions
profile
Leading the
market to
decarbonise
• Reputational impact of continued use
• National imperative to reduce carbon
of high emissions generation.
emissions through policy and other means.
• Stakeholder rejection of fossil
fuels including natural gas.
• Heightened scrutiny from investors on
• Rising gas and carbon costs.
environmental, social, governance (ESG)
performance of businesses.
• Rising stakeholder expectations increase
the pace of change in which businesses
must adapt/respond to climate-related
issues.
• New opportunities and markets developed
to support low-carbon transition activities.
• Opportunity to deepen relationships with
customers who are looking to decarbonise.
• Transition to lower carbon economy creates
more demand for electricity.
• Opportunities for innovative customer and
• Increased electricity demand.
• Wider options for new
generation development.
technology solutions.
• Increased opportunity for renewable
developments.
Thermal
transition
• Opportunity for renewable generation
• Opportunity for renewable generation to
to displace thermal.
• Potential for high-emissions industries to
favour gas as a transition fuel, resulting in
increased gas use and emissions in the
short term.
displace thermal.
• Continued requirement for thermal peaking
plant in New Zealand to ensure affordable
security of supply.
• Potential for renewable
overbuild, and massive
distributed generation.
New
technology
• Customer adoption of new technologies
and/or energy efficient solutions impacts
on demand for grid connected electricity.
• Distributed technologies increase competition
for the development of new generation.
• New technology makes current
generation redundant and/or
impacts demand significantly.
Regulation
• Changes to regulation impacts on costs
of business and/or licence to operate.
• New regulation requires Contact to reduce
emissions faster than planned.
• New Zealand’s costs become
higher relative to globe which
results in production moving
offshore and reduced demand.
• Impacts on operational plant
may require change in design.
Physical risks and opportunities
• Changes to electricity demand as
temperatures change.
• Health, safety and wellbeing impacts on
people working in warmer conditions.
• Impacts on the efficiency and availability
of generation plants.
• Implications on resource consent
requirements, which may increase costs and/or
impact on licence to operate.
• Changes to hydro inflows impact on our
• Changes to hydro inflows impact on our
• Water storage requirements
renewable generation.
• Drilling programme requires access to
significant volumes of water.
renewable generation.
• Increased demand and competition for natural
resources, including fresh water, impacts on
access to natural resources for generation.
• Consent renewal required for Wairakei in 2026.
Changes in regulation may impact on access to
water, consent conditions and/or costs.
change.
• Increased hydro inflows create
opportunities to increase
generation output, but may also
increase flood risk and require
spilling at hydro.
• Stormwater systems require redesign and/or
replacement to meet changing capacity
requirements.
• Potential for increased power outages due to
transmission failure caused by storms.
• Increased flood risk around
rivers and lakes impacts on
generation operations.
Temperature
increases
Access
to natural
resources
Intensity of
storms
• Increased potential for erosion issues.
• Disruption to physical works during storms.
BACK TO CONTENTS PAGE
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 are available on our website. 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 metric is the Green Ratio whereby the total green asset value must be
at least equal to total green debt instruments (i.e. a ratio of 1.0 minimum). This indicator is reported on a half yearly basis.
The following table sets out the total green asset value and total green debt instruments for the current reporting period,
and confirms that the Green Ratio is met at 1.27. 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
Bonds Standard V2.1.
Geothermal Assets data
as at 30 June 2019
Book value
$m
Generation
(GWh)
Emissions
(tCO2e)
Emissions intensity
(gCO2e/KWh)
Compliance with CBI standards
(< 100 gCO2e/KWh)
Poihipi1
Tauhara1
Te Mihi1
Te Huka1
Wairakei1
Tenon1
Ohaaki
156
98
526
106
854
6
113
388
-
1,382
186
991
110
310
14,076
-
61,752
10,257
20,887
1,124
108,528
Geothermal portfolio total/average
Eligible green asset total/average
1,859
1,746
3,367(2)
216,624
3,057
108,096
36
N/A
45
55
21
10
350
64
35
57
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Total eligible green debt instruments
(refer note B4)
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.
1,378
1.27
Workforce by gender and employment type at 30 June1
FY19
Officers2
Corporate
Customer
Generation
Total
FY18
Officers2
Corporate
Customer
Generation
Total
Total headcount
Female
Male
Fixed term
Permanent
Part time
Full time
6
55
505
323
889
2
32
316
65
415
4
23
189
258
474
0
4
32
8
44
6
51
473
315
845
0
11
73
25
109
6
44
432
298
780
Total headcount
Female
Male
Fixed term
Permanent
Part time
Full time
6
107
548
317
978
2
57
296
59
414
4
50
252
258
564
0
6
28
8
42
6
101
520
309
936
0
15
67
24
106
6
92
481
293
872
1. Gender is recorded by self-identification.
2. ‘Officers’ means the CEO and members of Contact’s Leadership Team.
Contact | Annual Report 2019 OTHER DISCLOSURES
Employee diversity at 30 June
Gender
Age
Ethnicity1
Female Male
<30 30–50
>50 Undisclosed Māori Pasifika Asian European Other2 AMELA3 Undisclosed
33%
58%
63%
20%
47%
67%
0%
42% 15%
37% 34%
80%
8%
53% 23%
67%
60%
43%
44%
45%
33%
24%
22%
47%
31%
Gender
Age
0%
2%
1%
1%
1%
0%
9%
10%
4%
8%
17%
2%
3%
0%
2%
0%
7%
8%
6%
7%
0%
0%
2%
1%
1%
0%
16%
27%
25%
26%
67%
42%
39%
40%
40%
33%
44%
26%
35%
31%
Ethnicity1
Female Male
<30 30–50
>50 Undisclosed Māori Pasifika Asian European Other2 AMELA3 Undisclosed
33%
53%
54%
19%
67%
-
47% 17%
46% 28%
81%
9%
67%
61%
44%
39%
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%
50%
35%
26%
34%
39%
30%
0%
0%
0%
1%
1%
Total
42%
58% 20%
44%
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.Board Diversity at 30 June 2019
Board diversity at 30 June 2019
Gender
Ethnicity
Age
Male
Female
4
57%
3
50%
3
43%
3
50%
Total
7
100%
6
100%
European/
Pākehā
7
86%
4
67%
Māori
1
14%
2
33%
Total
7
100%
6
100%
<30
30–50
0
0
0
0
3
43%
1
17%
0%
24%
30%
27%
28%
>50
4
57%
5
83%
FY19
Officers
Corporate
Customer
Generation
Total
FY18
Officers
Corporate
Customer
Generation
Board of
Directors FY19
Board of
Directors FY18
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.
Page
Information
p.31 Environmental sustainability
p.42 Risk management and assurance,
Governance Matters
Describe the climate-related risks and opportunities the organisation has identified over the
short, medium and long term.
p.56 Climate related risks, Other
disclosures
Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy and financial planning.
p.25 Ensuring reliable renewable energy,
Reliability
Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2 degree or lower scenario.
p.25 Ensuring reliable renewable energy,
Reliability
Describe the organisation’s processes for identifying and assessing climate-related risks.
p.33 Modelling climate change scenarios,
Environmental sustainability
Describe how processes for identifying, assessing and managing climate-related risks are
integrated into the organisation’s overall risk management.
p.42 Risk management and assurance,
Governance Matters
Disclose the metrics used by the organisation to assess climate-related risks and opportunities
in line with its strategy and risk management process.
p.33 Modelling climate change scenarios,
Environmental sustainability
Disclose Scope 1, 2 and if appropriate 3 greenhouse gas (GHG) emissions, and the related risks.
p.34
p.55
Tracking emissions from generation
Scope 1, 2, 3 emissions data
Describe the targets used by the organisation to manage climate-related risks and opportunities
and performance against targets.
p.34 Emission targets
BACK TO CONTENTS PAGE
GRI INDEX
General Standard Disclosures
Description
Page
Information
Strategy and analysis
102-14
Statement from the most senior decision maker
p.6-8 This year in review
Organisational profile
Name of the organisation
Contact Energy Limited
Brands, products, and/or services
p.9 Who we are
102-1
102-2
102-3
102-4
102-5
102-6
102-7
Headquarter location
Locations of operations
Ownership and legal form
Markets served
Scale of the organisation
102-8
Employee statistics
p.12 Contact at a glance, Who we are
p.12 Contact operates only in New Zealand
Listed New Zealand Limited Liability Company
p.13 Contact at a glance, Who we are
p.57
p.12
p.65
p.13
p.65
p.13
p.57
p.58
Total employees, contractor workforce data not available.
