We make it happen for the future
ANNUAL REPORT 2017
Eastland Group Annual Report 2017 Contents
2017 highlights 4 Chairman and Chief Executive’s overview 6 Board of directors 14 Leadership team 16 Eastland Group structure 18 Financial performance trends 22 Eastland Network 24 Eastland Generation 34 Eastland Port 40 Our community 48
Financial statements F1 Auditor’s report F2 Notes to the financial statements F9 Company information F46
2 Eastland Group Annual Report 2017 We’re Gisborne born n’ bred and proud of it At Eastland Group, everything we do is designed to make good things happen for our shareholder, our customers and our East Coast community. Our aim is to develop regional infrastructure, along with products and services that support the growth aspirations of our customers, and at the same time encourage economic growth in the Gisborne, Wairoa and East Coast regions.
Annual Report 2017 Eastland Group 3 2017 Performance highlights
$9.9m $76.2m $14.8m PAID TO ECT TOTAL INCOME PROFIT (Total distributions and interest on capital notes paid to shareholder)
$ 7.0% 481.0m 145% RETURN ON EQUITY ASSET VALUE GROWTH IN ASSET VALUE compared to 10 years ago
$ $ 72.2m 28.7m 25% CAPITAL SPEND INVESTED IN TAIRAWHITI REDUCTION in harm related injuries on last year
4 Eastland Group Annual Report 2017 We have a keen eye for commercial gain and love the hunt As Eastland Community Trust’s primary commercial arm, Eastland Group’s job is to make money for the trust, and to develop and maintain our energy and port assets, along with products and services to support regional economic activity. We are the business behind the businesses powering our regional economy. Every day we’re looking for new opportunities to improve the future of everyone who lives here.
Annual Report 2017 Eastland Group 5 CHAIRMAN AND CHIEF EXECUTIVE’S OVERVIEW Pressing forward for the future
Nelson Cull, CHAIRMAN Matt Todd, GROUP CHIEF EXECUTIVE Strong positive growth remains an during the year on development of assets. important strategic objective as we seek Of this just over 23% – or $16.8 million – to provide excellent returns for our was spent within Tairawhiti. shareholder, the Eastland Community Our commitment to the Tairawhiti- Trust (ECT). We remain committed to Gisborne and Wairoa regions is ongoing; providing fit for purpose infrastructure over the next five years the company is and products and services that support planning to invest $166.1 million in local New Zealand’s regional economies, infrastructure, as well as around $46.2 especially that of the Tairawhiti- million on (predominantly) energy assets Gisborne region. outside the region. The forecast over the next few years At 31 March 2017 76.4% ($367.3 million) from our existing investments is positive of the company’s total assets were with additional revenues being derived invested in the Gisborne and Wairoa from both the ports and generation districts. businesses, solid cashflows from our regulated electricity network and new Equity was $215.3 million (2016: $204.9 revenues from our investments into million). Eastland Group pressed retailing and emerging technologies. forward with major growth Eastland Group is unique in a New Strategic focus Zealand context, being a diversified objectives in the 2017 financial Eastland Group’s strategic focus has (primarily infrastructure) company that year, making outstanding broadened in the past 12-18 months. Our has grown from relatively humble goal is still to provide excellent returns to progress at our Te Ahi O Maui beginnings to a business which is our shareholder, at the same time as we geothermal project near now approaching half a billion dollars develop and operate fit-for-purpose of assets. regional infrastructure. The company also Kawerau and solidifying our continues to aspire to grow its investments commitment to a broadened Financial performance and earnings, which will increase shareholder value and diversify risk. strategic focus which includes We’re proud to report that Eastland emerging opportunities in the Group achieved yet another strong However, as a result of our focus on business development, we have reshaped financial performance in the 2017 energy sector. our strategy within the broader energy financial year. Income increased to a sector to accommodate the risk and record $76.2 million while total profit opportunities now emerging from rapid was $14.8 million. change within this sector. The In 2003 when the shareholder purchased transformation of the energy industry is Eastland Port, Eastland Group had $80 being driven by new technologies such as million of assets. Fourteen years later solar photovoltaics, batteries, electric Eastland Group’s assets are worth $481 vehicles as well as digital platforms which million, the result of a capital investment enable greater consumer choice. programme driven by increasing demand The creation of an energy solutions sector from customers, and a committed is consistent with our previous objective business development approach which of taking asset-intensive businesses - which is now focused on the opportunities require significant capital - and looking for presented by new technologies in the opportunities within the broader supply energy sector. chain associated with these sectors. We're particularly interested in those opportunities Shareholder distributions where investment provides an element of control or competitive positioning. ECT was paid dividend distributions of $7.8 million (2016: $5.6 million). We believe that compared to similar businesses in the sectors in which we Interest paid on shareholder capital participate, Eastland Group is relatively notes was $2.1 million (2016: $2.1 fast and agile, seeking out opportunities million), meaning the total dividend within the broader supply chains and interest paid to the shareholder associated with our businesses. For was $9.9 million (2016: $7.7 million), example, our holistic view of the New a significant increase. Zealand electricity sector – with interests in generation, distribution and retail – Capital investment means we are well positioned to assess how changes to one element of the value Eastland Group's aim is to develop chain will potentially impact others and regional infrastructure assets, as well as to use this to create strategic advantage. innovative products and services, to support the growth aspirations of our customers. We invested $72.2 million
6 Annual Report 2017 Eastland Group Returns made to ECT Last 10 years ($ Millions)
10
8
6
4
2
0 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17
Impressive returns In 2017 the total dividend and interest paid to ECT was $9.9 million. This is a huge increase of $2.2 million on the $7.7 million paid in 2016 and a fantastic result for the future of our region.
Annual Report 2017 Eastland Group 7 Our four focus sectors
1. 2. Capital investment planned over the next five years
Networks $50.5m Networks Generation Projects include the replacement of Electricity distribution and Electricity generation from aged or underperforming network assets transmission networks primarily renewable sources such as poles, overhead conductors, (regulated) transformers and high voltage switchgear
Generation $52.2m Projects include completion of Te Ahi O Maui geothermal project 3. 4. Energy solutions $1.0m Projects include the installation of electric vehicle charging stations, an ongoing solar trial and the opening of an energy hub Energy Ports Ports $96.0m Projects include the development of Seaports and airports the wharfside log yard and other solutions and associated supply enhancements to accommodate customer chain investments Energy retail, emerging technology projections for forestry harvest and customer facing solutions
Eastland Group also has a broader Health, safety and a new executive position of General mandate to look at opportunities outside Manager, People and Performance and of these four sectors – but within Tairawhiti- environment appointed internally. The establishment Gisborne – where they fit other elements As Eastland Group grows, our approach of this new position means we are taking of our investment criteria. Eastland Group to health, safety and the environment is a more strategic view towards health, is first and foremost a commercial business, maturing. Our drug testing programme safety and the environment, and also to seeking to maximise the value the has been in place for three years, and our ensuring the development of our people shareholder receives from the capital it regular reporting and investigation is linked very carefully to our business has invested. But we are also committed processes following workplace incidents planning cycle. to supporting the region from which we and near-misses are now well embedded As the financial year came to a close, we operate – we think of ourselves as in Eastland Group’s ‘safety happens introduced a new performance ‘creating prosperity from the periphery’. here’ culture. management system which will align each Based on the very eastern edge of New Our development of a unique health and individual employee’s effort with our plan Zealand’s North Island, we have a safety culture included the introduction for the year ahead. The ‘Making It Happen’ commercial mind and a regional soul. of a ‘5 by 5 safety process’, as well as the system – or MIH – fits alongside the brand review and re-establishment of an repositioning work we embarked upon in upgraded safety management system. In 2015, and has the potential to add real addition to these initiatives, the company’s value for everyone at Eastland Group. Safety happens here main health and safety objective this year Eastland Group is committed to doing Reduction in harm events by year, was to reduce the number of harm related whatever it takes to provide safe and previous three years injuries. In 2015, 20 harm related injuries healthy environments for employees, occurred across Eastland Group contractors and any member of the public. businesses, and our aim last year was to 25 reduce this by 25 percent – a target of 15 or fewer such incidents. Thirteen harm related injuries occurred in 2016, so we
20 20 achieved our target but wanted to further 15 improve this year. The target for the 2017
13 financial year was therefore to achieve a further reduction of 25 percent, that is, 10 10 9 or fewer harm related injuries. Nine such incidents occurred. 5 As we strive towards our aim of ‘zero 0 harm’, a natural next step during the 2017 ‘15 ‘16 ‘17 year was to undertake a review of Eastland Group’s overall structure with regards to both health and safety and human
resources. Following the review we created
8 Eastland Group Annual Report 2017 The future happens here
Solar research trials Electric vehicles Energy hub Eastland Network’s solar research trial to As part of a commitment to ensuring at During the year, Eastland Group developed gather real world data is part of its planning least 75 percent of our non-commercial the strategic resources and thinking to for the future electricity needs of the vehicle fleet is electric by 2019, three engage in a new conversation with energy Gisborne, East Coast and Wairoa regions. Toyota Prius hybrids, a plug-in BMW i3 consumers in the region. We will soon Solar panels have been installed at nine hybrid, a Renault Zoe, and a fully-electric launch an innovative new hub: a place sites in a trial designed to last between Nissan Leaf were added during the 2017 where consumers, emerging technology two and five years. year, bringing our total complement of and energy infrastructure can come electric vehicles (EVs) to eight. Most of together. A place where we can showcase The aim is to assess the technical and the vehicles are used as part of Eastland our solar trial, investment in Flick and commercial impacts of new technologies Group’s pool fleet, with individuals booking consumer choices for adopting new energy on the distribution network, and to gain and driving them as required. technologies, and develop new business. some real world data that can help local We expect to open the doors to this people to make informed decisions on In May 2016, the government announced innovative space later in 2017. emerging technology. its Electric Vehicles Programme, a wide ranging package of measures to The trial will help Eastland Network encourage the uptake of EVs in New understand the threats, opportunities and Zealand. The target is to double the economics of the technology, by gathering fleet each year, reaching 64,000 EV data about how people are likely to source registrations by the end of 2021. and manage their electricity needs in the Eastland Group has applied for funding Investment in Flick Electric Co. future. We believe the future opportunity for a local charging station network. is for closer relationship with consumers In July 2016, Eastland Group boosted its who are producing their own electricity. Our investment in electric and hybrid investment in electricity business Flick vehicles, and our planned installation of Electric Co, raising its shareholding to 18.6 We’re trying to understand two things. a regional charging network, will help the percent. We are attracted to Flick’s We need to know how solar – and later people of Gisborne, Wairoa and the technology-driven model, its view of batteries – will impact the future East Coast to take advantage of customers as prosumers, disruptive operational and technical performance of new energy technologies. potential and strong customer the network itself, so that we can plan for engagement. Flick raised a further $5 asset maintenance and development. The million from existing shareholders to network is also tracking how consumers' fund its New Zealand growth plans. behaviour and use of energy changes The company, which received the 2016 throughout the trial, so that we can New Zealand Hi-Tech Award for Most understand what kinds of services they Innovative Service, passes through might expect in the future. wholesale electricity direct from the spot market to its customers. Aside from the commercial return, this investment is helping us to understand changing customer requirements.
Annual Report 2017 Eastland Group 9 Clean, renewable electricity Eastland Group and HBRC are looking at modifications to the existing resource Early in the year, excitement built across consents - which are now over 30 years Gisborne and the Bay of Plenty as Eastland old - to make these clearer and more Generation’s Te Ahi O Maui geothermal practical, to assist in the operation and project at Kawerau prepared for the first management of the Waihi Dam. stage of our well-drilling programme. The first phase of drilling was successful – we located the high temperature fluid needed Region-wide power outage to fuel the plant, as well as the injection In December 2016, a topdressing plane capacity required. In parallel with the crashed into high voltage powerlines near drilling programme the project has now Hangaroa, tragically killing two men and moved into the next phase: construction interrupting power supply to the entire of the plant itself. An airport for our people Tairawhiti region. More than 40,000 Once operational in 2018, our Te Ahi O and products Gisborne and East Coast residents were Maui geothermal plant will produce 25 As the region grows, transport without electricity for 33 hours while Megawatts of clean electricity, as well as networks play an increasingly critical Eastland Network crews worked through financial returns, for 35 years. The project role in supporting the economic and the night in atrocious conditions to – which is tracking well against both social wellbeing of people, business complete repairs to damaged circuits on budget and timelines – delivers strong and communities. As the manager and the 110kV lines. economic returns for us. Situated on the operator of Gisborne Airport, Eastland National media attention was high and Kawerau geothermal field, it has a strong Group is working with Air New Zealand, locals also followed the crews’ progress positive cashflow which will enhance the Gisborne District Council (as airport on social media, sharing messages of profitability and add value for our owner) and Eastland Community Trust to encouragement along the way. The shareholder and its beneficiaries within develop and deliver a new fit for purpose network’s publicity team helped raise Tairawhiti-Gisborne. Te Ahi O Maui creates terminal building. Designed to meet awareness just a few days later, when the diversification for Eastland Group and, customer needs, this asset will provide a region’s electricity had to be shut down once completed, means approximately 30 welcoming and fantastic first impression in a planned outage so that final repairs percent of our investments will sit outside for visitors and locals returning home, at could be completed. of the region. (See page 36.) the same time as it reflects exactly ‘who we are’ as a region. Our community is a resilient one, and Enabling the forestry sector people largely made the best of a bad situation. We thank them for their support In order to meet the growing demands of Waihi dam and understanding. a forestry industry which provides During the 2017 year, Eastland Group and Many of Eastland Group’s employees knew opportunity and employment for our entire Hawke’s Bay Regional Council agreed to region, we spent around $86 million on the pilot, and his partner worked for the an out of court settlement relating to our company. Our sympathies go out to Carrie capital enhancements since 2010 and plan hydroelectricity station at the Waihi dam. to invest $96 million over the next five and her children. It was a tough time for years to accommodate customer In September 2015, storm-damaged sluice everyone, especially for the families of the projections for forestry harvest. Our aim gates began discharging silt from the dam two men who were killed. is to provide excellent infrastructure to into the Waiau River. The gate repairs support a sector which is truly booming. were completed in March 2016 and the power station has been functioning As the financial year drew to its end, our normally since then. In May 2016, Hawke’s team was working on the first stages of a Bay Regional Council laid charges in project which could see an additional berth relation to the works carried out on the constructed at Eastland Port. The twin dam and the subsequent discharge of silt. berth development is a staged multi-million dollar construction project likely to take However, the two parties agreed that five years. pursuing a court case would have no direct benefit to the Wairoa community A well-resourced 24-hour port is an (regardless of the outcome). Instead the essential part of Gisborne’s thriving agreed resolution delivers tangible, positive economy and with the right balance of outcomes for the people of Wairoa as well investment and support the port and its as the environment. Eastland Group will associated industries can make further contribute $100,000 towards the new significant contributions to the local Wairoa Destination Playground. We are economy. Provided that any risks are also signing a 10-year sponsorship responsibly managed we believe the only agreement to contribute $15,000 per year reasonable solution to ensure the port towards Wairoa-focused events and remains a vital piece of infrastructure for activities, starting in April 2017. Eastland this region is moderate expansion. (See Group will cover Hawke’s Bay Regional page 40 for more on port development.) Council’s external investigation costs up to $85,000, while Eastland Group’s insurers are working with Wairoa District Council to settle its claim for costs associated with the water treatment plant.