Number of operations
Net revenue
GWh sold
Total capitalisation broken down by debt and equity
Quantity of products and services provided
Workforce by gender and employment type, Other disclosures
Employee Diversity, Other disclosures
59
102-41
102-9
102-10
102-11
102-12
102-13
EU1
EU2
EU3
EU4
EU5
Employees covered by collective bargaining
agreements
11% of total Contact employees were covered by collective bargaining
agreements as at 30 June 2019. Contractor data not collected.
Organisation’s supply chain
p.14–15 Our value creation, Who we are
Significant changes regarding size, structure,
or ownership
Precautionary approach
The sale of Rockgas Limited was completed in FY19.
Not specifically addressed. Potential adverse environmental impacts
are addressed through adaptive management including official
(often publicly notified) resource consent assessments
External charters, principles, or other initiatives
ISO14001
Memberships in associations and advocacy
organisations
Installed capacity
Net energy output broken down by primary
energy source and by region
p.54 Memberships of associations or advocacy organisations, Other
disclosures
p.13 Contact at a glance, Who we are
p.13 Contact at a glance, Who we are
Number of customer accounts
p.13 Contact at a glance, Who we are
Length of transmission and distribution lines
by region
Not applicable
Allocation of CO2 emissions permits
Zero allocations
Identified material aspects and boundaries
102-45
102-46
102-47
102-47
Entities included in the organisation’s
consolidated financial statements
Process for defining the report content
Material aspects identified
Aspect boundaries within the organisation
102-47
Aspect boundaries outside the organisation
p.63
Financial statements
p.17
p.17
Focusing on what matters most, Who we are
Focusing on what matters most, Who we are
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 which we can control or influence.
102-48
102-49
Restatements of information
Significant changes of aspect boundaries
compared to previous years
p.55
FY18 emissions data
No significant changes
Contact | Annual Report 2019
OTHER DISCLOSURES
Stakeholder engagement
102-40
102-42
102-43
102-44
Stakeholder groups
Stakeholder identification and selection
Approaches to stakeholder engagement
Key topics and concerns raised by stakeholders
p.17
p.17
p.17
p.17
Focusing on what matters most, Who we are
Focusing on what matters most, Who we are
Focusing on what matters most, Who we are
Focusing on what matters most, Who we are
Report profile
102-50
102-51
102-52
102-53
102-54
Reporting period
Financial year
Date of most recent previous report
The previous report was dated 13 August 2018
Reporting cycle
Annual
Contact point for questions
p.91 Corporate directory
Chosen ‘In accordance’ option, GRI index
This report has been developed in accordance with the core GRI 2018
guidelines.
102-56
External assurance for the report
Annual Report 2019 was not externally assured.
Governance
102-18
Governance structure. Committee responsible
for decision making on economic, environmental
and social topics.
p.40 Governance Matters
Ethics and integrity
102-16
Organisation’s values, principles, standards and
norms of behaviour, and codes of ethics
p.16 Ngā Tikanga, Who we are
BACK TO CONTENTS PAGE
Specific Standard Disclosures
Material
Aspect
DMA
EU DMA plus
Description
Water
Report collaborative approaches to managing
watersheds and reservoirs for multiple users
Page Omissions and explanations
p.32
Contact works proactively with interested stakeholders to
advance collaborative approaches such as through submissions
on environmental legislation and enhancement and protection
programmes.
Total water withdrawal by source
Total water discharge by destination
Total water consumption
Overall water usage for processing, cooling and
consumption in thermal power plants
Biodiversity
Habitats protected or restored
p.32
p.32
p.32
p.32
p.35
p.36
Describe what partnerships exist with third parties
p.35-36
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
Self-selected
TISR
Self-selected
Process safety data
Diversity and equal opportunity
Gender, age and ethnicity statistics
303-3
303-4
303-5
303-1
DMA
304-3
304-3
DMA
305-1
305-2
305-3
305-4
305-5
DMA
405-1
405-2
p.33
p.55
p.55
p.55
p.55
p.34
p.29
p.30 Contractor data not available for absentee rate, occupational
disease rate and fatalities.
p.30
p.30
p.27
p.28
61
Ratio of the basic salary and rem of women to men
for each employee category
p.48 Pay equity
Self-selected
Staff engagement
DMA
413-1
DMA
Local communities
Community engagement and development
Customer experience
Self-selected
Reputation and trust
Own measure
Customer satisfaction (Net Promoter Score)
DMA
Access (sector specific) – socio-economic
Own measure
Reduction of customer debt expressed as
a percentage
p.28
p.37
p.21
p.21
p.21
p.20
p.20
We have community engagement plans for 50% of our sites
by region.
Contact | Annual Report 2019 BACK TO CONTENTS PAGE
FINANCIAL
STATEMENTS
63
ABOUT THESE FINANCIAL STATEMENTS ....................64
STATEMENT OF COMPREHENSIVE INCOME ...............65
STATEMENT OF CASH FLOWS ...........................................66
STATEMENT OF FINANCIAL POSITION ..........................67
STATEMENT OF CHANGES IN EQUITY ...........................68
A. OUR PERFORMANCE .........................................................69
A1. Segments .................................................................................................... 69
A2. Earnings ...................................................................................................... 69
A3. Free cash flow ......................................................................................... 72
B. OUR FUNDING.......................................................................73
B1. Capital structure.....................................................................................73
B2. Share capital ............................................................................................ 73
B3. Distributions ............................................................................................. 73
B4. Borrowings ................................................................................................ 74
B5. Net interest expense ......................................................................... 74
C. OUR ASSETS .........................................................................75
C1. Property, plant and equipment and intangible assets .. 75
C2. Goodwill and asset impairment testing ................................. 77
C3. Investments in joint venture and associate ........................ 78
C4. Discontinued operation ................................................................... 78
D. OUR FINANCIAL RISKS .....................................................79
D1. Transition to NZ IFRS 9 Financial Instruments...................79
D2. Market risk ................................................................................................ 79
D3. Liquidity risk ............................................................................................. 81
D4. Credit risk .................................................................................................. 81
E. OTHER DISCLOSURES .....................................................82
E1. Tax ...................................................................................................................82
E2. Operating expenses............................................................................82
E3. Inventory .................................................................................................... 82
E4. Trade and other receivables ......................................................... 82
E5. Provisions ................................................................................................... 83
E6. Profit to operating cash flows ....................................................... 83
E7. Hedging activities .................................................................................. 83
E8. Financial instruments at fair value ............................................84
E9. Financial instruments at amortised cost .............................. 85
E10. Share-based compensation ....................................................... 85
E11. Related parties ...................................................................................... 86
E12. New accounting standards ........................................................... 86
Contact | Annual Report 2019 FINANCIAL STATEMENTS
About these Financial Statements
For the year ended 30 June 2019
These financial statements are for the Contact Group, a group made up of Contact Energy Limited, the entities over which
it has control or joint control and its associate.
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 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, except for those changed with Contact adopting
NZ IFRS 9 Financial Instruments. The effect of these changes in accounting policies are shown in note D1
• with certain comparative amounts reclassified to conform to the current year’s presentation.
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 generation development capital work in progress (note C2)
• fair value measurement of financial instruments (notes D2 and E8)
• unbilled retail electricity and gas revenue (note E4)
• provision for future restoration and rehabilitation obligations (note E5).
The financial statements were authorised on behalf of Contact’s Board of Directors on 9 August 2019.
Robert McDonald
Chair
Dame Therese Walsh
Chair, Audit Committee
BACK TO CONTENTS PAGE
BACK TO FINANCE STATEMENT PAGE
Statement of Comprehensive Income
For the year ended 30 June 2019
$m
Revenue and other income
Operating expenses
Significant items
Depreciation and amortisation
Net interest expense
Profit before tax
Tax expense
Profit from continuing operations
Discontinued operation
Profit from discontinued operation after tax
Gain on sale of discontinued operation
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
Note
A2
A2
A2
A2
B5
E1
A2
A2
E7
E7
B3
2019
2,460
(1,955)
9
(205)
(70)
239
(69)
170
10
165
345
(43)
(3)
299
48.2
23.7
24.5
2018
2,152
(1,703)
3
(215)
(84)
153
(41)
112
20
-
132
11
3
146
18.4
15.6
2.8
65
Contact | Annual Report 2019
FINANCIAL STATEMENTS
Statement of Cash Flows
For the year ended 30 June 2019
$m
Receipts from customers
Payments to suppliers and employees
Tax paid
Operating cash flows
Purchase of assets
Investments in joint venture/associate
Proceeds from sale of assets/operations (net of tax)
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
Note
E6
B3
B4
2019
2,490
(1,977)
(47)
466
(63)
(8)
390
4
323
(251)
-
100
(525)
(69)
-
(745)
44
3
47
2018
2,281
(1,791)
(33)
457
(82)
-
6
1
(75)
(201)
1
118
(217)
(79)
(7)
(385)
(3)
6
3
BACK TO CONTENTS PAGE
BACK TO FINANCE STATEMENT PAGE
Statement of Financial Position
At 30 June 2019
$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
Investments in joint venture/associate
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
Hedge reserves
Share-based compensation reserve
Shareholders' equity
Note
2019
2018
B4
E4
E3
C1
D2
C4
E3
C1
C1
C2
C3
D2
B4
D2
E5
C4
B4
D2
E5
E1
B2
E7
47
196
28
14
13
-
298
14
4,126
246
179
11
80
-
4,656
4,954
185
34
127
40
8
-
394
969
73
51
676
9
1,778
2,172
2,782
1,523
1,288
(39)
10
2,782
67
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
2,727
Contact | Annual Report 2019 FINANCIAL STATEMENTS
Statement of Changes in Equity
For the year ended 30 June 2019
$m
Balance at 1 July 2017
Profit
Change in hedge reserve (net of tax)
Change in share-based compensation reserve
Change in share capital
Dividends paid
Balance at 30 June 2018
Profit
Change in hedge reserve (net of tax)
Change in share-based compensation reserve
Change in share capital
Dividends paid
Balance at 30 June 2019
Note
E7
E10
B3
E7
E10
B2
B3
Share
capital
1,515
-
-
-
5
-
1,520
-
-
-
3
-
1,523
Retained
earnings
Other
reserves
Shareholders’
equity
1,263
132
-
-
-
(201)
1,194
345
-
-
-
(251)
1,288
-
-
14
(1)
-
-
13
-
(46)
4
-
-
(29)
2,778
132
14
(1)
5
(201)
2,727
345
(46)
4
3
(251)
2,782
BACK TO CONTENTS PAGE
BACK TO FINANCE STATEMENT PAGE
A. Our Performance
A1. Segments
Contact changed its operating segments and now reports under the two operating segments. The new operating segments
provide a clearer view of profitability in the operating businesses, as the segments exclude indirect corporate costs.
All comparative information has been restated.
The Wholesale segment includes revenue from the sale of electricity to the wholesale electricity market, to Commercial
& Industrial (C&I) customers and to the Customer segment, less the cost to generate and/or purchase the electricity and
costs to serve and distribute electricity to C&I customers.
The Customer segment includes revenue from delivering electricity, natural gas and other products and services to
customers less the cost of purchasing those products and services, and the costs to serve customers. The Customer
segment excludes Rockgas Limited (Rockgas), the discontinued operation – refer note C4.
Unallocated includes corporate functions not directly allocated to the operating segments.
The Customer segment purchases electricity from the Wholesale segment at a price fixed in a manner similar to transactions
with third parties.
A2. Earnings
The tables on the next two pages provide 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.
• EBITDAF is profit/(loss) before tax excluding interest, depreciation, amortisation and significant items.
• Underlying profit excludes the effect of significant items from reported profit.
69
EBITDAF and underlying profit are used to monitor performance and are non-GAAP profit measures. Significant
items are excluded from EBITDAF and underlying profit when they meet criteria approved by the Board of Directors.
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 revenue and operating expense categories include the
below line items:
• Wholesale electricity, net of hedging
Revenue received from electricity generated and sold
through the wholesale market, the net settlement of
electricity hedges sold on the electricity futures markets
and to generators, other retailers and industrial customers.
The significant items in this reporting period are:
• Change in fair value of financial instruments
Movements in the valuation of 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 notes D2, E7 and E8.
• Electricity purchases, net of hedging
The cost of electricity purchased from the wholesale
market to supply customers and the net settlement of
buy-side electricity hedges. Revenue received to manage
location risk, including Financial Transmission Rights is
also included.
• Electricity-related services revenue
Revenue from the sale of complementary products
and services to the wholesale market for the provision
of instantaneous reserves, frequency keeping and other
ancillary services.
• Electricity-related services cost
This includes reserve costs, constrained on costs,
frequency keeping and other ancillary service costs.
• Electricity and gas revenue
Electricity and gas revenue is recognised when energy
is supplied for customer consumption. Revenue is initially
recognised net of prompt payment discounts.
• Gain on sale of Rockgas
Rockgas was sold to Gas Services NZ Midco Limited
on 30 November 2018. Refer note C4.
• Gain on sale of Ahuroa Gas Storage (AGS) Facility
The sale of the AGS Facility to GSNZ SPV1 Limited
(GSNZ) was completed on 1 October 2018. Cash
proceeds from sale received to date are $190 million
resulting in a gain on sale of $5 million before tax after
deducting net assets of $185 million. Consideration of up
to $10 million remains unrecognised as it is contingent
on GSNZ obtaining a favourable binding ruling as to the
tax treatment of the main assets it acquired.
• Remediation for Holidays Act non-compliance
$1 million has been incurred in order to resolve
non-compliance with aspects of the Holidays Act 2003.
The provision has been reduced by $2 million as a result
of ongoing reassessment. Refer note E5.