10 Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group 11 Our community Every year Eastland Group delivers real benefits to our local community in the form of commercial excellence, economic development and regional prosperity. Our annual distribution to ECT is substantial and this directly benefits the community in the form of grant distributions by the Trust. There are other flow-ons too. Eastland Group spent nearly $40 million on local goods and services and wages. Looking forward We also sponsor events, clubs and In our view, the future of Eastland Group business initiatives, including Eastland is shining very brightly. In last year’s Group Gisborne Speedway and a speaker annual report we promised continued series with the Gisborne Chamber of acceleration along our growth path. In Commerce. In February 2017, our free the coming year we expect to continue Flywheels event at Gisborne Airport that acceleration; the construction of the attracted over 2,000 locals who took to Te Ahi O Maui geothermal plant is the runway on their bikes, skateboards progressing swiftly, and Eastland Port is and scooters. pressing ahead with plans to develop the port at the same time as Eastland Network We provide tertiary scholarships to positions itself to take advantage of the Tairawhiti region engineering and energy revolution already underway. accounting students and continues to actively encourage our employees to We plan to balance this stage of Eastland be involved in a wide range of community Group’s evolution carefully – expansion activities. This year we were delighted to and investment must be planned with the support a team of women from our future in mind, at the same time as asset Shared Services office who won the management and maintenance Corporate Short Course division of the programmes are designed to ensure Whai Ora Spirited Women – All Women’s assets across all our businesses remain Adventure Race, and also a group of fit for purpose alongside changing fishermen led by Eastland Debarking’s customer requirements. Chris Spurr, which hooked the major prize of $30,000 at the Durapanel Snapper Bonanza 90 Mile Beach Surfcasting Competition.
Our people make it happen We extend a sincere thank you to our board of directors. In particular, we thank John Clarke, who retired on 30 June after nearly 13 years as a director of Eastland Group. Nelson Cull and Tony Gray were reappointed in August 2016, and Matanuku Mahuika was appointed as a new director in October 2016. Everything Eastland Group achieves is because of the people we employ, and we take this opportunity to thank every single one of you. Our people truly do ‘make it happen’ – they are passionate Nelson Cull, CHAIRMAN about what they do, they care about their work and they care about each other. Sadly Eastland Port’s project manager, Annalise Leggett, passed away in September 2016 following a long and brave battle against cancer. Annalise was the wife and best mate of Eastech manager, Tony, and also a wonderful Matt Todd, CHIEF EXECUTIVE friend and colleague to many people at Eastland Group. A plaque in her memory has been laid at the end of Gisborne Airport’s runway; Annalise was the project manager in charge of resealing the runway last year.
12 Eastland Group Annual Report 2017 Eastland Group is a special group of companies We plan to balance the next stage of our evolution carefully. Expansion and investment must be planned with the future in mind, at the same time as asset management and maintenance programmes.
Three successful businesses Earnings before interest and tax ($ Millions)
30
25
20
15
10
5
0 2016 2017
Generation
Ports
Networks
Annual Report 2017 Eastland Group 13 Board of directors
Nelson Cull, CHAIRMAN Michael Glover, DIRECTOR Tony Gray, DIRECTOR
Kieran Devine, DIRECTOR Matanuku Mahuika, DIRECTOR John Rae, DIRECTOR
14 Eastland Group Annual Report 2017 Nelson Cull, CHAIRMAN Michael Glover, DIRECTOR Tony Gray, DIRECTOR Nelson is also chair and director of MSC With extensive experience in the Currently executive project advisor to the Consulting, a structural and civil commercial arena, Mike has worked in Hastings District Council, Tony was engineering consultancy firm. Nelson has large New Zealand companies as an previously chief financial officer at Hastings previously been chair and director of investment banker and advisor to some District Council. Prior to that, Tony held Lanzafuels Ltd and Techscape. His many of the biggest companies in South-East the senior finance role at Te Runanga o other directorships include Guardian Asia and Australasia. He manages his own Ngai Tahu (2 years), the CFO role at Mighty Healthcare, Kerifresh and Netball New company, FSL Foods, and is a chairman River Power (7 years), and the same Zealand. He has also fulfilled board and director of two Nelson companies position at TVNZ (12 years). He has been advisory roles for Sports New Zealand in with national operations. Mike has a law on the board of various companies football, cycling and swimming. He brings degree and, over the years, has been a including CLEAR Communications and his extensive local and international director of a number of private companies Sky Network Television Limited. Tony is experience in the oil industry to his role in New Zealand and Australia, including currently a director of Ngati Apa with Eastland Group. 10 years as a director of electricity Developments, Maungaharuru Tangitu distributor Network Tasman. Limited, Civic Financial Services Limited, Artemis Nominees Limited, Quality Roading and Services (Wairoa) Limited, and chair of Ngati Pukenga Investments.
Kieran Devine, DIRECTOR Matanuku Mahuika, DIRECTOR John Rae, DIRECTOR Kieran is an electrical engineer with more Matanuku is a lawyer and has been in John has a broad range of management than 40 years’ experience within the corporate and private practice since 1991. and directorial experience in a variety of electricity and energy industries both in He is a founding partner of the law firm different business sectors including banking, New Zealand and offshore. He has served Kahui Legal, and has also held a wide investment, venture capital, technology, as a senior manager in generation, variety of board roles. These include being infrastructure, construction, and transmission and system operations, the former deputy chair of Aotearoa engineering. He has had wide-ranging including managing the real-time electricity Fisheries Limited and chairman of Sealord global experience with management and market. He has undertaken roles as the Group Limited. He is the current chairman governance responsibility for operations interim chief executive and chief engineer of Ngati Porou Holding Company Limited, in New Zealand, Australia, Asia and Europe. of the Institution of Professional Engineers the company that oversees Ngati Porou’s In addition to chairing the National New Zealand. For seven years he was a commercial interests. He is also a director Infrastructure Advisory Board which trustee, and then chair, of the Centre for of Te Runanganui o Ngati Porou Trustee provides independent advice to Treasury Advanced Engineering. He is currently an Company Limited and the NZ Merino and the Minister for Infrastructure, John is industry member of the Natural Hazards Company Limited, a member of the New also currently a director or chairman of a Research Platform Strategic Advisory Zealand Geographic Board, and a former number of other boards across many Group. Kieran is a chartered member of trustee of the Eastland Community Trust. sectors. In the region he is also chairman the Institute of Directors, a fellow of IPENZ, of both Activate Tairawhiti (Gisborne’s a senior member of the IEEE (USA), and economic development agency) and the a chartered member of the IET (UK). Corson group of companies.
Annual Report 2017 Eastland Group 15 Leadership team
Matt Todd, GROUP CHIEF EXECUTIVE Brent Stewart, GENERAL MANAGER Gavin Murphy, GENERAL MANAGER NETWORKS BUSINESS DEVELOPMENT
Andrew Gaddum, GENERAL MANAGER PORTS Ben Gibson, GENERAL MANAGER Aaron Snodgrass, CHIEF FINANCIAL OFFICER GENERATION
Jarred Moroney, GENERAL MANAGER Suzanne Winterflood, MARKETING AND PEOPLE AND PERFORMANCE COMMUNICATIONS MANAGER
16 Eastland Group Annual Report 2017 Matt Todd Brent Stewart Gavin Murphy GROUP CHIEF EXECUTIVE GENERAL MANAGER NETWORKS GENERAL MANAGER BUSINESS DEVELOPMENT Matt was appointed chief executive of Brent Stewart leads the team responsible Eastland Group in 2003. He has more than for the overall management and operation Gavin Murphy joined Eastland Group in 25 years’ experience in the utilities and of the electricity distribution and 2004 after many years heading projects infrastructure sectors, including senior transmission network assets of Eastland and teams in New Zealand and offshore. roles with major players such as United Network. He has worked in the electricity He has extensive experience in the utility Networks. Matt has worked in New distribution industry for more than 30 sector, particularly the electricity industry, Zealand, Australia, the United Kingdom, years. Brent joined Eastland Network in which saw him spend time in Indonesia Southeast Asia, South America and the 2002 after management positions within heading a key project. Pacific Islands. the industry in Wellington and the Bay of Plenty.
Andrew Gaddum Ben Gibson Aaron Snodgrass GENERAL MANAGER PORTS GENERAL MANAGER GENERATION CHIEF FINANCIAL OFFICER Born on the East Coast, Andrew has been Originally from the Waikato, Ben joined Aaron is responsible for the finance, shared involved in the local forestry industry from Eastland Group in 2004 following a three services, legal, company secretary, an early age, from driving trucks in year role with London Underground on property and technology functions of Mangatu forest to planting around the Public Private Partnership project to the company. He supports the group chief Ruatoria. Andrew worked offshore in modernise the system through the executive, the board of directors, the various project management positions privatisation of the maintenance and businesses within the group, and the before returning home to New Zealand to upgrade of the network. While in the UK, company's growth initiatives. Prior to complete a Masters in Engineering Ben obtained a Diploma in Financial working at Eastland Group, Aaron worked Management. He started with Eastland in Management which complemented his in the financial services sector for Deutsche 2004. His role encompasses the training as a mechanical engineer. He has Bank in New York. management of Eastland Port and its also worked in the construction sector as associated debarking operations in a process engineer for Firth Stresscrete. Gisborne and Northland, Gisborne Airport, as well as the Cookstores, Gisborne's largest cold and dry store facility.
Jarred Moroney Suzanne Winterflood GENERAL MANAGER PEOPLE MARKETING AND COMMUNICATIONS AND PERFORMANCE MANAGER Jarred has spent more than 10 years Suzanne grew up in Gisborne and has more specialising in health and safety than 25 years’ experience in advertising, management. At Eastland Group his key marketing, public relations and journalism. focus is ensuring the right attitudes She was a creative director at Publicis towards safety management are achieved Worldwide in London, Sydney and at all levels right across the company. Auckland, and has created award-winning Prior to his current role, Jarred was campaigns for clients including Air New Hikurangi Forest Farms’ health, safety Zealand and Mercury Energy. More recently and environmental manager. Earlier in his Suzanne consulted to local economic career, Jarred established and operated development agency Activate Tairawhiti. Integrated Safety Solutions, an occupational health and safety company in Gisborne.
Annual Report 2017 Eastland Group 17 Eastland Group structure
Energy Ports Networks Generation solutions Properties
Eastland Port Eastland Network Waihi Hydro Energy Hub Inner Harbour Marina
Gisborne Airport Diesel Gensets Flick Electricity Co.
Northland Debarking Geothermal Developments
Eastland Debarking Te Ahi O Maui
Eastland Group’s primary companies are:
Eastland Port provides a vital piece of Northland Debarking is our debarking Eastland Generation is the lead partner infrastructure for a forestry industry that operation at Northport, south of in the Te Ahi O Maui geothermal has been the single biggest contributor Whangarei. development project. to regional GDP since 2012. Eastland Port Eastland Network provides electricity Consents are in place to build a 25MW is the most easterly commercial port in distribution and transmission services to power plant which is expected to be New Zealand, and is proud to be the the 54,000 people who live and work in operational by the end of 2018. country’s third largest and most efficient Gisborne, Wairoa and the East Coast. log export port. Eastland Investment Properties is the Eastech is the 24/7 fault response team owner of key commercial property in Gisborne Airport provides an all-weather for the entire region. Gisborne, including the inner harbour runway, airfield and associated airport Eastland Generation owns and operates area and marina berths. facilities, to meet the growing air transport various electricity generation projects. and recreational needs of the region. These include the 9MW Geothermal Eastland Port is a 50 percent shareholder Developments (GDL) plant in Kawerau, in the Eastland Debarking joint venture. the 5MW Waihi hydroelectricity scheme near Wairoa and six 1MW diesel gensets.
18 Eastland Group Annual Report 2017 How Eastland Group benefits our community In the 2017 financial year we spent:
$38.5m $98,000 ON WAGES ON SPONSORSHIP LOCAL GOODS AND SERVICES
$9.9m The money that Eastland Group earns Dividend and interest helps our shareholder, the Eastland on capital notes paid Community Trust, make distributions to the Eastland to encourage regional economic Community Trust development and support business and community initiatives
Annual Report 2017 Eastland Group 19 Eastland Group locations
Gisborne Airport
Northland Debarking
Eastland Generation Geothermal Developments Te Ahi O Maui
Eastland Network
Gisborne
Eastland Generation
20 Eastland Group Annual Report 2017 Portfolio allocation by region
Regional (76%)
Non-regional (24%) Eastland Network
Eastland Group Portfolio allocation Eastland Properties by business
Inner Harbour Marina
Eastland Port Eastland Debarking
Networks (32%)
Generation (26%)
Ports (36%)
Other (6%)
Annual Report 2017 Eastland Group 21 Financial performance trends
Financial Performance 2013 2014 2015 2016 2017 Income 70.5 71.0 73.9 73.9 76.2 Operating expenditure (31.7) (32.2) (34.4) (31.7) (34.6) Earnings before interest, income tax, depreciation and amortisation (EBITDA) 38.8 38.8 39.5 42.2 41.6 Depreciation and amortisation (10.9) (12.0) (12.7) (14.8) (15.1) Earnings before interest and income tax (EBIT) * 27.9 26.8 26.8 27.4 26.5 Net interest (9.7) (8.6) (8.4) (8.4) (7.8) Share of profit of joint venture 1.1 1.6 1.4 1.4 1.4 Profit before income tax 19.3 19.8 19.8 20.4 20.1 Income tax (5.8) (5.6) (5.5) (5.2) (5.3) Profit from continuing operations 13.5 14.2 14.3 15.2 14.8 Discontinued operations (0.7) 0.7 (0.2) - - Profit 12.8 14.9 14.1 15.2 14.8 Operating cashflows 25.6 19.3 23.1 28.6 25.9 * Referred to as operating profit
Financial Position 2013 2014 2015 2016 2017 Total Assets 365.9 365.5 385.7 422.2 481.0 Total Liabilities 184.9 179.1 195.9 217.3 265.7 Bank Debt 93.0 94.5 105.0 114.0 166.0 Capital Notes 30.0 30.0 30.0 30.0 30.0 Other Liabilities 61.9 54.6 60.9 73.3 69.7 Total Equity 181.0 186.4 189.8 204.9 215.3 Bank Debt % of Assets 25.4% 25.9% 27.2% 27.0% 34.5%
Distributions to shareholder 2013 2014 2015 2016 2017 Interest on capital notes 2.6 2.6 2.6 2.1 2.1 Dividends to shareholder 4.6 4.8 5.0 5.6 7.8 Cumulative dividends paid (A) 38.7 43.5 48.5 54.1 61.9 Cumulative growth in equity (B) 132.1 137.5 138.5 139.5 140.5 Shareholder value (A+B) 170.8 181.0 187.1 193.7 202.5 Compound Dividend Return ** 6.4% 6.4% 6.9% 6.9% 7.0% Compound Shareholder Value Return ** 14.4% 13.7% 13.9% 13.2% 12.7% ** Calculated from 2003
Business segment 2013 2014 2015 2016 2017 Networks • • • • • Generation • • • • • Airport • • • • • Port • • • • • Aviation • Strategic property investments • • • • •
HR 2013 2014 2015 2016 2017 Employees 144 112 120 110 111
Networks 2013 2014 2015 2016 2017 Energy distributed (GWHr) 307 300 300 309 302 Customer connections 25,550 25,353 25,387 25,410 25,455
Ports 2013 2014 2015 2016 2017 Total export volumes (mill tonnes) 2.0 2.3 2.2 2.3 2.5
Generation 2013 2014 2015 2016 2017 Energy generated (GWHr) 71.4 77.1 78.7 71.6 71.1
22 Eastland Group Annual Report 2017 Shareholder Value Added Cumulative Dividend ($ Millions) Total Equity ($ Millions)
300
250
200
150
100
50
0 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17
Total Assets $ Millions
600
500
400
300
200
100
0 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17
Profit vs. Income Profit ($ Millions) Income ($ Millions)
90 16
80 14 70 12 60 10 50 8 40 6 30 4 20
10 2
0 0 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17
Annual Report 2017 Eastland Group 23 2017 Network highlights
302 25,455 590 GIGAWATT HOURS TOTAL CONNECTIONS POWER POLE distributed across the network REPLACEMENTS
$ 13.2m 58.7 11,952 EARNINGS COINCIDENTAL MAX SQUARE KILOMETRES before interest and tax DEMAND MW covered by our network
3,552km 34,316 397km OF OVERHEAD LINES POWER POLES OF UNDERGROUND CABLES
3,742
Eastland Group’s largest asset is our electricity SUBSTATIONS distribution network. It delivers electricity to about 54,000 people and covers more than 10,000 square kilometres across Gisborne, Wairoa and the East Coast.