Contact | Annual Report 2019 Wholesale
Customer Unallocated Eliminations
Total
continuing
operations
Discontinued
operation
2019
$m
Mass market electricity
C&I electricity - Fixed Price
C&I electricity - Spot
Wholesale electricity, net of hedging
Electricity related services revenue
Inter-segment electricity sales
Gas
LPG
Steam
Broadband
Total revenue
Other income
Total revenue and other income
Electricity purchases, net of hedging
Electricity purchases - Spot
Electricity related services cost
Inter-segment electricity purchases
Gas and diesel purchases
Gas storage costs
Carbon emissions
LPG purchases
Generation transmission & reserve costs
Electricity networks, levies & meter costs
- Fixed Price
Electricity networks, levies & meter costs
- Spot
Gas networks, transmission & meter costs
Broadband
Other operating expenses
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
Gain on sale of Rockgas
Gain on sale of AGS Facility
Remediation for Holidays Act
non-compliance
Tax on significant items
Profit
-
388
31
1,044
10
314
3
-
27
-
1,817
10
1,827
(901)
(27)
(10)
-
(98)
(17)
(21)
-
(40)
(139)
(3)
(8)
-
(99)
(1,363)
464
863
-
-
-
-
-
73
-
-
7
943
5
948
-
-
-
(314)
(18)
-
(3)
-
-
(421)
-
(38)
(6)
(81)
(881)
67
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(26)
(26)
(26)
(1)
-
-
-
-
(314)
-
-
-
-
(315)
-
(315)
-
-
-
314
-
-
-
-
-
-
-
-
-
1
315
-
862
388
31
1,044
10
-
76
-
27
7
2,445
15
2,460
(901)
(27)
(10)
-
(116)
(17)
(24)
-
(40)
(560)
(3)
(46)
(6)
(205)
(1,955)
505
(205)
(70)
(64)
166
2
-
5
2
(5)
170
Total
862
388
31
1,044
10
-
76
58
27
7
2,503
16
2,519
(901)
(27)
(10)
-
(116)
(17)
(26)
(37)
(40)
(560)
(3)
(46)
(6)
(212)
(2,001)
518
(205)
(70)
(67)
176
2
165
5
2
(5)
-
-
-
-
-
-
-
58
-
-
58
1
59
-
-
-
-
-
-
(2)
(37)
-
-
-
-
-
(7)
(46)
13
-
-
(3)
10
-
165
-
-
-
175
345
Underlying profit per share (cents)
23.2
1.4
24.6
BACK TO CONTENTS PAGE
BACK TO FINANCE STATEMENT PAGE
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 2018
$m
Mass market electricity
C&I electricity - Fixed Price
C&I electricity - Spot
Wholesale electricity, net of hedging
Electricity related services revenue
Inter-segment electricity sales
Gas
LPG
Steam
Broadband
Total revenue
Other income
Total revenue and other income
Electricity purchases, net of hedging
Electricity purchases - Spot
Electricity related services cost
Inter-segment electricity purchases
Gas and diesel purchases
Gas storage costs
Carbon emissions
LPG purchases
Generation transmission & reserve costs
Electricity networks, levies & meter costs
- Fixed Price
Electricity networks, levies & meter costs
- Spot
Gas networks, transmission & meter costs
Broadband
Other operating expenses
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
Gain on sale of Rockgas
Gain on sale of AGS Facility
Remediation for Holidays Act
non-compliance
Tax on significant items
Profit
Wholesale
Customer Unallocated Eliminations
Total
continuing
operations
Discontinued
operation
-
432
20
705
7
314
4
-
25
-
1,507
-
1,507
(657)
(17)
(7)
-
(107)
(1)
(15)
-
(39)
(152)
(3)
(9)
-
(103)
(1,110)
397
884
-
-
-
-
-
71
-
-
1
956
4
960
-
-
-
(314)
(16)
-
(2)
-
-
(432)
-
(37)
(1)
(82)
(884)
76
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(24)
(24)
(24)
(1)
-
-
-
-
(314)
-
-
-
-
(315)
-
(315)
-
-
-
314
-
-
-
-
-
-
-
-
-
1
315
-
883
432
20
705
7
-
75
-
25
1
2,148
4
2,152
(657)
(17)
(7)
-
(123)
(1)
(17)
-
(39)
(584)
(3)
(46)
(1)
(208)
(1,703)
449
(215)
(84)
(40)
110
3
-
-
-
(1)
112
-
-
-
-
-
-
-
121
-
-
121
2
123
-
-
-
-
-
-
(3)
(73)
-
-
-
-
-
(15)
(91)
32
(5)
-
(7)
20
-
-
-
-
-
20
71
Total
883
432
20
705
7
-
75
121
25
1
2,269
6
2,275
(657)
(17)
(7)
-
(123)
(1)
(20)
(73)
(39)
(584)
(3)
(46)
(1)
(223)
(1,794)
481
(220)
(84)
(47)
130
3
-
-
-
(1)
132
Underlying profit per share (cents)
15.4
2.7
18.1
Contact | Annual Report 2019
A3. Free cash flow
Free cash flow is a non-GAAP cash measure that shows the amount of cash Contact has available to distribute to
shareholders, reduce debt or reinvest in growing the business. A reconciliation from EBITDAF to NZ GAAP operating
cash flows and to free cash flow is provided below.
$m
EBITDAF
Tax paid
Change in working capital net of investing and financing activities
Non-cash share-based compensation
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/operations (net of tax)
Free cash flow
Operating free cash flow per share (cents)
Note
A2
E6
B3
2019
518
(47)
(7)
4
(2)
466
(65)
(60)
341
390
731
47.5
2018
481
(33)
7
3
(1)
457
(78)
(78)
301
6
307
42.0
Proceeds from sale of assets/operations include tax paid of $52 million in relation to the sale of AGS assets and the
operations of Rockgas.
Stay in business capital expenditure is required to maintain our business operations and includes major plant inspections
and replacements of existing assets.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 B. Our Funding
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
our capital.
To manage the capital structure, the Board of Directors
may adjust the amount and nature of distributions to
shareholders, issue new shares and increase or repay debt.
Contact manages its capital structure to support a BBB
credit rating and a gearing ratio suitable to the nature of
our business.
Note
B4
$m
Borrowings
Shareholders' equity
Total capital funding
Gearing ratio
2019
1,096
2,782
3,878
28.3%
2018
1,494
2,727
4,221
35.4%
B2. Share capital
Share capital is comprised of ordinary shares listed on
the NZX and ASX. Certain ordinary shares are held in trust
on behalf of employees under the Contact Share scheme
(note E10). All shareholders are entitled to receive
distributions and to make one vote per share.
Balance at 30 June 2018
Balance at 1 July 2018
Share capital issued
Note
Number
716,286,570
716,286,570
488,212
Balance at 30 June 2019
716,774,782
Comprised of:
Ordinary shares
Contact Share
716,454,941
E10
319,841
$m
1,520
1,520
3
1,523
1,524
(1)
Earnings and operating free cash flow per share
48.2
s
p
c
48.2
47.5
42.0
18.4
18.4
24.6
18.1
Profit (basic)
Profit (diluted)
Underlying
profit (basic)
Operating free
cash flow (basic)
2019
2018
Weighted average
2019
2018
Number of shares (basic)
716,623,167
716,075,154
Number of shares (diluted)
716,715,206
716,154,227
The basic earnings per share calculations use 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, Performance
Share Rights and Deferred Share Rights that are currently
exercisable or will become exercisable because vesting
depends only on an employee staying with Contact or it is
likely vesting conditions will be met.
73
Dividends
Paid during the year ended
Cents per share
2017 final
2018 interim
30 June 2018
2018 final
2019 interim
30 June 2019
15.0
13.0
19.0
16.0
$m
107
93
201
136
115
251
On 9 August 2019, the Board resolved to pay a 65% imputed
final dividend of 23 cents per share on 17 September 2019.
On 9 August 2019, Contact had $16 million of imputation
credits available for use in future periods.
Contact | Annual Report 2019
B4. Borrowings
Short term funding
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 E8).
Borrowings denoted with an asterisk (*) are Green Debt
Instruments under Contact’s Green Borrowing Programme,
which has been certified by the Climate Bonds Initiative.
At 30 June 2019 Contact remains compliant with the
requirements of the programme. Further information is
available on the Sustainability section on our website.
$m
Bank overdraft
Coupon
Maturity
< 3 months Floating
2019
6
2018
2
* Commercial paper
< 3 months Floating
* Bank facilities
Lease obligations
Various
Various
Floating
Various
* Retail bonds – CEN020
May 2019
* Wholesale bonds
* USPP notes – US$56m
May 2020
Dec 2020
* Retail bonds – CEN030
Nov 2021
* Retail bonds – CEN040
Nov 2022
* USPP notes – US$22m
Dec 2023
5.80%
5.28%
3.46%
4.40%
4.63%
4.19%
* USPP notes – US$51m
Dec 2023
4.09%
* USPP notes – US$42m
Dec 2023
* Retail bonds – CEN050
Aug 2024
* USPP notes – US$58m
* USPP notes – US$43m
Dec 2025
Dec 2025
3.63%
3.55%
4.33%
3.85%
* Export credit agency facility Nov 2027
Floating
* USPP notes – US$15m
* USPP notes – US$23m
* USPP notes – US$30m
Dec 2027
Dec 2028
Dec 2028
3.95%
4.44%
4.51%
Total borrowings at face value
Deferred financing costs
Total borrowings at amortised cost
Fair value adjustment on hedged borrowings
Carrying value of borrowings
Current
Non-current
Liabilities held for sale – lease obligations
60
16
25
-
50
70
150
100
28
64
61
100
73
62
61
22
29
38
140
231
38
222
50
70
150
100
28
64
61
–
73
62
68
22
29
38
1,015
1,448
(5)
(6)
1,010
1,442
86
52
1,096
1,494
127
969
-
513
972
9
A summary of the changes in Contact’s borrowings is
provided below:
$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
2019
1,494
(425)
(8)
1
34
2018
1,549
(99)
3
1
40
Contact uses bank facilities for general corporate
purposes including to manage its liquidity risk (note D3).