24 Eastland Network is the electricity lines company for Gisborne, Wairoa and the East Coast. We own and maintain the poles, wires and underground cabling used by electricity retailers to supply customers with electricity. Since 31 March 2015, we’ve also owned the region’s high voltage electricity transmission network: the steel towers and poles that connect our region to the national grid.
25 We make it happen day and night
Eastland Network Network performance Regulatory management provides electricity to Over the past 12 months, the region’s Regulation continues to impact the cost 19,426 domestic consumers electricity usage remained steady, with and complexity of owning an electricity a warm winter and energy-saving distribution network in New Zealand. The and 6,029 non-domestic appliances keeping customer declining costs of new technologies such consumers in the consumption and demand at slightly less as solar power, electric vehicles and battery Gisborne, East Coast than the previous year. We expect this technologies and their increasing use pose to continue for the next year. challenges for the network. However, and Wairoa areas. constraints placed upon network Total energy distributed across network, businesses under current regulation make 301.8 GWHr (2016: 308.5 GWHr). We bill line charges to the end-user’s managing our way through this new energy retailer, which then Co-incidental maximum demand, 58.7 environment even more challenging and incorporates them into each GWHr (2016: 60.32 GWHr). is something that regulators around the customer’s power bill. Line charges Eastland Network’s total line charge world are grappling with. make up around 40 percent of revenue for the 2017 financial year was The biggest regulatory challenge for consumer electricity costs. The $34.5 million. Eastland Network is in pricing. Distributors remaining approximately 60 percent In total, network connections increased are being strongly encouraged by the of costs are determined by Electricity Authority to adopt pricing tariffs energy retailers. from 25,410 to 25,455 – an increase of 45 ICPs (installation control points). The that are more reflective of the costs of majority of these new connections were running the network. This may mean a for new domestic dwellings. Energy shift to more sophisticated pricing tariffs retailers trading on our networks increased that reflect use of the network during by two – from 15 to 17. The trading periods of congestion rather than a simple agreements with all energy retailers are kilowatt hour variable charge or they may in accordance with a standard agreement reflect the capacity requested by a which is closely aligned with the Electricity customer (similar to internet charges). Authority’s Model Use of System The ability to introduce such cost-reflective Agreement. tariffs is hindered by the Electricity (Low Fixed Charge Tariff Option for Domestic During the year the net book value of Consumers) Regulations. While these Eastland Network’s assets (including land, regulations were developed with good buildings and work in progress) increased intentions, they do not work well in the to $151 million. current environment and often no longer benefit the very people they were designed to protect. New technologies also mean that for the first time, networks are facing competition in the form of new ways in which customers can access electricity in their homes. Our ability to respond rapidly to these changes depends on the regulatory boundaries imposed upon the industry and the speed at which these regulations adjust to the new environment.
26 Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group 27 Unplanned power outages
The 2017 financial year was one of the most challenging on record Unplanned outages impacted the network in ways we could never have foreseen. Most of the Tairawhiti region lost electricity supply at around 9am on 12 December, when a topdressing plane crashed into Eastland Network’s double circuit high voltage powerlines near Hangaroa, severing the region’s connection to the national grid. Tragically, two men lost their lives as a result of the accident.
28 Eastland Group Annual Report 2017 More than 40,000 residents were without electricity for 33 hours, as line mechanic crews worked through the night in treacherous conditions to complete repairs to damaged circuits on the 110kV lines. The network then advised residents to expect a further loss of electricity within the next few days, so that final and permanent repairs to the lines could be carried out. These repairs were completed on 18 December, four hours ahead of the advertised time schedule. The financial impact of the outages was in the order of $250,000 repair costs and $95,000 lost line charge revenue. These 110kV outages also contributed significantly to Eastland Network exceeding the annual quality limit for average customer outage duration as set by the Commerce Commission. Also earlier in the year, in August, all of Eastland Network’s 25,000 customers suffered power cuts during the weekend after snow settled on Transpower’s 220kV circuit at Wairakei to Whirinaki (Taupo to Hawkes Bay) and interrupted electricity to the region. As a result the network lost electricity supply on Saturday from 2.45am until 5am, in a widespread power outage which affected all of Hawke’s Bay, Wairoa, Gisborne and the East Coast. At 10am continued build-up of snow in Hawke’s Bay again tripped the same Transpower circuit causing the same areas to lose power supply until almost midday. As the affected assets are owned by Transpower the cost of repairs had no financial or regulatory quality implications for Eastland Network.
Annual Report 2017 Eastland Group 29
30 Eastland Group Annual Report 2017 Asset management Connections and • Continuation of asset renewal and upgrading projects in the Manutuke, The network is constantly upgrading its developments Muriwai and Whatatutu and Maungatu services and reinvesting in the region. Domestic areas (rural Gisborne), Te Araroa to Future plans for the sustainable The year brought a continuation of a trend Ruatoria on the East Coast and Wairoa management and development of the noticed over the previous four years, with to Nuhaka (rural Wairoa). This work network are described in our Asset only a low number of new residential included the replacement of 590 11kV Management Plan (AMP). The AMP is developments and/or subdivisions requiring and 400V poles, the upgrading of updated annually and our current one reticulation. The total new reticulation transformers and removal of redundant covers a planning period for the next ten installed at 13 separate locations will allow overhead plant. years. Included in the plan are prioritised for the supply to approximately 20 new programmes and projects for the • Continuing clearance of trees from the domestic connections. maintenance, renewal and development vicinity of overhead lines throughout of the network. These are designed to Non-domestic the Gisborne and Wairoa areas. deliver optimum customer service, safe As with the previous year there was an and operational efficiency within increase in the number of non-domestic Compliance financial boundaries. development projects completed to meet the new or enhanced supply requirements Public safety management plan of customers. In accordance with the Electricity Act and Maintenance and capital Electricity (Safety) Regulations 2010, Those of note were: expenditure Eastland Group’s Public Safety • Grey Street – the installation of a Management Plans (covering both Maintenance and capital expenditure on 300KVA transformer and 11kV distribution and generation assets) met the network were once again successfully switchgear and network configuration regulatory compliance during the 2016 managed within budget and in accordance alterations associated with facilitating year, subject to an interim audit. with Eastland Network’s Asset new and additional customer load. Management Plan. This year, the interim audit that was • Dunstan Road - the installation of 11kV undertaken by an accredited third party While expenditure on the renewal of aged switchgear for a private 1000KVA against NZ 7901:2008 Electricity and Gas and underperforming assets transformer supplying a new wood Industries – Safety Management Systems predominated, reticulation upgrades and processing facility. for Public Safety, concluded that our plans overhead-to-underground conversions and associated systems are fully compliant were also carried out. All within a • Lytton Road – the installation of 11kV with requirements. continuing programme to meet load cabling, switchgear and two 1000KVA transformers to supply an expanded growth and improve security of supply Electricity Distribution Default Price and upgraded food processing facility. requirements along main arterial routes Quality Path Determination 2016 and/or those with high amenity value • Nelson Road – the installation of 11kV The 2017 year was the second year of the within the Gisborne and Wairoa areas. cabling and a 200KVA transformer to current five year regulatory period. Eastland Network’s Asset Management supply an upgraded hot house facility. Eastland Network achieved regulatory Plan forecasts expenditure of $49 million • SH2 Makaraka – 1000KVA transformer compliance for pricing under the Default on network capital projects and $29 upgrade to increase supply to an Price Quality Path Determination 2015. It million on maintenance work over the upgraded pack house facility. also achieved compliance with the SAIFI* next five years. quality standards, however the SAIDI* quality exceeded the limits set by the Asset replacements Commerce Commission for the year. Eastland Network’s planned programme Outages related to the plane strike of the of aged-asset replacement and asset double circuit 110kV line between Tuai and maintenance continued on the Gisborne Gisborne in December 2016 resulted in and Wairoa networks. Of significance were: 87.26 reportable SAIDI minutes. • Fourteen urban ground mounted Under the current Price-Quality distribution transformers replaced regulations Eastland Network may exceed (11 in Gisborne and three in Wairoa). the limit only once in a three year rolling • Eleven sets of ground mounted 11kV period without being considered a breach switchgear replaced. of quality standards. This non-compliant result is the first in a three year period. • Replacement of nine 400V link boxes. • Replacement of 590 power poles. • Completion of 11kV overhead conductor replacement projects where a total route length of 4kms of conductor was replaced. Of note were projects in Russell Street, Gisborne, an 11kV line diversion to facilitate the replacement of the Motu Bridge and *SAIDI limit = 285.8 Actual SAIDI with 110kV work associated with the Puketiti Wall Outages = 285.8 Actual SAIDI without 110kV outages SH35 road stabilisation/realignment = 222.73 in Te Puia. SAIFI limit = 3.77 Actual SAIFI with 110kV Outages = 3.32 Actual SAIFI without 110kV outages = 2.77 110kV outages – reportable SAIDI = 87.26 and SAIFI = 0.55
Annual Report 2017 Eastland Group 31 Eastland Network celebrating Eastech Looking ahead An organisational review of our in-house Annual pricing review 90 years network service provider, Eastech, was Eastland Network’s pricing schedule for completed during the year. The purpose the period 1 April 2017 to 31 March 2018 of the review was to ensure that Eastech includes a small increase in line charges continued to meet its primary objective which is likely to add about $4.30 including of providing line mechanic and fault man GST to an average household’s monthly resources as required to deliver an bill. The amount is made up of around effective and efficient 24/7 fault restoration $3.25 towards Eastland Network’s service. The efforts of the Eastech team distribution line charges, and and their timely response to network and approximately $1.05 for Transpower’s Prices have changed too customer faults are crucial to Eastland increased transmission charges. In 1927, the electricity price was three Network meeting compliance regulatory Eastland Network’s tariff structure has not pence for the first 20 units per month, network performance thresholds and been altered, and remains the same as last two pence for the next 40 units and 1.5 meeting the needs of customers. year. As part of New Zealand’s regulated pence for every unit over 60 units per electricity sector, any change in Eastland month. Decimal currency was introduced Network’s revenue must comply with the to New Zealand in 1967. Commerce Commission’s Default Price Until then, the New Zealand pound was Quality Path Determination requirements. divided into twenty shillings or 240 The network pricing is reviewed annually, pennies. One unit of electricity is equivalent to one kilowatt hour. Overhead-to-underground conversion and the pricing model which determines projects completed during the year were: the components making up individual tariff The power prices from 1927 sound cheap, categories has been updated. It factors in • Aberdeen Road - between Lytton however what you bought for one pound a wide number of considerations, including: Road and Albert Street and Wellington in 1912 would cost $163 today. In 2016, meeting compliance requirements, Street and Roebuck Road – installation an average household used about 600 accounting for forecasted distributed of 400V cabling and new service kilowatt hours each month. On that basis energy volumes, reviewing advised connections and the removal of if you paid the same for electricity then contract charges, and other costs. overhead 400V road crossings. as you did in 2016, your monthly bill would have been $645. • Grey Street – Gisborne CBD between Eastland Network plans to adopt more Kahutia Street and Awapuni Road – cost reflective pricing tariffs by 1 April installation of 11kV & 400V cabling and 2020 due to the increasing use of new 11kV switchgear and the removal of technologies such as solar, batteries and 11kV and 400V overhead plant. electric vehicles and the changing way in which the network is being used. Existing • Tuckers Road – rural Gisborne – the tariffs are no longer suited to the new installation of 11kV cabling and environment and may sometimes have overhead line reconfiguration to the effect of encouraging investment in facilitate improved clearance to 110kV technologies that may decrease the cost overhead lines. for the individual consumer but place a greater share of the network costs on the rest of the community. Consequently, new tariffs are being strongly encouraged by the Electricity Authority.
32 Eastland Group Annual Report 2017 Timeline
1 NOVEMBER 2016 Happy 90th birthday to Eastland Network! Since 1930, the number of customers connected in 2010 Gisborne and the East Coast has grown from 4,000 to about 21,000. Today, Eastland Network also supplies electricity to a further 5,000 customers in Wairoa.
2000 1999 1998 Eastland Energy renamed Contact Energy assumed control Eastland Network. of Eastland Energy’s retail energy business as Government 1993 reformed the electricity sector. Poverty Bay Electric Power 1990 Board became Eastland Energy 1989 and the Eastland Energy Poverty Bay Electric Power Board Community Trust was formed. moved to the new Gentrack computer billing system.
1980 1980 New 110kV transmission line from Gisborne to Tokomaru Bay went live.
1970
1960
1950
1940
1930
1 NOVEMBER 1926 License issued to supply 14 DECEMBER 1923 electricity in the Poverty Bay district. Poverty Bay Electric Power Board 1920 district constituted, comprising a total area of 1,735 square miles.
20 MARCH 1912 Gisborne Borough Council 1910 commenced supply to the township from diesel generators located in Carnarvon Street, illuminating 12 street lamps in Gladstone Road, between Roebuck Road and Kaiti Bridge.
Annual Report 2017 Eastland Group 33 2017 Generation highlights
71.1GWHr 60.7GWHr 9.98GWHr OVERALL GENERATION GDL GEOTHERMAL WAIHI OUTPUT OUTPUT HYDROELECTRICITY OUTPUT
$ 91,825 116m 35 years MAN HOURS WITHOUT A FORECAST COST LIFESPAN LOST TIME INJURY of Te Ahi O Maui development of Te Ahi O Maui geothermal plant at Te Ahi O Maui geothermal project
Construction of the Te Ahi O Maui geothermal project continued through the 2017 financial year. Once operational, the plant will generate around 25MW of electricity.