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 within one
year of the reporting period end.
Contact’s total bank facilities (including undrawn facilities
of $394 million at 30 June 2019) have a range of maturities:
Maturity $m
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
More than 3 years
2019
2018
-
165
120
125
410
160
160
175
100
595
These bank facilities form part of Contact’s Green Borrowing
Programme.
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
2019, this collateral was $17 million (2018: $3 million) and
is included within cash.
B5. Net interest expense
Interest expense on borrowings is made up of interest on
drawn debt and interest rate swaps, and the unwind of
deferred financing costs.
$m
Note
Interest expense on borrowings
Unwind of discount on provisions
E5
Interest income
2019
(69)
(5)
4
(70)
2018
(80)
(5)
1
(84)
Borrowings at the end of the year
1,096
1,494
Net interest expense
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
C. Our Assets
C1. Property, plant and 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
• computer software: our SAP system that is used for customer service and billing, finance functions and generation asset
management, which has a value of $216 million (2018: $239 million) and a remaining life of 10 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
Cost
Balance at 1 July 2017
Additions
Transfers from capital work in progress
Transfers to assets held for sale
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Additions
Transfers from capital work in progress
Disposals
Balance at 30 June 2019
Depreciation and impairment
Balance at 1 July 2017
Depreciation charge
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Depreciation charge
Balance at 30 June 2019
Carrying value
At 30 June 2018
At 30 June 2019
Generation plant
and equipment
Other land,
buildings, plant &
equipment
Capital work in
progress
Leased assets
5,708
25
90
(180)
(50)
5,593
5,593
14
20
-
5,627
(1,451)
(167)
30
50
(1,538)
(1,538)
(160)
(1,698)
4,055
3,929
270
5
2
(165)
(4)
108
108
1
2
-
111
(179)
(10)
93
4
(92)
(92)
(6)
(98)
16
13
221
28
(92)
(6)
-
151
151
27
(22)
-
156
(1)
-
-
-
(1)
(1)
-
(1)
150
155
75
3
-
(18)
-
60
60
1
-
(1)
60
(32)
(5)
9
-
(28)
(28)
(3)
(31)
32
29
75
Total
6,274
61
-
(369)
(54)
5,912
5,912
43
-
(1)
5,954
(1,663)
(182)
132
54
(1,659)
(1,659)
(169)
(1,828)
4,253
4,126
Contact | Annual Report 2019 Intangible assets
$m
Cost
Balance at 1 July 2017
Additions
Transfer to assets held for sale
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Additions
Disposals
Balance at 30 June 2019
Amortisation
Balance at 1 July 2017
Amortisation charge
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Amortisation charge
Balance at 30 June 2019
Carrying value
At 30 June 2018
At 30 June 2019
Current
Non-current
Computer software
and capital
work in progress
Gas storage
rights
Carbon emission
units
442
8
(2)
(1)
447
447
20
-
467
(150)
(37)
2
(185)
(185)
(36)
(221)
262
246
-
246
35
-
(35)
-
-
-
-
-
-
(6)
(1)
7
-
-
-
-
-
-
-
-
11
15
-
(16)
10
10
32
(28)
14
-
-
-
-
-
-
-
10
14
14
-
Total
488
23
(37)
(17)
457
457
52
(28)
481
(156)
(38)
9
(185)
(185)
(36)
(221)
272
260
14
246
Capital commitments
Depreciation and amortisation
At 30 June 2019, Contact was committed to $22 million
of capital expenditure (2018: $6 million) and $38 million
of carbon forward contracts (2018: $27 million), of which
$29 million is due within one year of the reporting period
end and $31 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.
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
Rate/hours
1 - 33%
8,000 - 100,000
2 - 33%
5 - 33%
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
C2. Goodwill and asset impairment testing
Contact has two cash-generating units (CGUs): Wholesale and Customer. The Customer CGU includes goodwill
of $179 million, which is unchanged from the prior reporting period. Capital work in progress (CWIP) includes $98 million
(2018: $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. 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 6.5% and 7.5% to arrive at the present value,
or recoverable amount, of each CGU. The future generation development valuations use the same key inputs as the
Wholesale CGU plus an estimate of plant commissioning costs.
No impairments were recognised in the current or prior period.
The key inputs to CGU and future generation development cash flows are:
Customer CGU
Wholesale 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.
The calculation of value in use of the CGU is sensitive to the inputs used in the discounted cash flow valuation model.
A change in future wholesale electricity prices used to determine Wholesale 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 Wholesale CGU.
Wholesale electricity prices are influenced by a number of factors that are difficult to predict, in particular weather,
which can impact short term prices. Wholesale electricity prices may also be adversely affected by a reduction in demand,
the availability of fuel and generation capacity in the wholesale electricity market, competitor and transmission system
availability. This could affect both the volume of energy Contact can generate as well as the price it receives for generation.
Whether Contact is adversely affected will depend on the specific circumstances and how those circumstances impact
Contact’s portfolio.
The discount rate is an estimate of Contact’s weighted average cost of capital and is influenced by a number of external
factors such as the risk-free rate and inflation. A significant increase in the discount rate may result in an impairment of
the Wholesale CGU.
77
Contact | Annual Report 2019 C3. Investments in joint venture
and associate
Contact applies the equity method of accounting for its
investments in Simply Energy Limited, a joint venture,
and Drylandcarbon One Limited Partnership, an associate.
The initial investments are recognised at cost and are
subsequently adjusted for Contact’s share of the entities’
profits or losses.
Simply Energy Limited
On 28 June 2019, Contact acquired a 49.9% share of Simply
Energy Limited (Simply) for $11 million, of which $3 million
is to be paid over the next two years. Simply is based in
Wellington, New Zealand and provides energy solutions to
independent generators, retailers and commercial energy
users. The transaction includes an option for Contact to
acquire the remaining shares in Simply to take full ownership
after two years. The purchase price for the remaining shares
will be based on the performance of Simply, with a minimum
purchase price of $7 million.
Drylandcarbon One Limited Partnership
On 20 March 2019, Contact acquired 16.5% of
Drylandcarbon One Limited Partnership (Drylandcarbon)
by committing to invest up to $20 million over the next five
years. Drylandcarbon is based in Wellington, New Zealand
and is focused on long term carbon farming and afforestation
in New Zealand, which will offset some of Contact’s carbon
obligations. Drylandcarbon is accounted for as an associate,
as Contact has significant influence through its participation
in Drylandcarbon’s financial and operating policy decisions
being equivalent to the other three foundational investors.
C4. Discontinued operation
The sale of Rockgas to Gas Services NZ Midco Limited
completed on 30 November 2018. The results for the period
up to 30 November 2018 and the gain on sale have been
presented as a discontinued operation in the Statement
of Comprehensive Income, with a breakdown in note A2.
Gain on sale of Rockgas
$m
Sales price
Working capital and net debt adjustments
Settlement of carbon and income tax liabilities
Carrying value of assets disposed
Costs to sell
Gain on sale
2019
260
(1)
(12)
(77)
(5)
165
Net cash flows of the discontinued operation
The Statement of Cash Flows, free cash flow (note A3) and
the reconciliation of profit to operating cash flows (note E6)
include the cash flows for the discontinued operation.
The cash flows for the discontinued operation up to the date
of disposal are presented separately below.
$m
Net operating cash flows
Net investing cash flows
Net cash flows
2019
9
241
250
2018
35
(6)
29
Net investing cash flows include the cash proceeds from
the sale of Rockgas being the sales price less the working
capital and net debt adjustments, settlement of carbon
and income tax liabilities and costs to sell incurred in the
current financial period.
Operating free cash flow from the discontinued operation
is $7 million (2018: $29 million) and free cash flow is
$250 million (2018: $29 million).
Financial position of discontinued operation
The carrying amounts of assets and liabilities as at the date
of sale were:
$m
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment and intangible assets
Goodwill
Other non-current assets
Assets
Trade and other payables
Tax payable
Borrowings (lease obligations)
Provisions
Deferred tax
Liabilities
Carrying value of assets disposed
30 Nov 2018
1
23
4
84
3
3
118
14
8
9
2
8
41
77
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 D. Our Financial Risks
Contact’s financial risk management system mitigates the
exposure to market, liquidity and credit risks by ensuring
that material risks are identified, the financial impact is
understood, and tools and limits are in place to manage
exposures. Written policies provide the framework for
Contact’s financial risk management system.
D1. Transition to NZ IFRS 9 Financial
Instruments
NZ IFRS 9 Financial Instruments (NZ IFRS 9) replaces
NZ IAS 39 Financial Instruments: Recognition and
Measurement (NZ IAS 39). Contact transitioned to NZ IFRS 9
with an initial date of application of 1 July 2018. NZ IFRS 9
addresses the classification and measurement of financial
assets and financial liabilities, the impairment of financial
assets and hedge accounting. The transition has resulted in
two key changes, being the recognition of a cost of hedging
reserve and the application of hedge accounting to interest
rate swaps (IRS) that were not previously hedge accounted.
Contact now recognises a cost of hedging reserve to record
the change in the fair value of the cost to convert foreign
currency cash flows under Cross Currency Interest Rate
Swaps (CCIRS) into New Zealand dollars. Under NZ IAS 39
this was included in the cash flow hedge reserve (CFHR).
Contact has elected to apply NZ IFRS 9 on a retrospective
basis, however has not restated comparative information.
Instead the impact of adopting the new standard is
reflected in opening equity on 1 July 2018. This resulted
in an increase in the cost of hedging reserve of $1 million,
offset by a decrease in the cash flow hedge reserve of
$1 million. These reserves are presented together in the
Statement of Financial Position as ‘Hedge reserves’.
The new hedge accounting requirements allow for all IRS to
be designated into hedging relationships, which aligns more
closely with Contact’s interest rate risk management activity.
This has resulted in IRS not previously designated in hedge
relationships being hedge accounted from 1 July 2018 as
cash flow hedges.
D2. Market risk
Interest rate risk
Contact has 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 Contact could have
secured that debt at lower rates, while for floating rate debt
there is uncertainty of future cash interest payments.
Contact manages these risks through the use of IRS
and CCIRS to ensure that the total debt portfolio has an
appropriate amount of fixed and floating rate exposure.
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 this 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 converts foreign
currency principal and interest payments to NZD at a fixed
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 wholesale and customer
businesses provide a natural hedge for most of this
exposure. Derivatives may be used to fix the price at which
Contact buys or sells any residual exposure to electricity
price risks. 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.
79
Contact | Annual Report 2019 Summary of derivative financial instruments
A summary of the exposures from derivatives and the impact on Contact’s financial position is provided below grouped
by type of hedge relationship.
At 30 June 2019
Fair value
hedge
Cash flow and
fair value hedge
Cash flow hedge1
No hedge
relationship
$m
Notional amount of derivatives
Maturity years
Average rate / price3
IRS
238
CCIRS
447
IRS
620
Electricity price
derivatives
Electricity price
derivatives2
Total
3,024 GWh
428 GWh
2020 - 2024
2020 - 2028
2020 - 2026
2019 - 2022
2019 - 2023
3.1%
3.7%/0.76USD
4.3%
$67/MWh
$93/MWh
Carrying value of derivatives - asset
Carrying value of derivatives - liability
Carrying value of hedged borrowings
Fair value hedge adjustments to borrowings
8
-
245
(8)
78
(4)4
524
(78)
-
(77)
-
-
1
(29)
-
-
6
(3)
-
-
93
(113)
769
(86)
1. In addition to the derivatives disclosed, Contact had foreign exchange derivatives at 30 June 2019 with a notional value of $4 million and a carrying
value of nil.
2. Notionals, maturities and average prices for electricity price hedges not in hedge relationships do not include fixed price, variable volume
contracts and options not yet called.
3. Average interest rates for IRS and CCIRS are based on their pay legs. For pay-float swaps (CCIRS and IRS in fair value hedges), the rate comprises
the floating base rate plus the margin.
4. The CCIRS liability arises from the cash flow hedge component.
The change in fair value of derivatives recognised in the Statement of Comprehensive Income, within significant items and
within other comprehensive income (OCI), is provided below grouped by type of hedge relationship. The fair value movement
includes the discontinued operation.
For the year ended 30 June 2019
Fair value
hedge
Cash flow and
fair value hedge
Cash flow hedge
No hedge
relationship
$m
Change in fair value recognised in significant
items
- Hedge ineffectiveness
- Hedge effectiveness
- Non-hedge movements
- Fair value adjustments to hedged borrowings
Total change in fair value
in significant items
Hedge effectiveness recognised in OCI
IRS
CCIRS
Electricity price
derivatives
Electricity price
derivatives
IRS
Total
-
2
-
(2)
-
-
-
32
-
(32)
-
(2)
-
-
-
-
-
-
-
-
-
-
(23)
(31)
-
-
2
-
2
-
-
34
2
(34)
2
(56)
Further information on hedging activities and fair value of derivatives is provided in notes E7 and E8.
Sensitivities
The graph below summarises the impact on derivative valuations of possible changes in forward wholesale electricity prices and
forward interest rates. The analysis assumes that all variables were held constant except for the relevant market risk factor.
Hedging impact on CFHR
2019 Forward electricity prices (+/- 10%)
2018 Forward electricity prices (+/- 10%)
2019 Forward interest rates (+100/-25bps)
Hedging impact on post-tax profit/(loss)
2019 Forward electricity prices (+/-10%)
2018 Forward electricity prices (+/- 10%)
2019 Forward interest rates (+100/-25bps)
2018 Forward interest rates (+100/-25bps)
Increase in rate
Decrease in rate
(20)
(15)
(10)
(5)
0
5
10
15
20
$m (Unfavourable) / Favourable
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
D3. Liquidity risk
To manage 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. 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 prior reporting period.
CCIRS cash flows are included within Borrowings in the table below. US dollar inflows on the CCIRS offset the US dollar
outflows on the USPP notes.
2019
$m
Trade and other payables
Borrowings
Electricity price derivatives - net settled
IRS - net settled
Foreign exchange derivatives - inflow
Foreign exchange derivatives - outflow
2018
Trade and other payables
Borrowings
Electricity price derivatives - net settled
IRS - net settled
Foreign exchange derivatives - inflow
Foreign exchange derivatives - outflow
D4. Credit risk
Total contractual
cash flows
Less than
1 year
1-2 years
2-5 years
(159)
(1,229)
(26)
(33)
4
(4)
(1,447)
(147)
(1,689)
7
(37)
4
(4)
(1,866)
(159)
(186)
(18)
(10)
4
(4)
(373)
(147)
(559)
6
(10)
4
(4)
(710)
-
(121)
(6)
(8)
-
-
(135)
-
(129)
-
(10)
-
-
(139)
-
(518)
(3)
(14)
-
-
(535)
-
(516)
1
(15)
-
-
(530)
More than
5 years
-
(404)
-
(1)
-
-
(405)
-
(485)
-
(2)
-
-
(487)
81
Total credit risk exposure, is measured by the financial instruments in an asset position of $316 million (2018: $227 million).
To minimise credit risk exposure, Contact has 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.
Contact | Annual Report 2019
E. Other Disclosures
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 OCI.
$m
Profit before tax - continuing operations
Tax at 28%
Tax effect of adjustments:
- Prior period adjustments
- Other
Tax expense - continuing operations
Current
Deferred
2019
239
(67)
(1)
(1)
(69)
(125)
56
2018
153
(43)
3
(1)
(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.
$m
Balance at 1 July 2017
Recognised in profit/(loss)
Recognised in OCI
Deduct held for sale
liabilities
PP&E and
intangible
assets
(783)
(7)
-
10
Balance at 30 June 2018
(780)
Recognised in profit/(loss)
Recognised in OCI
Recognised in other
reserves
52
-
-
Derivative
financial
instruments Other
18
-
(5)
1
14
(1)
17
-
16
2
-
(3)
15
5
-
2
Total
(749)
(5)
(5)
8
(751)
56
17
2
Balance at 30 June 2019
(728)
30
22
(676)
E2. Operating expenses
Other operating expenses for continuing operations (note A2)
include total labour costs of $99 million (2018: $96 million).