34 Eastland Group Annual Report 2017 The Eastland Generation business includes geothermal, hydro and diesel electricity generation plants Our focus is on building strong, long-term, mutually beneficial relationships from the ground up, together with the owners of the land on which the plants operate. We power a realisation of value to our land owner partners and deliver a resource that wouldn’t otherwise be available.
Annual Report 2017 Eastland Group 35 We make it happen clean and green
Worldwide, the energy Te Ahi O Maui Eastland Generation has measures in place to ensure Te Ahi O Maui has minimal industry is being disrupted geothermal project impact on the surrounding environment by advances in solar energy Construction on the Te Ahi O Maui and its people. For example, our standards conversion and storage, and geothermal project continued through the for environmental care go over and above 2017 financial year following the decision Regional Council consent conditions. Our we are working to position to proceed in September 2016. project team has worked hard to ensure the project is executed in an Eastland Group as a leader The project is a partnership between environmentally friendly, sustainable and in the adoption of new Eastland Generation and the Kawerau A8D culturally appropriate way, working Ahu Whenua Trust, who are owners of the technologies. alongside the A8D Trust to understand land on which the plant is being and accommodate their needs as constructed. The project is located 2.3 At the same time as Eastland tangata whenua. kilometres north-east of the Kawerau Network is focussed on township, in the Whakatane district. Te Ahi O Maui holds resource consent for the take and discharge of 15,000 tonnes learning more about the Once operational, the Te Ahi O Maui per day of geothermal fluid from the impact of the widespread geothermal power plant will generate Kawerau geothermal reservoir. adoption of solar on the lines approximately 25MW net of electricity; that’s enough to power 25,000 homes. Earthwork for the power plant and network, so that it can develop separator pads commenced in June and In May the Te Ahi O Maui partnership these were completed in November. In commercial opportunities for signed a deal with Israeli company Ormat early 2017 Ormat mobilised to site to begin the future, Eastland Generation for the construction of the plant. Ormat the foundation works for the power plant. is a world leader in the development of also has a watching brief on It is expected that construction will binary cycle geothermal power plants and continue through 2017 and the plant will developments in the also own and operate a number of them be fully operational in 2018. generation space. worldwide. There are currently 13 Ormat plants operating in New Zealand and the Te Ahi O Maui is part of Eastland Group’s Overall generation output Te Ahi O Maui plant will utilise some of wider commitment to renewable for the year was 71.1 the latest technological developments and generation in New Zealand. The project is innovations from Ormat’s vast experience. consistent with Eastland Group’s strategy gigawatt hours. of developing a portfolio of renewable We are partnering with local firms MB electricity generation. Geothermal will Century for the design and construction of provide complementary base load the steam field as well as Horizon, the lines generation to support an emerging market company in the Bay of Plenty, to construct where solar photovoltaic (PV) plays a the transmission line for the plant. Te Ahi greater part in meeting the country’s O Maui and Ormat are also working closely energy needs. with local and national civil, mechanical and electrical contractors, engineers, surveyors and builders on a wide variety Waihi hydro of project construction activities. generation scheme During the financial year, drilling for one Normal operation of the Waihi hydro production and two injection wells was scheme was resumed in 2017 following undertaken. While results from the extensive repairs to dam flood gates which injection wells were excellent, some were damaged by extreme weather events further drilling is required to secure all during the previous year. All operational the production requirements. This and safety issues were resolved prior to additional drilling was allowed for in the the start of 2017. project business case and budget and will leverage off the knowledge gained Waihi production for the year was from the earlier campaign. however slightly below target (9.98 GWHr vs 11.09 GWHr) due to the annual rainfall in the dam catchment being 16 percent less than average.
36 Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group 37
38 Eastland Group Annual Report 2017 Te Ahi O Maui progress Geothermal Developments These images show how well the development is progressing. Ltd geothermal plant Our GDL (Geothermal Developments Ltd) plant produced 60.7GWHrs of electricity, down from the previous year’s 65.9GWHrs. The plant was on load 93.6 percent of the time, down slightly from 2016 due to the requirement to undertake unexpected extra maintenance on the turbine bearing. The plant continues to sell electricity on the wholesale electricity market and a number of contracts for difference have been placed with third parties, providing price certainty through the year. These contracts have performed well especially during periods of low price in Kawerau as a result of issues with Transpower’s transformers at their substation.
Diesel generation The six, one megawatt diesel generators strategically located throughout the network collectively generated 445.9 MWhrs during the year. There was no call 1. April 2016. Preparation of the well pads and the drilling camp site, and the on the arrangement with an energy retailer start of earthworks for the power plant. to operate the gensets at times of high wholesale electricity prices. Consequently all of the annual production was to maintain supply to customers during faults and scheduled maintenance, or to reduce maximum demand at transmission grid supply points. As in previous years, the operation of the diesel gensets over the year saved in excess of 100 SAIDI minutes. The plant continues to sell electricity on the wholesale electricity market and a number of contracts for difference have been placed with third parties providing price certainty through the year. These contracts have performed well especially during periods of low price in Kawerau as a result of issues with Transpower’s transformers at their substation.
2. August 2016. Drilling of an injection well, with the drilling camp in the foreground. Earthworks on the power plant pad continue.
3. March 2017. Major earthworks are completed and installation of foundations is underway.
Annual Report 2017 Eastland Group 39 2017 Port highlights
2.5m 136 276,000 TONNES EXPORTED SHIPS VISITED TONNES OF LOGS processed by Eastland Debarking
11,600 156,146 109,000 TONNES OF WOOD TOTAL PASSENGER TONNES OF LOGS LOADED EACH DAY MOVEMENTS processed by Northland Debarking (on average) at Gisborne Airport
Eastland Port is growing side-by-side with the region’s flourishing forestry industry. Log volumes keep growing and records continue to be broken – a reflection of the East Coast’s forestry success story.
40 Eastland Group Annual Report 2017 Eastland Port broke another annual record in the financial year ending 31 March 2017 – moving 2.5 million tonnes of product across its wharves The volume is an 8.49 percent increase on last year and reflects the increased volume of export logs coming out of East Coast forests. An estimated 2.6 to 2.8 million tonnes of logs are expected for 2017 and 2018. Beyond that, five million tonnes of export product is expected per year so we are focused on planning for major capital improvements to unlock the port’s potential.
Annual Report 2017 Eastland Group 41 We make it happen for exports
The port has been a catalyst 2017 performance reasonable mixing to 5% (i.e. a 20 fold dilution of stormwater) would result in no in this region’s evolution since An unprecedented 430,000 tonnes were significant toxicity’ and that this was in the early 20th century and exported through the port in February line with the upper log yard consent and March. More than 2.5 million tonnes played a major role in people application evidence which estimated 36x – mostly logs – were exported from dilution was available in the and freight transportation in Eastland Port during the 2017 financial Kopuwhakapata Stream and a further 6.5x and out of the district. These year, yet another record. dilution in the inner harbour. The report days Eastland Port provides a Of the 136 ships to dock at Eastland Port also illustrated the background water over the 2017 financial year, 126 were quality of the stream would have more of vital piece of infrastructure for logging ships, reflected in the fact that an adverse effect on the aquatic life than a forestry industry that has 99.4 percent of total exports were logs the upper log yard stormwater discharge. been the single biggest (98.4% in 2016). The remaining exports were six percent squash and one percent contributor to regional GDP kiwifruit. In addition to export vessels, Debarker stormwater since 2012. three coastal shipments of fertiliser were recycling completed and 10 cruise ships plus one A 60,000L reservoir was installed to The port continues to grow naval vessel visited during the 12 months capture stormwater off the primary to meet the increasing demand to 31 March 2017. storage block for treated logs. The for export capacity from the reservoir now captures 90 percent of all Safety at Eastland Port rain events under 13mm. This water is then region’s forestry industry. recycled for use by our debarking The year saw the introduction Towards the end of 2016 the port operation instead of town supply. Since employed its own health, safety and installation copper levels have been of ISO onto the port providing environmental manager. Historically this compliant for four bi-monthly water a log marshalling operation, and role had been covered by the Group sampling rounds. Previously, copper levels however as the business continues to grow had not consistently been compliant. C3 moving into stevedoring. so does our responsibility in these areas, The safe and efficient and having a dedicated on site resource Annual harbour sediment monitoring along with that associated with the upper log integration of operations was a natural progression. The sector continues its strong focus on improving yard was undertaken in February 2017 to between the two companies safety outcomes on the port, which is a test for metals and metalloid (arsenic) has been a key focus for complex multi-PCBU environment. (A with sediments on the seabed that could have resulted from water discharge or management during the year. PCBU is a 'person conducting a business or an undertaking'. Most New Zealand potentially be dredged by port operations. businesses are classed as PCBUs under All tests were compliant and have been the Health and Safety at Work Act 2015.) since testing started in 2006.
Environment Risk management We worked hard through the year to All of our resource consents are being improve storm water discharge quality, migrated into the Obligations module of with a further rain garden installed in the Risk Manager for a more accessible, user- upper log yard and significant testing of friendly solution. Risk Manager has been storm water to determine what further a success for administrating and reporting treatment methods maybe available. health and safety by port operations and management. This move will make the Whole effluent toxicity testing (WETT) management of environmental and undertaken in the receiving environment consenting obligations more accessible of the upper log yard and the and transparent. Kopuwhakapata Stream confirmed there are no significant adverse effects on aquatic life from the log yard discharge. Sponsorship WETT testing was undertaken at the NIWA The port also continued its sponsorship laboratory to assess the toxicity of the of the extremely successful EnviroSchools stormwater discharge to a population programme funding a number of school of fish, invertebrates, and algae by based environmental projects, from exposing them to the effluent and vegetable garden creation through to assessing their responses. rainwater storage and use. Ranging from no dilution requirement to 19x, NIWA concluded that ‘discharging stormwater, at a rate that limits the receiving environment concentration after
42 Eastland Group Annual Report 2017 Log exports by tonne/year Last 10 years
2.5
2.0
1.5
1.0
0.5
0 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 Another record export year to report
Annual Report 2017 Eastland Group 43
44 Eastland Group Annual Report 2017 Wharfside log yard Cookstores Consent for the redevelopment of the Eastland Port’s Cookstores went through wharfside log yard was granted during a year of reorganisation following the end the year. The conditions associated with of the long term operations agreement the consent were particularly onerous, and with Heinz Watties. All of the freezer it has taken some time to determine the storage on site is now leased to local food workability of the consent. With this now products producer Cedenco, with the clarified management plan to have the balance of the dry storage area leased to project under way in spring of 2017. Once various tenants. the wharfside log yard is completed, all of the port’s log yards will be sealed with world class storm water treatment systems Gisborne Airport in operation. This will be a significant There were 15,494 take-offs and landings milestone for the port and for the region at the airport during the 2017 year, as a whole. compared to 15,629 for the previous year. This slight decrease on the previous year Slipway refurbishment is a result of Air New Zealand’s up-gauging of the aircraft type (exclusively Q300s, Design work has been completed for the 50 seaters) now serving our airport. slipway refurbishment. This project is the first step in enabling the twin log berth Total passenger movements through project, which will ultimately mean the the airport were 156,146 for the year ended port can berth two log ships alongside at 31 March 2017 as compared to 141,085 one time. The newly configured slipway for the year ended 31 March 2016. This will also provide the landing point for a represents an increase of 15,061 or 10.7 proposed pedestrian bridge from the other percent on the previous year. This is a side of the Turanganui River, as part of direct result of the boosted capacity and the Navigations Project. When complete lower fare structures provided by the larger this will be a significant community asset, aircraft and Air New Zealand’s continued providing residents and visitors alike with commitment to this region. Larger aircraft a unique experience. using the airport on a regular basis has led to the deployment of a Fire Rescue Service. The service has a dedicated fire appliance Looking ahead Floating plant with at least one officer on duty during With Asia ravenous for wood as fast as operational hours. the district can grow it, Tairawhiti’s log The year saw a new addition to the port’s sector is booming. The volume of logs floating plant, with the arrival of the purpose Redevelopment of the existing airport needing to be exported through Eastland built pilot boat Rere Moana. The vessel was terminal has been in the wind for some Port is forecast to nearly double to five purchased second hand out of Australia time. This has been brought to a head with million tonnes of wood in the future, and and was refurbished and re-engined in the upgrading of the Air New Zealand the port needs to increase its capacity to Auckland. The Rere Moana has replaced fleet servicing Gisborne. The current meet this demand. As the financial year the Turanganui, providing greater safety terminal cannot comfortably came to a close, planning work was well and comfort for the pilot transfer operation. accommodate the arrival and departure of two Q300 aircraft simultaneously. The underway to ensure the port remains fit terminal facility also requires some for purpose. Eastland Debarking earthquake strengthening to meet new We believe that in order to cope with building standards. With this in mind work increasing log export volumes and other Eastland Port’s joint venture with Hikurangi has progressed on the development of a cargoes a second berth capable of taking Forest Farms processed 276,000 tonnes new terminal complex capable of a second 200m vessel is required. A of logs (2016: 301,000 tonnes). accommodating more people and larger second berth will enable simultaneous aircraft, future proofing a key regional loading of two 200m long log vessels, or Northland Debarking infrastructural asset. a combination of logging ship and It is recognised there are a number of key container vessel . As well as being able to Our 1.1 hectare operation at NorthPort near stakeholders in this process and we are handle more wood, a second berth would Whangarei provides debarking and anti- working to bring these parties together future-proof the port for coastal shipping sap staining services to Northland forestry to deliver a facility the region can be proud and new international trade and exports. customers. In the twelve months to of moving forward. Once consented, this would be a staged 31 March 2017, the plant processed 109,000 multi-million dollar construction project tonnes of logs (2016: 121,000 tonnes). During the year the previous aging car park likely to take five years. During the year the plant started trials for system was replaced, with a new system customers to debark logs instead of using similar to that used by many larger airports. Between the investment on port and at methyl-bromide. If proven successful this This new system will make for a greatly Gisborne Airport these developments will will be a great outcome for our customers, improved customer experience for users. contribute to one of the most significant the environment and our business. infrastructure spends undertaken within the region for many years.
Annual Report 2017 Eastland Group 45 Our planned developments at Eastland Port and Gisborne Airport make up one of the most significant infrastructure investments in the region for many years.