Labour costs include contributions to KiwiSaver of $3 million
(2018: $3 million).
Audit fees paid to Contact’s auditors (KPMG) of $509,000
for review of the interim, and audit of the year end, financial
statements (2018: $516,500), $2,500 for scrutineering at the
Annual meeting (2018: $2,500) and $3,500 for supervisor
reporting (2018: $3,500).
Contact’s inventories are comprised of gas in storage for use
in thermal generation, consumables and spare parts for power
stations, and diesel fuel for use in the Whirinaki power plant.
All inventories are stated at cost. Inventory gas is split between
current and non-current based on expected gas usage.
$m
Inventory gas
Consumables and spare parts
Diesel fuel
Current
Non-current
2019
28
10
4
42
28
14
2018
46
9
3
58
35
23
E4. Trade and other receivables
$m
Trade receivables
Unbilled receivables
Provision for impairment
Net trade receivables
Contract assets
Prepayments
2019
2018
85
93
(2)
176
16
4
196
65
96
(2)
159
13
3
175
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.
Ageing of trade receivables past due but not impaired are:
$m
Less than one month
Greater than one month
2019
2018
13
5
18
15
3
18
When Contact has been unable to collect amounts due from
customers those debts are written off. Trade receivables,
net of recoveries, of $2 million (2018: $6 million) were written
off during the reporting period.
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
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 a period of one to three years.
$m
Opening balance
Additions
Amortised to revenue
Amortised to operating expenses
Closing balance
Of the total contract assets balance, $8 million (2018:
$7 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.
E6. Profit to operating cash flows
A reconciliation of profit to operating cash flows is provided
below. Refer to note C4 for the operating cash flows for the
discontinued operation.
$m
Profit
2019
2018
Depreciation and amortisation
13
12
(6)
(3)
16
12
9
(5)
(3)
13
Amortisation of contract assets
Change in fair value of financial instruments
Movement in provisions
Net interest expense
Bad debt expense
Share-based compensation
Significant items (net of tax)
2019
345
205
9
(2)
(2)
70
5
4
(171)
2018
132
220
8
(3)
-
84
7
3
(2)
Changes in assets and liabilities, net of non-
cash, investing and financing activities
Trade and other receivables
(40)
(16)
E5. Provisions
Inventories and intangible assets
Trade and other payables
Contact has restoration and environmental rehabilitation
provisions that represent the expected costs to abandon
and restore geothermal wells and generation sites and to
remove asbestos from properties.
Tax payable
Deferred tax
Operating cash flows
12
8
36
(13)
466
9
-
10
5
457
83
The other provision includes $1 million (2018: $4 million)
for remediation of the Holidays Act non-compliance.
$m
Balance at 1 July 2018
Released
Utilised
Unwind of discount
Balance at 30 June 2019
Current
Non-current
Restoration/
environmental
rehabilitation
(50)
-
-
(5)
(55)
(7)
(48)
Other
(9)
2
3
-
(4)
(1)
(3)
Total
(59)
2
3
(5)
(59)
(8)
(51)
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 6.5% and 7.5%.
E7. Hedging activities
Contact has designated derivatives used to manage
market risks into fair value and cash flow hedge relationships.
A hedge ratio of 1:1 is applied for all hedge relationships,
as the notional value of the derivative matches the notional
value of the hedged item.
Fair value hedges
Interest rate risk
The derivatives (IRS) Contact uses to manage its interest
rate risk meet the criteria for hedge accounting where they
directly relate to issued debt. The hedge is against future
fair value movements in the debt and can be for a portion
of the debt. Contact has designated its wholesale bond and
$188 million of retail bonds into fair value hedge relationships
with receive-fixed, pay-floating IRS. The fixed interest rates
and other terms match the relevant bond to create an
economic relationship.
The bonds are recognised at amortised cost. Both the
hedged risk and the hedging instrument (IRS) are recognised
at fair value. The change in the fair value of both items is
recognised in profit/(loss) and will offset to the extent the
hedging relationship is effective. There are no material
sources of ineffectiveness.
Contact | Annual Report 2019 Cash flow hedges
The derivatives Contact uses to manage exposure to
wholesale electricity prices, floating interest rate risk and
foreign exchanges rates usually qualify for cash flow hedge
accounting. For cash flow hedges, 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.
The movement in hedge reserves of $46 million (continuing
operations: $43 million, discontinued operation: $3 million)
is reconciled below. The discontinued operation movement
is from the change in fair value of LPG price derivatives and
foreign exchange contracts.
$m
Opening balance
Note
Effective portion of cash flow hedges D2
Transferred to revenue
Transferred to deferred tax
Closing balance
2019
7
(56)
(7)
17
(39)
2018
(8)
15
5
(5)
7
Included in the closing balance at 30 June 2019 is $2 million
relating to the cost of hedging reserve (2018: nil).
Commodity price risk
Contact designates forecast electricity sales and purchases
into cash flow hedges with electricity price derivatives.
Volumes are matched to create an economic relationship.
There are no material sources of ineffectiveness.
Interest rate risk
Contact designates a certain level of its floating rate
exposure into cash flow hedges with receive-floating,
pay-fixed IRS in line with set internal policies.
An economic relationship exists between the floating rate
exposure and the IRS based on the reference interest rate.
Ineffectiveness arises due to IRS that have been designated
into hedge relationships part way through their term. These
IRS were designated on 1 July 2018 on adoption of NZ IFRS 9.
Combined fair value and cash flow hedges
Contact has designated all its USPP notes into both fair value
and cash flow hedge relationships with CCIRS, depending on
the component of the USPP note being hedged:
• For the fair value hedges the change in fair value of the
USPP note is recognised in profit/(loss) to offset the
change in fair value of the relevant CCIRS component.
• For the cash flow hedges the change in fair value of
the CCIRS component is recognised in the cash flow
hedge reserve.
• The cost to convert foreign currency cash flows under
CCIRS is excluded from the hedge relationship and
recognised in the cost of hedging reserve.
An economic relationship exists based on the reference
interest rates, exchange rate and other terms. There are
no material sources of ineffectiveness.
Derivatives not in hedge relationships
These are electricity price derivatives purchased as part
of a requirement to participate in the ASX futures electricity
market, financial transmission rights and electricity price
options. All changes in fair value of these derivatives are
recognised directly in profit/(loss).
E8. Financial instruments at fair value
All derivatives are shown gross by instrument in the
Statement of Financial Position (and in note D2) 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
prior reporting period, are:
$m
CCIRS
Interest rate swaps
Electricity price derivatives
2019
Asset
2019
Liability
2018
Asset
2018
Liability
74
-
4
78
-
(69)
(29)
(98)
43
-
8
51
-
(47)
-
(47)
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).
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. adjustments
as a consequence of initial recognition differences).
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
The following table provides a breakdown of the fair value
of derivatives, excluding held for sale derivatives in the prior
period, by the source of key valuation inputs:
E9. Financial instruments at
amortised cost
$m
Sourced from market data
Derived from market data
Electricity price estimates
2019
(6)
9
(23)
(20)
2018
-
(2)
6
4
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
Gain/(loss) in OCI
Instruments issued
Closing balance
2019
6
(4)
-
(25)
-
(23)
2018
(8)
1
2
6
5
6
For these derivatives a 10% increase in the electricity
price would result in an unfavourable change in fair value
of $40 million (2018: $21 million) and a 10% decrease would
result in a favourable change in fair value of $20 million (2018:
$21 million).
Initial recognition difference
Contact has two agreements in place with Meridian Energy
Limited for the supply of 80MW and 18.75MW of electricity,
which form part of the electricity required by New Zealand
Aluminium Smelters Limited to operate its Tiwai smelter.
The 80MW supply agreement has a remaining term of
up to 11 years and the 18.75MW supply agreement runs
until December 2022. These supply agreements are
recognised as electricity price derivatives at fair value.
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
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
2019
1
-
1
(3)
(1)
2018
(33)
3
8
23
1
The value of financial instruments carried at amortised
cost, excluding held for sale assets and liabilities in the prior
reporting period, is provided in the table below.
$m
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
2019
47
176
(159)
2018
3
159
(147)
(1,010)
(1,432)
The fair value of borrowings is $1,115 million (2018: $1,503
million). This fair value is derived from market data.
E10. Share-based compensation
Equity scheme
Contact provides an equity award to certain eligible employees
made up of options, performance share rights (PSRs) and
deferred share rights (DSRs). 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 an equivalent value in 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.
The table below provides a reconciliation of the number of
outstanding options and their weighted average exercise price.
Balance at 1 July 2017
Granted
Exercised
Lapsed
Balance at 30 June 2018
Exercised
Lapsed
Balance at 30 June 2019
Options
Number outstanding
9,646,661
1,148,119
(4,318,578)
(330,834)
6,145,368
(2,929,087)
(596,100)
2,620,181
Price
$5.28
$5.54
$5.24
$5.30
$5.36
$5.54
$5.32
$5.17
At 30 June 2019, no share options were exercisable.
85
Contact | Annual Report 2019
The table below provides a reconciliation for the number of
outstanding PSRs and DSRs. The exercise price of these
awards is nil.
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:
Number outstanding
Balance at 1 July 2017
Granted
Exercised
Lapsed
Balance at 30 June 2018
Granted
Exercised
Lapsed
d
r
a
w
a
r
e
p
$
PSRs
536,303
DSRs
595,236
274,347
309,212
-
(276,784)
(43,085)
(39,452)
767,565
588,212
124,751
859,458
-
(271,932)
3.03 3.03
0.42
5.24
4.88
5.82
5.54
(100,475)
(144,840)
Share options
PSRs
DSRs
Contact Share
Balance at 30 June 2019
791,841
1,030,898
2019
2018
Share options had a weighted average remaining life of one
year and nine months (2018: one year, 10 months), PSRs
had two years (2018: two years, nine months) and DSRs
had 11 months (2018: 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.
Key inputs in determining the fair values are:
$m
Risk-free interest rate
Expected dividend yield
Expected share price volatility
2019
2%
7%
17%
2018
2%
6%
20%
E11. Related parties
Contact’s related parties include Directors, the Leadership
Team (LT), Simply and Drylandcarbon. Contact sold its 50%
interest in Rockgas Timaru Limited on 30 November 2018.
Transactions with Rockgas Timaru Limited up to that point
and all other related party transactions are disclosed below.
Received/(paid) $m
Rockgas Timaru Limited
Sale of LPG
Contact Share
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
403,373
105,471
(121,199)
387,645
103,086
(170,890)
319,841
2019
2018
1
(1)
(5)
(2)
(1)
2
(1)
(5)
(1)
(1)
Members of the Leadership Team and Directors purchase
goods and services from Contact for domestic purposes on
normal commercial terms and conditions. For members of
the Leadership Team this includes staff discount available to
all eligible employees.
E12. New accounting standards
There are no new accounting standards issued but not yet
effective which materially impact Contact.
Number outstanding
Balance at 1 July 2017
Shares purchased and issued
Transferred to employees
Balance at 30 June 2018
Shares purchased and issued
Transferred to employees
Balance at 30 June 2019
These shares have a weighted average remaining life of one
year and three months (2018: one year, three months).
Share-based compensation reserve
The increase in the share-based compensation reserve
of $4 million is reconciled below:
Note
2019
2018
$m
Opening balance
Exercised share scheme awards
Share-based compensation expense
Deferred tax on share schemes
E1
Closing balance
6
(2)
4
2
10
8
(4)
3
-
6
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
INDEPENDENT
AUDITOR’S
REPORT
87
To the shareholders of
Contact Energy Limited
Contact | Annual Report 2019 REPORT ON THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS
Opinion
In our opinion, the consolidated financial statements of
Contact Energy Limited (the ’company’), the entities over
which it has control or joint control and its investments in
associates (the ‘group’) on pages 63 to 86:
i. present fairly in all material respects the Group’s
financial position as at 30 June 2019 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 2019;
• 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. 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.
BACK TO CONTENTS PAGE
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 2019.
The group continued to focus on delivery of its operational
efficiency programme in the Customer business to reduce
the cost to serve while improving the customer experience.
The Wholesale business is working with customers, partners
and suppliers to decarbonise New Zealand’s energy sector by
evaluating options to economically develop their consented
Tauhara geothermal resource.
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 $10 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 matter: Carrying value of cash-generating units
Notes C1 and C2 of the financial statements
The Group separates its business into two cash-generating
units (CGUs) for the purpose of asset impairment testing.
The value of each CGU, including any allocated goodwill,
is supported by a discounted cash flow model which is
inherently subjective.
We focused primarily on the generation assets due to the
significance of the assets relative to the Group’s financial
position, the impact changes in underlying assumptions
may have and the sensitivity of the generation portfolio to
developments and changes in the electricity generation
sector as a whole.
The significant assumptions in 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 2019 of $2.8 billion to its market capitalisation of
$5.7 billion and noted an implied headroom of $2.9 billion.
Key audit matter: Future generation development —
capital work in progress
Notes C1 and C2 of the financial statements
We considered the recoverability of capital work in progress,
with a particular focus on the Tauhara geothermal project
that is 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 this project.
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 modelled cash flows.
We considered known third party future generation
developments and the potential impact of these on the
Tauhara geothermal project as well as the wholesale
generation market as a whole.
We tested the significant judgements in the Tauhara project
modelled cash flows by comparing:
• forward electricity prices to external market projections;
• future generation volumes, operating costs and asset
renewal costs to budgets; and
• the model’s 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.
The announcement by Contact and predicted electricity
market capacity demonstrates continued support for the
future development of the generation projects held in
work in progress.
Key audit matter: Valuation of derivative
financial instruments and adoption of NZ IFRS 9
Financial Instruments
As explained in note D, the Group’s activities expose
it to electricity wholesale price, currency and interest
rate risks which are managed using derivative financial
instruments. These instruments are carried at their
fair value as at 30 June 2019.
There is complexity and judgement involved in determining
the appropriate valuation and accounting treatment,
including consideration of transition and disclosure impacts
for the adoption of NZ IFRS 9 Financial Instruments.
How the matter was addressed in our audit
Our audit procedures to assess the valuation and accounting
treatment for the Group’s derivatives included:
• Challenging key assumptions applied by management
and agreeing underlying data to the contract terms.
We have independently recalculated the fair value of
electricity price derivatives.
• Our financial instrument specialists re-valuing all
interest rate derivatives using specialist treasury
management software.
• Our financial instrument specialists reviewing, upon
adoption, the introduction of the cost of hedging
reserve and impact on the cash flow hedge reserve,
and new disclosure requirements following transition
to NZ IFRS 9.
• Evaluating the hedge effectiveness of the interest
rate derivatives. Our financial instrument specialists
assessed the effectiveness of these hedges,
following NZ IFRS 9 requirements, by independently
modelling the future changes in the value of these
instruments to assess whether the underlying
derivatives were effective.
Other information
The Directors, on behalf of the company, are responsible
for the other information included in the Annual Report.
Other information includes the Chair’s and Chief Executive
Officer’s reviews, statutory information, sustainability
reporting and five year summary and statistics. Our opinion
on the consolidated financial statements does not cover
any other information and we do not express any form of
assurance conclusion thereon.
89
Contact | Annual Report 2019 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
For and on behalf of
David Gates
KPMG
Wellington
9 August 2019
BACK TO CONTENTS PAGE
CORPORATE
DIRECTORY
Board of Directors
Robert McDonald (Chair)
Victoria Crone
Whaimutu Dewes
Jon Macdonald
David Smol
Elena Trout
Dame Therese Walsh
Leadership Team
Dennis Barnes
Chief Executive Officer
Venasio-Lorenzo Crawley
Chief Customer Officer
Dorian Devers
Chief Financial Officer
James Kilty
Chief Generation and Development Officer
Catherine Thompson
General Manager, External Relations and General Counsel
Megan Curry
Acting Chief People Officer
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
Sustainability Manager
genelle.palmer@contactenergy.co.nz
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