46 Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group 47 We make good things happen for our customers and our community
48 Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group 49 Our community
Eastland Group’s primary the geothermal energy space. Four scholarships were awarded in the sponsorships include: 2017 financial year - $5,000 each to Kelsey Coronno, Brian Thomas and Eastland Group Raceway Connor Mitchell, and $2,500 to Sam Godwin. Eastland Group Raceway is home to Gisborne’s Speedway Club. Our ten year partnership with the club has seen it go Accounting Tertiary Study from strength to strength. Highlights Scholarships during the season included the New Zealand Streetstocks Grand Prix, the New Eastland Group also contributes annually Zealand Stockcar and Streetstock Teams to a scholarship fund administered by the Championships and the New Zealand Chartered Accountants Australia New Saloon Car Championships. These events Zealand (CAANZ). Each year CAANZ attracted both visitors and locals and awards a scholarship to Gisborne tertiary encouraged the kind of spending that accounting students. This year two young boosts regional economic activity. Gisborne accounting students Ashley Part of being a Gisborne-based Haddad and Bayley Taylor-Law were the business – especially one recipients of scholarships from Eastland owned by a community trust Eastland Group Group and CAANZ. – is truly embracing and Speaker Series connecting with the place we Another of our key sponsorships is our Flywheels partnership with Gisborne’s Chamber of call home. Our Flywheels event at Gisborne Airport Commerce. In the past five years Eastland in February 2017 was a chance to At Eastland Group we are Group’s Speaker Series has brought many encourage the people of Gisborne to have of the country’s biggest business names some fun riding along the runway, which active sponsors of community to Gisborne to deliver thought-provoking was resealed in a night works operation events, local clubs and business talks to sold-out audiences. Our aim is the previous year. The turnout surpassed for the series to foster local conversations initiatives. our expectations with over 2,000 locals not only about how to make sure Gisborne turning up with their bikes, skateboards businesses succeed, but also how to boost and scooters on a beautiful summer’s prosperity across the entire region. evening. Attendees enjoyed a special Our speakers in the past year included guest appearance by the Wa165 steam inventor and former New Zealander of train and the sky high lolly scramble with the Year, Sir Ray Avery; Michaela ECT Rescue Helicopter. Vodanovich, regional manager of The Icehouse; and Equal Opportunities Commissioner Dr Jackie Blue. Licence to Work Eastland Group signed on for the Licence Enviroschools to Work programme during the 2017 year. The programme helps students from all Eastland Port’s partnership with the walks of life to learn employability skills Tairawhiti Action Fund makes $5,000 such as attitude, work ethic and resilience, available each year for student-led action enabling them to be ready for work. The projects. We have been providing schools region’s economic development with bark from the port’s debarking plant organisation, Activate Tairawhiti, worked for some time, but the Action Fund, now hard to bring this initiative to the region, in its third year, allows individual schools and we believe it will make a significant to turn their visions into reality. difference to youth and participating businesses. With our diverse network of Engineering Tertiary roles across Eastland Group, we can offer the region’s young people real world Scholarships experience, and a taste of different career For some time now Eastland Group has paths they might want to take. awarded a $5,000 scholarship to an Eastland student undertaking tertiary study in the field of civil, mechanical or electrical engineering, subjects that complement Eastland Group’s operations. In 2016 we opened applications to students studying chemical engineering, a reflection of our growing business in
50 Eastland Group Annual Report 2017 Eastland Wood Council Forestry Awards The annual Eastland Wood Council Awards celebrate the local forestry industry, recognising individuals and businesses who perform at the highest level. The aim of the awards is to motivate excellence and innovation across the sector.
Gisborne Regional Wine Awards An annual celebration of our local vineyards and winemakers, this event’s formal awards dinner is a well-established highlight of the region’s wine calendar.
Poverty Bay Kayak Club Eastland Port supports the Poverty Bay Kayak Club, a centre for local paddling enthusiasts. Since its beginnings in 1978, the club has been home to paddlers who have gone on to reign supreme on national and international stages.
IPENZ – Engineering careers In April 2016, Eastland Group teamed up with the local branch of the Institution of Professional Engineers NZ (IPENZ) for a combined stand at the Gisborne Herald Careers Expo. The expo was a chance for us to help young people and their families understand the options for a career in engineering.
Annual Report 2017 Eastland Group 51 We make it happen for the future
Eastland Group Limited Financial Statements
For the year ended 31 March 2017
The directors are pleased to present the consolidated financial statements of Eastland Group Limited for the year ended 31 March 2017. For and on behalf of the Board of Directors.
Nelson Cull Tony Gray DIRECTOR DIRECTOR Chairman Chair of Audit and Finance Committee
24 May 2017
Annual Report 2017 Eastland Group F 1 Independent Auditor’s Report To the Shareholder of Eastland Group Limited
Opinion We have audited the financial statements of Eastland Group Limited and its subsidiaries (the ‘Group’), which comprise the consolidated statement of financial position as at 31 March 2017, and the consolidated statement of financial performance, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements, on pages F4 to F45, present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2017, and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards ('NZ IFRS’).
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. 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, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Other than in our capacity as auditor and the provision of other assurance services relating to the audit of regulatory disclosure statements, we have no relationship with or interests in the Group. These services have not impaired our independence as auditor of the Group.
Other information The directors are responsible for the other information. The other information comprises the information in the Annual Report that accompanies the financial statements and the audit report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and consider whether it is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If so, we are required to report that fact. We have nothing to report in this regard.
F2 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Directors’ responsibilities for the consolidated financial statements The directors are responsible on behalf of the Group for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible on behalf of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the External Reporting Board’s website at: https://www.xrb.govt.nz/Site/Auditing_Assurance_ Standards/Current_Standards/Page7.aspx This description forms part of our auditor’s report.
Restriction on use This report is made solely to the Group’s shareholder, as a body, in accordance with Section 207B of the Companies Act 1993. Our audit has been undertaken so that we might state to the Group’s shareholder those matters we are required to state to them in an 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 Group’s shareholder as a body, for our audit work, for this report, or for the opinions we have formed.
Wellington, New Zealand 24 May 2017
This audit report relates to the consolidated financial statements of Eastland Group Limited (the ‘Group’) for the year ended 31 March 2017 included on the Group’s website. The Directors are responsible for the maintenance and integrity of the Group’s website. We have not been engaged to report on the integrity of the Group’s website. We accept no responsibility for any changes that may have occurred to the consolidated financial statements since they were initially presented on the website. The audit report refers only to the consolidated financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these consolidated financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited consolidated financial statements and related audit report to confirm the information included in the audited consolidated financial statements presented on this website.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F3 and accounting policies on pages F4-F45 Statement of Financial Performance FOR THE YEAR ENDED 31 MARCH 2017
2017 2016 Notes $’000 $’000
Revenue 73,832 71,632 Other income 2,371 2,242 Total income 6 76,203 73,874 Network expenses 5 (9,000) (8,538) Generation expenses 5 (2,124) (2,428) Port expenses 5 (3,388) (3,180) Personnel expenses 19 (10,367) (9,101) Administrative expenses 7 (9,679) (8,422) Operating expenditure (34,558) (31,669) Earnings before interest, income tax, depreciation and amortisation (EBITDA) 41,645 42,205 Depreciation and amortisation 7 (15,069) (14,845) Profit before interest and income tax (EBIT) 26,576 27,360 Finance expenses 8 (7,792) (8,361) Share of profit of joint venture 15 1,360 1,442 Profit before income tax 20,144 20,441 Income tax expense 9 (5,307) (5,214) Profit from continuing operations 14,837 15,227 (Loss) from discontinued operations - (45)
Total profit 14,837 15,182
Attributable to: Equity holders of the parent 14,865 15,203 Non-controlling interest (28) (21) 14,837 15,182
Statement of Comprehensive Income FOR THE YEAR ENDED 31 MARCH 2017
2017 2016 $’000 $’000
Total profit 14,837 15,182
Other comprehensive income Cash flow hedges 4,720 (9,780) Revaluation of property, plant and equipment (325) 17,328 Tax on comprehensive income (1,287) (2,165) Other comprehensive income, net of income tax 3,108 5,383 Total comprehensive income 17,945 20,565
Attributable to: Equity holders of the parent 17,973 20,586 Non-controlling interest (28) (21) 17,945 20,565
F4 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Statement of Financial Position AS AT 31 MARCH 2017
2017 2016 Notes $’000 $’000
ASSETS Current assets Cash and cash equivalents 10 3,251 2,253 Trade and other receivables 11 8,369 8,305 Inventory 56 38 Derivative financial instruments 24 291 - Total current assets 11,967 10,596
Non-current assets Property, plant and equipment 12 442,487 385,826 Investment properties 13 14,065 16,350 Intangible assets 16 6,285 6,341 Investment in joint venture 15 1,150 861 Investments 17 5,051 2,229 Total non-current assets 469,038 411,607 TOTAL ASSETS 481,005 422,203
LIABILITIES Current liabilities Payables and accruals 18 7,115 7,067 Income tax 934 1,120 Employee entitlements 19 1,227 1,767 Derivatives financial instruments 24 3,179 3,219 Total current liabilities 12,455 13,173
Non-current liabilities Loans and borrowings 23 166,000 114,000 Capital notes 21 30,000 30,000 Deferred tax 9 48,833 47,320 Derivative financial instruments 24 7,956 12,345 Income in advance 413 465 Total non-current liabilities 253,202 204,130 TOTAL LIABILITIES 265,657 217,303 NET ASSETS 215,348 204,900
EQUITY Equity holders of the parent 214,893 204,417 Non-controlling interest 455 483 TOTAL EQUITY 215,348 204,900
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F5 and accounting policies on pages F4-F45 Statement of Changes in Equity FOR THE YEAR ENDED 31 MARCH 2017
2017
Asset Non- Issued Hedge revaluation Retained controlling Total capital reserve reserve earnings interest equity $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of period - 1 April 2016 15,400 (11,103) 132,208 67,912 483 204,900 Comprehensive income - Net profit for the period - - - 14,865 (28) 14,837 Net change in fair value of cash flow hedges - 4,720 - - - 4,720 Disposals of property, plant and equipment - - (325) - - (325) Income tax relating to components of comprehensive income - (1,322) 35 - - (1,287) Total comprehensive income - 3,398 (290) 14,865 (28) 17,945
Transactions with owners De-recognition of reserves - - - 319 - 319 Joint venture distributions - - - (1) - (1) Dividend - Subvention payment - - - (1,680) - (1,680) Dividend - - - (6,135) - (6,135) Total transactions with owners - - - (7,497) - (7,497) Balance at end of period - 31 March 2017 15,400 (7,705) 131,918 75,280 455 215,348
2016
Asset Non- Issued Hedge revaluation Retained controlling Total capital reserve reserve earnings interest equity $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of period - 1 April 2015 15,400 (4,061) 119,783 58,210 434 189,766 Comprehensive income - Net profit for the period - - - 15,203 (21) 15,182 Net change in fair value of cash flow hedges - (9,780) - - - (9,780) Disposals of property, plant and equipment - - (118) - - (118) Revaluation of property, plant and equipment - - 17,446 - - 17,446 Income tax relating to components of comprehensive income - 2,738 (4,903) - - (2,165) Total comprehensive income - (7,042) 12,425 15,203 (21) 20,565
Transactions with owners Movement in non-controlling interest - - - - 70 70 De-recognition of reserves - - - 116 - 116 Joint venture distributions - - - (2) - (2) Dividend - - - (5,615) - (5,615) Total transactions with owners - - - (5,501) 70 (5,431) Balance at end of period - 31 March 2016 15,400 (11,103) 132,208 67,912 483 204,900
F6 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Statement of Cash Flows FOR THE YEAR ENDED 31 MARCH 2017
2017 2016 $’000 $’000
Cash flows from operating activities: Cash provided from: Receipts from customers 75,604 74,095 Interest received 22 13 75,626 74,108 Cash applied to: Payments to suppliers and employees (34,894) (29,707) Interest paid (9,532) (9,246) Income tax paid (5,268) (6,534) (49,694) (45,487)
Net cash flows from operating activities 25,932 28,621
Cash flows from investing activities: Cash provided from: Proceeds from sale of investment property 669 - Proceeds from sale of property, plant and equipment 1,868 97 2,537 97 Cash applied to: Purchase of intangibles - (90) Purchase of property, plant and equipment (68,530) (30,416) Purchase of investments (2,822) (2,229) Purchase of investment properties (1,255) (244) (72,607) (32,979)
Net cash flows used in investing activities (70,070) (32,882)
Cash flows from financing activities: Cash provided from: Proceeds from bank borrowings 52,000 9,000 Distributions from associates 951 1,164 52,951 10,164 Cash applied to: Equity dividends paid (7,815) (5,615) (7,815) (5,615)
Net cash flows from financing activities 45,136 4,549
Net cash flows from continuing operations 998 288
Net cash flows from discontinued operations - 739
Net increase in cash and cash equivalents 998 1,027 Cash and cash equivalents at beginning of period 2,253 1,226 Cash and cash equivalents at end of period 3,251 2,253
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F7 and accounting policies on pages F4-F45 Statement of Cash Flows FOR THE YEAR ENDED 31 MARCH 2017
Reconciliation of the Profit for the Period with Net Cash from Operating Activities
2017 2016 $’000 $’000
Profit for the period 14,837 15,182
Adjustments for: Depreciation and amortisation 15,069 14,845 Vested assets (498) (143) Impairment loss 19 258 Loss on sale or disposal of property, plant and equipment 620 293 Loss on sale or disposal of investment property 495 - Income from joint venture (1,241) (1,306) Change in fair value of investment property (181) (408) Net operating cash flow from discontinued operations - (795) Interest capitalised to fixed assets (1,737) (688) Deferred tax expense 225 (669) 12,771 11,387
Movement in working capital: (Increase)/Decrease in trade and other receivables (83) 685 (Increase)/Decrease in inventory (18) 34 Decrease in assets held for sale - 840 (Decrease)/Increase in employee entitlements (540) 246 (Decrease) in income tax payable (186) (652) (Decrease) in income in advance (52) (50) (Decrease) in payables and accruals (797) 949 (1,676) 2,052
Net cash from operating activities 25,932 28,621
F8 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements FOR THE YEAR ENDED 31 MARCH 2017
1 REPORTING ENTITY Eastland Group Limited is a company domiciled in New Zealand and registered under the Companies Act 1993. The address of Eastland Group Limited’s registered office is 37 Gladstone Road, Gisborne. Eastland Group Limited and its subsidiaries (“Eastland Group”) consolidated, is a reporting entity for the purposes of the Financial Reporting Act 2013 and its financial statements comply with the requirements of that Act. The financial statements of Eastland Group are for the year ended 31 March 2017 and were authorised for issue by the directors on 24 May 2017. Eastland Group is a profit-oriented entity whose primary operations include electricity distribution and generation, the operation of Gisborne’s port and airport and the ownership of strategically located investment property. Eastland Group is owned by the Eastland Community Trust.
2 BASIS OF PREPARATION a) Statement of compliance The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for Tier 1 for-profit entities. They also comply with International Financial Reporting Standards.
b) Basis of measurement The financial statements have been prepared on the historical cost basis except for the following: • derivative financial instruments are measured at fair value; • land and buildings, electrical distribution assets, electrical generation assets and logistics assets, are measured at revalued amounts; • certain other property, plant and equipment are measured at revalued amounts; • investment properties are measured at fair value; and • investments are measured at fair value.
c) Functional and presentation currency These financial statements are presented in New Zealand dollars ($), which is Eastland Group’s functional currency, and have been rounded to the nearest thousand unless otherwise stated.
d) Use of estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Outcomes in the next financial period may be different to the assumptions made. It is impracticable to quantify the impact should assumptions be materially different to actual outcomes, which may result in material adjustments to the carrying amounts of investments, goodwill and property, plant and equipment and financial instruments reported in these financial statements. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below.
Revenue recognition The timing of customer payments for services does not always coincide with the timing of delivery of these services. For example customers may pay for services a period of time after the services are delivered. Customers may also prepay for services. Judgment is therefore required in deciding when revenue is to be recognised. Where the relationship between the payments and multiple services delivered under the related contract is not immediately clear, management must apply judgment in unbundling elements of the contract and allocating payments to the respective services before applying the revenue recognition accounting policy. Sales of services are recognised at fair value of the consideration received or receivable as the services are delivered or to reflect the percentage completion of the related services where delivered over time. Third party contributions towards the construction of property, plant and equipment are recognised in the Statement of Financial Performance. Revenue is recognised when all obligations to perform are satisfied.
Classification of investments Classifying investments as either subsidiaries, associates, joint ventures or financial assets valued at fair value through profit or loss, requires management to judge the degree of influence which the Group holds over the investee. Management look at many factors in making these judgments, such as examining the constitutional documents that govern decision making, governance around current and future representation amongst the Board of Directors, and also other less formal arrangements which can lead to having influence on the operating and financial policies. These judgments impact upon the basis of consolidation accounting which is used to recognise the Group’s investments in the consolidated financial statements. Further information regarding the basis of consolidation is included in the following section on significant accounting policies.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F9 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
2 BASIS OF PREPARATION (continued)
Classification of expenditure in relation to property, plant and equipment On initial recognition of items of property, plant and equipment, judgments must be made about whether costs incurred relate to bringing the items to working condition for their intended use, and therefore are appropriate for capitalisation as part of the cost of the item, or whether they should be expensed as incurred. As required by NZ IAS 16, Property, Plant and Equipment, management must exercise their judgment to assess the amount of overhead costs which can be reasonably directly attributed to the construction or acquisition of items of property, plant and equipment. For example, employee costs arising directly from such activities are capitalised within the initial cost of property, plant and equipment. Thereafter, judgment is also required to assess whether subsequent expenditure increases the future economic benefits to be obtained from that asset and is therefore also appropriate for capitalisation or whether such expenditure should be treated as maintenance and expensed.
Valuation of goodwill and property, plant and equipment The carrying value of goodwill is assessed at least annually to ensure that it is not impaired. Performing this assessment requires management to estimate future cash flows to be generated by operating segments to which goodwill has been allocated. Estimating future cash flows entails making judgments including the expected rate of growth of revenues, margins expected to be achieved, the level of future maintenance expenditure required to support these outcomes and the appropriate discount rate to apply when discounting future cash flows. Note 16 of these financial statements provides more information surrounding the assumptions management have made in this area. Property, plant and equipment is revalued by management on a cyclical basis as described in the notes. Valuations are performed by registered valuers. Depreciation is recognised on a straight-line basis considering the estimated useful life of the asset and its residual value. Management must also consider whether any indicators of impairment have occurred which might require impairment testing of the current carrying values of property, plant and equipment. Assessing whether individual assets or a grouping of related assets (which generate cash flows co-dependently) are impaired may involve estimating the future cash flows that those assets are expected to generate. This will in turn involve assumptions, including rates of expected revenue growth or decline, expected future margins and the selection of an appropriate discount rate for discounting future cash flows.
Valuation of financial instruments Management have estimated the fair value of Eastland Group’s financial instruments based on valuation models that use observable market inputs. Note 24 of these financial statements provides a list of the key observable inputs that management have applied in reaching their estimates of the fair values of financial instruments and also provides a sensitivity analysis detailing the potential future impacts of reasonably possible changes in those observable inputs over the next financial period.
F10 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements:
a) Basis of consolidation Subsidiaries Subsidiaries are entities controlled, directly or indirectly by Eastland Group. The financial statements of subsidiaries are included in the consolidated financial statements using the acquisition method of consolidation.
Associates Associates are entities in which Eastland Group has significant influence but not control over the operating and financial policies. Investments in associates are accounted for using the equity method. Eastland Group’s share of the profit or loss of associates is recognised in the Statement of Financial Performance after adjusting for differences, if any, between the accounting policies of Eastland Group and the associates. Eastland Group’s share of any other gains and losses of associates charged directly to equity is recognised in the Statement of Financial Performance. Dividends received from associates are credited to the carrying amount of the investment in associates in the consolidated financial statements.
Joint ventures Joint ventures are contractual arrangements with other parties which establish joint control for each of the parties over the related operations, assets or entity. Eastland Group is jointly and severally liable in respect of costs and liabilities, and shares in any resulting profit/(loss) or output. The Group accounts for these using the equity method.
Acquisition or disposal during the period Where a business becomes or ceases to be a part of Eastland Group during the period, the results of the business are included in the consolidated results from the date that control or significant influence commenced or until the date that control or significant influence ceased. Where a business is acquired all identifiable assets, liabilities and contingent liabilities are recognised at their fair value at acquisition date. The fair value does not take into consideration any future intentions by Eastland Group.
Goodwill arising on obtaining control of a subsidiary or an associate Where an acquisition results in obtaining control of a subsidiary or an associate for the first time, the carrying amount of any previous non-controlling interest held by Eastland Group is first re-measured to fair value and the difference between the carrying amount and the re-measured fair value is recognised in the Statement of Financial Performance. Goodwill is then calculated as the sum of the fair value of the consideration paid, the re-measured fair value of the non- controlling interest previously held by the acquirer and the recognised amount of any remaining non-controlling interest in the acquiree held by third parties less the fair value of the total identifiable assets and liabilities of the acquiree at the date of the acquisition. If the fair value of the total identifiable assets and liabilities acquired exceeds the sum of the fair value of the consideration paid, the re-measured fair value of the non-controlling interest previously held by the acquirer and the recognised amount of any remaining non-controlling interest in the acquiree held by third parties, then a gain representing a bargain purchase is recognised in the Statement of Financial Performance.
Goodwill arising on acquisition of an additional interest in an associate while retaining significant influence Where an acquisition results in Eastland Group obtaining an additional non-controlling interest in an associate while retaining significant influence, goodwill is calculated as the difference between the fair value of the consideration paid and the amount of Eastland Group’s acquired incremental share of the fair values of the total identifiable assets and liabilities of the acquiree at the date of the acquisition. If Eastland Group’s acquired incremental share of the fair values of the acquiree’s total identifiable assets and liabilities exceeds the fair value of the consideration paid, the excess is included in the share of net profit from associates in the Statement of Financial Performance.
Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded as equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Subsequent measurement of goodwill Subsequent to initial recognition goodwill is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment.
Transactions eliminated on consolidation Intra-group advances to and from subsidiaries are recognised at amortised cost within current assets and current liabilities in the separate financial statements of the parent. Subsidiaries’ advances from and to the parent are repayable on demand. Any interest income and interest expense incurred on these advances is eliminated in the Statement of Financial Performance on consolidation. All intra-group advances are eliminated on consolidation.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F11 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) Financial instruments
i. Non-derivative financial instruments Financial assets Financial assets consist of cash and cash equivalents, loans, receivables and investments.
Cash and cash equivalents, loans and receivables Trade receivables, loans, cash and cash equivalents and other receivables are initially recorded at fair value and subsequently measured at amortised cost less impairment. Fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the inception of the loan or receivable. Discounting is not undertaken when the receivable is expected to be collected within twelve months. A provision for doubtful debts is recognised to allow for the reduction in fair value attributable to expected doubtful or delayed collection of receivables. Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, Eastland Group has a legal right to offset the amounts and intend to either settle on a net basis or realise the asset and settle the liability simultaneously. Cash and cash equivalents comprise cash on hand, cash in banks and short term deposits maturing within three months. Bank overdrafts that are repayable on demand and form an integral part of Eastland Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.
Investments Investments are valued at fair value through profit and loss.
Financial liabilities Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in finance costs in the Statement of Financial Performance over the period of the borrowing using the effective interest rate method. Other financial liabilities comprise trade and other payables. Discounting is not undertaken when the payable is expected to be paid within twelve months. Eastland Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, Eastland Group has a legal right to offset the amounts and intend to either settle on a net basis or realise the asset and settle the liability simultaneously.
ii. Derivative financial instruments Eastland Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including interest rate and foreign exchange forwards, swaps and options. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance date. The resulting gain or loss is recognised in the Statement of Financial Performance immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Statement of Financial Performance depends on the nature of the designated hedge relationship. Eastland Group designates certain derivatives as either hedges of the fair value of recognised assets, liabilities or firm commitments (fair value hedges), or hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction Eastland Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Eastland Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Statement of Financial Performance immediately, together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. The gain or loss relating to both the effective and the ineffective portion of interest rate swaps hedging fixed rate borrowings is recognised in the Statement of Financial Performance within finance costs. Changes in the fair value of the underlying hedged fixed rate borrowings attributable to interest rate risk are also recognised in the Statement of Financial Performance within finance costs. Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the Statement of Financial Performance from that date.
F12 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion, if any, is recognised immediately in the Statement of Financial Performance within finance costs. Amounts accumulated in equity are recognised as finance costs in the Statement of Financial Performance in the periods when the hedged item is recognised in the Statement of Financial Performance. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the Statement of Financial Performance within finance costs, when the underlying transaction affects earnings. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non- financial liability, the gains and losses previously recognised in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Thereafter, any cumulative gain or loss previously recognised in equity is only recognised in the Statement of Financial Performance when the forecast transaction is ultimately recognised in the Statement of Financial Performance. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was previously recognised in equity is recognised immediately in the Statement of Financial Performance.
Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Financial Performance within finance costs. Non-derivative financial instruments comprise of trade and other receivables, cash and cash equivalents, related party borrowings, capital notes, and payables and accruals.
iii. Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. If there is no contractual obligation to deliver cash or another financial asset, then the instrument is classified as equity. All other instruments are classified as liabilities.
Compound financial instruments Capital notes issued by Eastland Group can be converted to share capital or redeemed for cash at the option of Eastland Group. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.
Interest and dividends Interest paid and dividends paid are classified as expenses or as distributions of profit consistent with the Statement of Financial Position classification of the related debt or equity instruments.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F13 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Property, plant and equipment
i. Recognition and measurement Property, plant and equipment are tangible assets expected to be used during more than one financial period and include spares held for the servicing of property, plant and equipment. The initial cost of purchased property, plant and equipment is the value of the consideration given to acquire the property, plant and equipment and the value of other directly attributable costs, which have been incurred in bringing the property, plant and equipment to the location and condition necessary for the intended service. The initial cost of self-constructed property, plant and equipment includes the cost of all materials used in construction, direct labour on the project, financing costs that are attributable to the project, costs of ultimately dismantling and removing the items and restoring the site on which they are located (where an obligation exists to do so) and an appropriate proportion of the other directly attributable overheads incurred in bringing the items to working condition for their intended use. Costs cease to be capitalised as soon as the property, plant and equipment is ready for productive use and do not include any costs of abnormal waste. Where an asset takes a substantial period of time to get ready for its intended use, and it is a qualifying asset, such as a power generation facility, borrowing costs are to be capitalised to the asset using the effective interest method for the directly attributable costs. Subsequent expenditure relating to an item of property, plant and equipment is added to its gross carrying amount when such expenditure can be measured reliably and either increases the future economic benefits beyond its existing service potential, or is necessarily incurred to enable future economic benefits to be obtained, and that expenditure would have been included in the initial cost of the item had the expenditure been incurred at that time. The costs of day-to-day servicing of property, plant and equipment are recognised in the Statement of Financial Performance as incurred. Land and buildings, electricity distribution, electricity generation equipment and walls, wharves and surfaces are subsequently stated at revalued amounts, less any subsequent accumulated depreciation and impairment losses. Land and buildings, electricity distribution and electricity generation equipment are revalued with sufficient regularity to ensure that the carrying amount of these items does not significantly differ from that which would be determined using fair value at the date of the financial statements. Land and building revaluations are carried out on a cyclical basis that does not exceed three years, by independent valuers. For electricity distribution and electricity generation equipment assets and wharves, walls and surfaces, revaluations are carried out on a cyclical basis not exceeding five years, by independent valuers. The basis of valuation is discussed in note 12. Any movement on revaluation is reflected through equity reserves for that class of asset unless there is insufficient reserve in which case that would flow through to the Statement of Financial Performance. All other plant and equipment are valued at historical cost. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised in ‘other income’ or ‘other administrative expenses’, depending on whether a gain or a loss respectively. When revalued assets are sold, the amounts included in the equity reserve are transferred to retained earnings and recognised through other comprehensive income.
ii. Depreciation Depreciation is recognised in the Statement of Financial Performance on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives for significant classes of assets for the current and comparative periods are as follows: Buildings 40-50 years Electricity distribution equipment 10-70 years Electricity generation equipment 15-50 years Plant and equipment 3-20 years Motor vehicles 5-10 years Wharves, walls and surfaces 3-100 years Floating plant 2-25 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
F14 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
d) Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value with any change recognised in the Statement of Financial Performance within administrative expenses and disclosed separately in the financial statements. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. Property that is being constructed for future use as investment property is accounted for as property, plant and equipment until construction or development is complete, at which time it is revalued to a fair value and reclassified as investment property. Any gain or loss arising on revaluation is recognised in the Statement of Financial Performance within administrative expenses. When the use of a property changes from owner-occupied to investment property, the property is revalued to fair value and reclassified as investment property. Any gain arising on revaluation is recognised directly in equity. Any loss is recognised immediately in the Statement of Financial Performance.
e) Exploration and evaluation expenditure Exploration and evaluation expenditure in relation to geothermal sites is accounted for in accordance with the area of interest method. The cost of drilling wells on an established geothermal field are capitalised on the basis that it is expected the expenditure will be recovered through future energy sales, or alternatively, by sale of the assets. Depreciation commences once the wells are put into productive use. All exploration and evaluation costs, including directly attributable overheads, general permit activity, resource consents, geological testing, geophysical testing and drilling are initially capitalised as work in progress, pending the determination of the success of the area. Costs are expensed where the area of interest does not result in a successful discovery. Exploration and evaluation expenditure is partially or fully capitalised where either: • the expenditure is expected to be recovered through the successful development and exploration of the area of interest (or alternatively by its sale); or • the exploration and evaluation activities in the area of interest have not, at the end of each reporting period, reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.
Capitalised costs are reviewed at the end of each reporting period to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support the continued carry forward of the capitalised costs. Exploration and evaluation expenditure is impaired in the Statement of Financial Performance under the successful efforts method of accounting in the period that exploration work demonstrates that an area of interest is no longer prospective for economically recoverable reserves or when the decision to abandon an area of interest is made. Land access rights for exploration activities are amortised over the life of the right.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F15 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f) Impairment
i. Financial assets The carrying amount of financial assets are reviewed at balance date to determine whether there is any evidence of impairment. Where assets are deemed to be impaired, the impairment loss is the amount that the carrying amount exceeds its recoverable amount. Impairment losses reduce the carrying amount of assets and are recognised as an expense in the Statement of Financial Performance within administrative expenses. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted using the effective interest method. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. For trade receivables which are not significant on an individual basis, collective impairment is assessed on a portfolio basis based on numbers of days overdue, and taking into account the historical loss experience in portfolios with a similar amount of days overdue. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the Statement of Financial Performance within administrative expenses.
ii. Non-financial assets An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in the Statement of Financial Performance within administrative expenses. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro-rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Impairment losses are not reversed on goodwill.
g) Provisions A provision is recognised if, as a result of a past event, Eastland Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
h) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to Eastland Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.
i. Regulated electricity distribution and electricity generation sales Revenue from electricity distributed and sold is recognised in the Statement of Financial Performance when the electricity has been distributed or sold to the customers. The revenue is net of returns, trade discounts and volume rebates.
ii. Logistics revenue Revenue from the sales of logistics services is recognised in the Statement of Financial Performance in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
iii. Rental income Rental income from investment property is recognised in the Statement of Financial Performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income arising from line rentals is recognised as income in the periods in which it is earned, based on usage rates of the relevant customer.
iv. Customer contributions Revenue from customer contributions is recognised in the Statement of Financial Performance as revenue when all obligations to the customer are satisfied.
F16 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
i) Finance income and expenses Finance income comprises of interest income on funds invested, changes in the fair value of financial assets at fair value through the Statement of Financial Performance and gains on hedging instruments that are recognised in the Statement of Financial Performance. Interest income is recognised as it accrues, using the effective interest method. Foreign exchange gains and losses are further detailed in the foreign currency transactions policy below. Finance expenses comprises of interest expense on borrowings, changes in the fair value of financial assets at fair value through the Statement of Financial Performance and impairment losses recognised on financial assets (except for trade receivables), and losses on hedging investments that are recognised in the Statement of Financial Performance. All borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for use. All other borrowing costs are recognised in the profit or loss section of the Statement of Financial Performance in the period which they are incurred.
j) Income tax expense Income tax expense is made up of current and deferred tax. Income tax expense is recognised in the Statement of Financial Performance except to the extent that it relates to items recognised directly in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, which provides for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: • The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit. • Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
k) Intangible assets i. Goodwill Goodwill represents the excess of the cost of the acquisition over Eastland Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the purchase. When the excess is negative (negative goodwill), it is recognised immediately in the Statement of Financial Performance. Impairment losses are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The useful lives of goodwill are assessed as indefinite and tested for impairment each year.
ii. Other intangibles Other intangibles are amortised over the defined finite life of the intangible asset.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F17 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
l) Employee benefits i. Short-term benefits Short-term benefits, payable within 12 months, are measured on an undiscounted basis and are expensed as the related service is provided. This includes wages, salaries, retirement benefits, annual leave and sick leave. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if Eastland Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
ii. Termination benefits Termination benefits are recognised as an expense when Eastland Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if Eastland Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
m) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Eastland Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in foreign currency at the beginning of the period, adjusted for effective interest and payments during the period. The amortised cost in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the Statement of Financial Performance.
n) Leases Finance leases Property, plant and equipment under finance leases, where the Group as lessee assumes substantially all the risks and rewards of ownership, are recognised as non-current assets in the Statement of Financial Position. Leased property, plant and equipment are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment apportioned between the reduction of the outstanding liability and the finance expense. The finance expense is charged to the Statement of Financial Performance in each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Leased property, plant and equipment are depreciated over the shorter of the lease term and the useful life of equivalent owned property, plant and equipment.
Operating leases i. as lessee Payments made under operating leases, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased property, plant and equipment are recognised in the Statement of Financial Performance on a straight-line basis over the lease term. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease. Property, plant and equipment used by Eastland Group under operating leases are not recognised in Eastland Group’s Statement of Financial Position.
ii. as lessor Assets leased under operating leases are included in investment property in the Statement of Financial Position. Rental income (net of any incentives given to lessees) is recognised on a straight line basis over the lease term. For more details see the investment property policy.
Leasehold improvements The cost of improvements to leasehold property are capitalised and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.
o) Goods and Services Tax (GST) The Statement of Financial Performance has been prepared so that all components are stated exclusive of GST. All items in the Statement of Financial Position are stated net of GST, with the exception of receivables and payables, which include GST.
F18 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
p) Joint ventures Joint ventures are accounted for through inclusion of Eastland Group’s share of the joint venture’s operations in the financial statements, using the equity method of consolidation. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in the Statement of Financial Performance. Where the Group’s share of losses in a joint venture equals or exceeds its interests in the joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint venture), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint venture are consistent with the policies adopted by the Group.
q) Statement of Cash Flows For the purpose of the Statement of Cash Flows, cash and cash equivalents include cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. The following terms are used in the Statement of Cash Flows; • Operating activities are the principal revenue producing activities of Eastland Group and other activities that are not investing or financing activities; • Investing activities are the acquisition and disposal of long term assets and other investments not including cash equivalents; and • Financing activities that result in change in the size and composition of the contributed equity and borrowings of the entity.
r) Non-current assets held for sale Individual non-current non-financial assets (and disposal groups) are classified as held for sale if they are available for immediate sale in their present condition subject only to the customary sales terms of such assets (and disposal groups) and their sale is considered highly probable. For a sale to be highly probable, management must be committed to a sales plan and actively looking for a buyer. Furthermore, the assets (and disposal groups) must be actively marketed at a reasonable sales price in relation to their current fair value and the sale should be expected to be completed within one year. Non-current non-financial assets (and disposal groups) which meet the criteria for held for sale classification are measured at the lower of their carrying amount and fair value less costs to sell and are presented within assets held for sale in the Statement of Financial Position. The comparatives are not re-presented when non-current assets (and disposal groups) are classified as held for sale. If the disposal group contains financial instruments, no adjustment to their carrying amounts is permitted.
s) Reclassification On 31 March 2015 the geothermal plant, owned by Geothermal Developments Limited, was revalued to fair value, for the first time since it was acquired in January 2010, therefore aligning with the valuation policy for existing infrastructure assets. All asset components including goodwill have been incorporated into the plant’s value.
t) Implementation of new reporting standards No new reporting standards were adopted in the current reporting period.
4 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED A number of new standards and amendments to standards and interpretations have come into effect during the period ending 31 March 2017. While these may impact some disclosures, none of these are expected to have a material effect on the consolidated financial statements of the Group.
IFRS 16 Leases, was issued in January 2016, and will replace all existing guidance on leases, included IAS 17 Leases. The standard introduces a single, on-balance sheet accounting model for lessees that is similar to current finance lease accounting. The effective date is annual periods beginning on or after 1 January 2019. Eastland has not yet fully evaluated the impact this standard will have on the financial statements of future accounting periods.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F19 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
5 SEGMENT REPORTING The Group’s internal reporting to the Group Chief Executive ("GCE") and Board is focused on the following businesses which are the Group’s operating segments reported in accordance with NZ IFRS 8 Operating Segments. Revenue and expenses are reported before intersegment eliminations, which differs from external financial reporting. These operating segments consist of: • Eastland Network – Ownership and management of electricity line distribution and contracting business, Eastech. • Eastland Generation – Ownership and management of electricity generation; including Waihi hydrogeneration and geothermal generation at Kawerau. • Eastland Port – Ownership and/or management of port, airport, cool store and debarker operations. • All Other Segments – Corporate activities, business development and investment property.
All other revenues and costs (including corporate costs) are included in All Other Segments. Intersegment transactions included in the operating revenues and expenditures for each segment are on an arm’s length basis. All segment information presented is prepared in accordance with Eastland Group’s accounting policies. Monthly internal reporting to the GCE and Board is also prepared on this basis. Segment profit reported to the GCE and Board is profit before interest and income tax. All financing costs and finance income are incorporated within Corporate activities and are not allocated to the segments.
2017 All other Inter- Network Generation Port segments segment Total $’000 $’000 $’000 $’000 $’000 $’000
Statement of Financial Performance External revenue: Operating revenue 36,300 4,977 31,192 1,363 - 73,832 Other income (28) 1,519 102 778 - 2,371 Intersegment revenue 2,262 2,093 65 13,644 (18,064) - Segment revenue 38,534 8,589 31,359 15,785 (18,064) 76,203 External operating expenditure: Operating expenditure (9,000) (2,124) (3,388) - - (14,512) Personnel expenditure (3,142) (507) (3,825) (2,893) - (10,367) Administrative expenditure (749) (1,785) (2,582) (4,563) - (9,679) Intersegment expenditure (6,427) (636) (2,257) (714) 10,034 - Operating expenditure (19,318) (5,052) (12,052) (8,170) 10,034 (34,558) Earnings before interest, income tax, depreciation and amortisation (EBITDA) 19,216 3,537 19,307 7,615 (8,030) 41,645 Depreciation and amortisation (6,102) (2,792) (5,721) (454) - (15,069) Segment profit before interest and income tax (EBIT) 13,114 745 13,586 7,161 (8,030) 26,576 Share of profit from joint venture - - 1,241 - 119 1,360 Loss from discontinued operations ------Dividend paid (3,560) (1,000) (3,255) (7,815) 7,815 (7,815)
Statement of Financial Position Assets 153,287 122,684 174,129 30,905 - 481,005 Liabilities 25,201 13,573 23,763 203,120 - 265,657 Borrowings 43,530 95,089 13,134 14,247 - 166,000 Segment capital expenditure 8,385 55,720 6,347 1,747 - 72,199
F20 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
5 SEGMENT REPORTING (continued) 2016 All other Inter- Network Generation Port segments segment Total $’000 $’000 $’000 $’000 $’000 $’000
Statement of Financial Performance External revenue: Operating revenue 34,230 6,135 29,879 1,388 - 71,632 Other income 83 1,200 494 465 - 2,242 Intersegment revenue 2,159 2,172 70 11,537 (15,938) - Segment revenue 36,472 9,507 30,443 13,390 (15,938) 73,874 External operating expenditure: Operating expenditure (8,538) (2,428) (3,180) - - (14,146) Personnel expenditure (2,933) (340) (3,016) (2,812) - (9,101) Administrative expenditure (760) (1,516) (2,547) (3,599) - (8,422) Intersegment expenditure (6,635) (631) (2,201) (698) 10,165 - Operating expenditure (18,866) (4,915) (10,944) (7,109) 10,165 (31,669) Earnings before interest, income tax, depreciation and amortisation (EBITDA) 17,606 4,592 19,499 6,281 (5,773) 42,205 Depreciation and amortisation (5,902) (2,671) (5,738) (534) - (14,845) Segment profit before interest and income tax (EBIT) 11,704 1,921 13,761 5,747 (5,773) 27,360
Share of profit from joint venture - - 1,306 - 136 1,442 Loss from discontinued operations - - - (45) - (45) Dividend paid (2,300) (1,000) (2,315) (5,615) 5,615 (5,615)
Statement of Financial Position Assets 144,120 68,771 174,765 34,547 - 422,203 Liabilities 24,493 12,779 23,727 156,304 - 217,303 Borrowings 38,523 38,926 21,269 15,281 - 114,000 Segment capital expenditure 6,740 6,573 18,419 796 - 32,528
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F21 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
6 TOTAL INCOME 2017 2016 $’000 $’000
Revenue Electricity distribution revenue 34,503 32,826 Logistics revenue 30,040 27,632 Energy sales 4,297 5,906 Property rentals 2,576 3,538 Management fees received from related parties 69 81 Customer contributions 454 143 Other revenue 1,893 1,506 Total revenue 73,832 71,632
Other Income Other income 60 1,452 Insurance proceeds 2,126 375 Impairment losses recovered 4 7 Increase in fair value of investment property 181 408 Total other income 2,371 2,242
Total income 76,203 73,874
F22 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
7 ADMINISTRATIVE AND OTHER EXPENSES 2017 2016 $’000 $’000
Administrative expenses 7,889 7,136 Impairment losses and bad debt write-offs on trade receivables 19 28 Direct operating expenditure arising on investment properties that generated rental income 362 433 Auditor’s remuneration to Deloitte comprises: audit of financial statements 243 243 audit of commerce commission reporting 51 55 other services - 4 8,564 7,899 Other expenses Loss on revaluation of property, plant and equipment - 230 Loss on sale or disposal of property, plant and equipment 620 293 Loss on sale or disposal of investment property 495 - 1,115 523 Total administrative and other expenses 9,679 8,422
Donations of $400 were made during the financial year (2016: $285).
2017 2016 Notes $’000 $’000
Depreciation and amortisation Depreciation of property, plant and equipment 12 15,013 14,790 Amortisation 16 56 55 Total depreciation and amortisation 15,069 14,845
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F23 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
8 FINANCE INCOME AND EXPENSES 2017 2016 $’000 $’000
Interest income on cash and cash equivalents 22 13 Total finance income 22 13
Interest expense 7,814 8,331 Net foreign exchange losses - 43 Total finance expense 7,814 8,374
Net finance expense 7,792 8,361
9 INCOME TAX
2017 2016 $’000 $’000
Income tax expense Current tax expense Current period 5,324 5,882 Adjustment for prior periods (242) 1 Total current tax expense 5,082 5,883
Deferred tax expense Temporary differences for the year 30 (462) Adjustment for prior periods 195 (207) Total deferred tax (income) 225 (669) Total income tax expense 5,307 5,214
A reconciliation of income tax expense to the statutory income tax rate, is as follows:
2017 2016 $’000 % $’000 %
Accounting profit before income tax 20,144 20,441
At the statutory income tax rate of 28% (5,640) (28.0%) (5,724) (28.0%) Adjustments in respect of current income tax of previous years 47 0.2% 206 1.0% Subvention payment 471 2.3% - - Non-deductible expenses (185) (0.9%) (32) (0.1%) Tax exempt income - - 336 1.6% (5,307) (26.3%) (5,214) (24.1%)
F24 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
DEFERRED TAX ASSETS AND LIABILITIES 2017 Property Provisions plant and and Investment Hedge equipment accruals property reserve Other Total $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of the period (51,907) 344 78 4,240 (75) (47,320) Amounts recognised in the statement of comprehensive income: relating to the current period (72) (14) 55 2 - (29) prior period adjustments recognised in the current period (238) 41 - - - (197) Amounts recognised directly in other comprehensive income 34 - - (1,321) - (1,287) Net deferred tax liabilities (52,183) 371 133 2,921 (75) (48,833)
2016 Property Provisions plant and and Investment Hedge equipment accruals property reserve Other Total $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of the period (47,765) 325 190 1,502 (75) (45,823) Amounts recognised in the statement of comprehensive income: relating to the current period 540 34 (112) - - 462 prior period adjustments recognised in the current period 221 (15) - - - 206 Amounts recognised directly in other comprehensive income (4,903) - - 2,738 - (2,165) Net deferred tax liabilities (51,907) 344 78 4,240 (75) (47,320)
Group deferred tax net liability The $48.8 million (2016: $47.3 million) net deferred tax liability includes $52.2 million (2016: $52.0 million) that relates to accounting depreciation on property, plant and equipment that has been revalued, with the remaining relating to differences between accounting and tax depreciation rates. As the network and port assets are held for the long term, this liability is unlikely to be realised.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F25 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
10 CASH AND CASH EQUIVALENTS 2017 2016 $’000 $’000
Current accounts 3,185 160 Call deposits 66 2,093 Total cash and cash equivalents 3,251 2,253
Bank balances earn interest at floating rates based on daily bank deposit rates. Refer to Note 23 for further discussion on Eastland Group’s funding facilities. Eastland Group is party to funding and banking facilities which are made available to related companies. Related companies cash receipts and payments are made through the bank accounts of Eastland Group Limited, which provides treasury services to Eastland Group. The effective interest rate on call deposits is NZD denominated 2.01% (2016: 2.25%). A guarantee of $800,000 is in place for potential claims of subsidence relating to the site used for our geothermal plant at Kawerau. The likelihood of such a claim is viewed as remote.
11 TRADE AND OTHER RECEIVABLES 2017 2016 $’000 $’000
Trade receivables 7,186 7,317 GST receivable 94 - Other receivables 1,089 988 Total trade and other receivables 8,369 8,305
Trade receivables are stated net of impairment loss allowances of $45,463 (2016:$19,979). Trade receivables that are less than three months past due are not considered impaired, unless there is evidence to the contrary. For an aging analysis of trade receivables see Note 24. No impairment losses have been recognised on related party receivables.
F26 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
12 PROPERTY, PLANT AND EQUIPMENT 2017 Electricity Wharves, Other Land and Electricity generation walls and Floating plant and Work in buildings distribution equipment surfaces plant equipment progress Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
As at 1 April 2016, Cost or fair value 56,950 148,839 57,372 106,002 17,434 19,317 13,765 419,679 Additions 960 7,476 10,284 2,230 924 2,701 46,369 70,944 Disposals (1,358) (389) (5) - (130) (482) - (2,364) Transfers 2,560 23 7 459 - (504) - 2,545 As at 31 March 2017, Cost or fair value 59,112 155,949 67,658 108,691 18,228 21,032 60,134 490,804 Accumulated depreciation as at 1 April 2016 1,721 15,528 4,423 1,054 3,223 7,904 - 33,853 Depreciation charge for the year 992 5,408 2,724 3,124 1,036 1,729 - 15,013 Disposals (4) (85) (1) - (87) (359) - (536) Transfers (3) 23 6 19 - (58) - (13) As at 31 March 2017, accumulated depreciation 2,706 20,874 7,152 4,197 4,172 9,216 - 48,317 As at 31 March 2017, net of accumulated depreciation 56,406 135,075 60,506 104,494 14,056 11,816 60,134 442,487
2016 Electricity Wharves, Other Land and Electricity generation walls and Floating plant and Work in buildings distribution equipment surfaces plant equipment progress Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
As at 1 April 2015, Cost or fair value 54,557 142,856 56,861 89,929 17,431 17,789 8,578 388,001 Additions 2,866 6,338 511 14,935 3 2,444 5,187 32,284 Disposals (18) (355) - (272) - (408) - (1,053) Revaluation/reclassification (455) - - 1,410 - (508) - 447 As at 31 March 2016, Cost or fair value 56,950 148,839 57,372 106,002 17,434 19,317 13,765 419,679 Accumulated depreciation as at 1 April 2015 1,029 10,186 1,807 13,787 2,175 7,240 - 36,224 Depreciation charge for the year 837 5,386 2,616 3,284 1,048 1,619 - 14,790 Disposals (10) (44) - - - (335) - (389) Revaluation/reclassification (135) - - (16,017) - (620) - (16,772) As at 31 March 2016, accumulated depreciation 1,721 15,528 4,423 1,054 3,223 7,904 - 33,853 As at 31 March 2016, net of accumulated depreciation 55,229 133,311 52,949 104,948 14,211 11,413 13,765 385,826
There are no restrictions on title, and property, plant and equipment pledged as security for liabilities. There is no restriction on the distribution of this balance to our shareholder. There has been no impairment of property, plant and equipment during the current year. Under NZIFRS-13, property, plant and equipment that has been revalued is categorised as level 3 in the fair value hierarchy. There have been no transfers between levels. In the year to 31 March 2017 $1,736,837 (2016: $687,710) of interest has been capitalised.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F27 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
12 PROPERTY, PLANT AND EQUIPMENT (continued)
Land and buildings Network operational land and buildings were valued on 31 March 2016 (total fair value of $4.3 million) by an independent valuer; AON New Zealand Limited. The method of valuation was the market approach. The methods used were direct comparison, income based, capitalisation and the capitalisation rate or yield. Port land and buildings were revalued on 31 March 2015 (total fair value of $38.7 million) by an independent valuer; Crighton Anderson. The method of valuation was market-based value for non-specialised assets. The approaches used were direct comparison, income based, capitalisation and the capitalisation rate or yield.
Electricity distribution Electricity distribution assets and related land and buildings were last revalued on 1 April 2013 (fair value $127.5 million) by PricewaterhouseCoopers ("PwC") using the discounted cash flow method. The key assumptions of the valuation for the discounted cash flows over the period FY14-FY25 were: • CPI ranging from 1.62% - 2.03% • Revenue growth of 0.50% • Default Price Quality Path WACC assumptions 7.12% - 8.77% • Closing 2025 Regulatory Asset Base used as the terminal value and discounted back to valuation date • Net working capital $1.1 million
Electricity generation equipment Electricity generation equipment were revalued at 31 March 2015 (total fair value of $2.2 million) by an independent valuer; Jacobs New Zealand Limited. The valuation method used was a discounted cash flow basis, using the following assumptions: • A nominal post tax discount rate of 8.59% • Forecast operating costs were based on current operating costs adjusted for inflation of 2% • A corporate tax rate of 28% • Revenue forecasts were based on the terms of the Contact Energy agreement together with assumptions on electricity spot price at time of generation
The Waihi Hydroelectric Scheme was revalued as at 31 March 2017 (total fair value of $15.4 million) by an independent valuer; Jacobs. The valuation used was a discounted cash flow basis, using the following assumptions: • Outputs were based on an average plant availability of 25.5% of capacity resulting in an average production of 11.19 GWh. • Wholesale electricity prices were based on the Gisborne reference nodal price path estimates prepared by an independent consultant; Energylink April 2016 • Forecast operating costs were based on current operating costs adjusted for inflation of 2% • A major half-life overhaul of the generator and turbine equipment was assumed in the forecast of capital expenditure • A corporate tax rate of 28% • A nominal post tax discount rate of 8.47% which was reflective of the expectation an investor would expect to receive on private generation projects
The geothermal plant, owned by Geothermal Developments Limited, was revalued at $38.6 million as at 31 March 2015 by an independent valuer, Jacobs New Zealand Limited. The valuation used was a discounted cash flow basis using the following assumptions: • Net generation capacity of 8.37 MW • Wholesale electricity prices were based on the existing Power Purchase Agreement that was in place and the Kawerau reference nodal price estimates prepared by management taking into consideration independent price path forecasts and prices obtained for long term power purchase agreements • Operating costs were derived from historical data adjusted for inflation of 2% • Capital expenditure was derived from the plant’s asset management plan, with a new production well expected to be drilled in 2020, control and instrument replacement and refurbishment in 2024, 2029 and 2034 • A corporate tax rate of 28% • A nominal post tax discount rate of 8.59% which is reflective of the return an investor in this asset would expect to receive on private generation projects
All components from the acquisition of the plant, including goodwill, have now been incorporated into the plant value.
F28 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Wharves, walls and surfaces The port wharves, walls and surfaces and some other plant and equipment were revalued on 31 March 2016 (total fair value $105.9 million) by independent valuers, Opus International Consultants Ltd. The method of valuation was depreciated replacement cost which was supported by a discounted cash flow valuation prepared, using the following assumptions: • Revenues were based on management’s best estimate of cargo volumes (predominantly logs) over the years to 2030 with these estimates supported in the case of log exports by external reports and customer forecasts of likely log volumes • Port charges for all log cargos increase from 1 April 2017 following a customer consultation period • Operating costs were based on current operating cost to volume ratios plus inflation of 2% per annum • Capital expenditures include both maintenance and growth capital expenditure to support the estimated volumes • A corporate tax rate of 28% • The post-tax discount rate of 8.5% was the weighted average cost of capital (WACC) • The terminal value was based on free cash flow at 2030 with the valuation tested at terminal value growth rates of 1.5 - 3.5%
The carrying values of revalued items of property, plant and equipment that would have been recognised had the assets been recognised on the historic cost model is as follows:
2017 2016 $’000 $’000
Land and buildings 22,471 23,503 Electricity distribution 83,838 79,794 Wharves, walls and surfaces 46,010 45,372 152,319 148,669
These financial statements should be read in conjunction with notes Annual Report 2016 Eastland Group F29 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
13 INVESTMENT PROPERTIES 2017 2016 $’000 $’000
Opening balance at 1 April 16,350 15,698 Additions 1,255 244 Disposals (1,164) - Transfers out to operational property (2,557) - Fair value adjustment 181 408 Closing balance at 31 March 14,065 16,350
Investment properties include parcels of land and buildings strategically located at Eastland Port, Inner Harbour, Gisborne Airport and various other locations in Gisborne. They are measured at fair value, based on an annual valuation by an independent valuer; Aon New Zealand. The fair value is based on a discounted cashflow model using expected market rentals for the highest and best use of the property. An analysis of current property sales is also assessed in determining the value. The investment property that has been revalued is categorised as level 3 in the fair value hierarchy. There have been no transfers between levels.
14 INVESTMENT IN SUBSIDIARIES
Subsidiary Parent Principal activity Country of Ownership incorporation Interest (%) 2017 2016 Geothermal Developments Limited Eastland Generation Limited Geothermal generation New Zealand 100% 100% Te Ahi O Maui Limited Partnership Eastland Generation Limited Geothermal generation New Zealand 94% 94% Te Ahi O Maui General Partnership Limited Eastland Generation Limited Geothermal generation New Zealand 94% 94% Eastland Port Limited Eastland Group Limited Port services New Zealand 100% 100% Eastland Network Limited Eastland Group Limited Electrical distribution New Zealand 100% 100% Eastech Limited Eastland Group Limited Contracting New Zealand 100% 100% Eastland Generation Limited Eastland Group Limited Electrical generation New Zealand 100% 100% Eastland Investment Properties Limited Eastland Group Limited Investment property New Zealand 100% 100% Gisborne Airport Limited Eastland Group Limited Airport services New Zealand 100% 100% Inner Harbour Marina Limited Eastland Investment Properties Limited Harbour services New Zealand 100% 100% Northland Debarking Limited Eastland Port Debarking Limited Debarker services New Zealand 100% 100% Eastland Port Debarking Limited Eastland Port Limited Debarker services New Zealand 100% 100% Eastland Energy Solutions Limited Eastland Group Limited Energy solutions New Zealand 100% 100%
There are no restrictions in place on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances. Eastland Group provides funding and treasury services to these subsidiaries.
F30 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
15 INVESTMENT IN JOINT VENTURE Details of the Group’s material joint venture at the end of the reporting period is as follows: Proportion of ownership interest and voting rights held by the Group Name of Joint Venture Principal activity Place of Incorporation 2017 2016
Eastland Debarking Debarking and anti-sap treatment of New Zealand 50% 50% export logs stored at the port in Gisborne
This joint venture is accounted for using the equity method. Summarised financial information in respect of the Group’s material joint venture is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with IFRS (adjusted by the Group for equity accounting purposes).
EASTLAND DEBARKING JOINT VENTURE 2017 2016 $’000 $’000
Current assets 1,338 1,489 Current liabilities (221) (250) Non-current assets 1,185 483 Net assets 2,302 1,722
The above amounts of assets and liabilities include the following:
Cash and cash equivalents 925 1,040
Revenue 4,437 5,025 Profit from continuing operations 2,481 2,612 Profit for the year 2,481 2,612 Total comprehensive income for the year 2,481 2,612
Profit share at 50% 1,241 1,306 Group eliminations 119 136 Share of profit of joint venture 1,360 1,442
Distributions made to joint venture partners 1,902 3,980
The above profit/loss for the year included the following:
Depreciation and amortisation 102 77 Interest income 7 14
Reconciliation of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated financial statements:
Net assets of the joint venture 2,302 1,722 Proportion of the Group’s ownership interest in the joint venture 50% 50% Carrying amount of the Group’s interest in the joint venture 1,150 861
Significant restrictions There are no significant restrictions on the ability of the joint venture to transfer funds to the Group in the form of profit sharing. Commitments As at 31 March, total capital expenditure committed but not yet incurred was $Nil (2016: $Nil). Contingent liabilities As at 31 March, total contingent liabilities were $Nil (2016: $Nil). Impairment No assets employed in the jointly controlled operations were impaired during the year.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F31 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
16 INTANGIBLE ASSETS 2017
Development Vended Resource Access rights assets consent Goodwill rights Other Total $’000 $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of period 1,774 1,861 567 1,000 1,398 114 6,714 Balance at end of the period 1,774 1,861 567 1,000 1,398 114 6,714
Accumulated amortisation and impairment losses Balance at beginning of period - - 35 290 28 20 373 Amortisation for the period - - 16 - 28 12 56 Balance at end of the period - - 51 290 56 32 429 As at 31 March 2017 1,774 1,861 516 710 1,342 82 6,285
2016 Development Vended Resource Access rights assets consent Goodwill rights Other Total $’000 $’000 $’000 $’000 $’000 $’000 $’000
Balance at beginning of period 1,774 1,791 567 1,000 1,398 117 6,647 Acquisitions - 70 - - - 19 89 Disposals -----(22) (22) Balance at end of the period 1,774 1,861 567 1,000 1,398 114 6,714
Accumulated amortisation and impairment losses Balance at beginning of period - - 19 290 - 31 340 Amortisation for the period - - 16 - 28 11 55 Disposals -----(22) (22) Balance at end of the period - - 35 290 28 20 373 As at 31 March 2016 1,774 1,861 532 710 1,370 94 6,341
The board has reviewed the intangible asset costs above for the Te Ahi o Maui project and concluded that the development rights and vended assets, are reasonable. Amortisation of the development right will commence on the commissioning of the plant over a period of up to forty years. Amortisation and impairment charge The amortisation of the airport obstruction survey is over a five year period. The berth licences are amortised over the period up until 2026. These are included in other intangible assets. Impairment testing for cash-generating units containing goodwill Goodwill is allocated to Eastland Group’s operating divisions, which represent cash generating units, the lowest level within Eastland Group at which the goodwill is monitored for internal management purposes.
F32 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
The aggregate carrying amounts of goodwill allocated to each division are as follows:
2017 2016 $’000 $’000
Port Weighbridge (owned by Eastland Port Limited) 500 500 Inner Harbour Marina Limited 210 210 Total goodwill 710 710
The recoverable amounts attributable to impairment testing of goodwill is calculated on the basis of value in use using discounted cash flow models. Key assumptions used are as follows: Port Weighbridge Future cash flows are projected based on expected cash flows using estimates of log volume over the next five years. Costs increase at an assumed inflation rate of 2.0%. Discount rates used ranged from 6.6% to 8.6%.
Inner Harbour Marina Limited Future cash flows are projected based on expected cash flows based on budget forecasts for this business unit over the next five years. Costs are expected to increase at an assumed inflation rate of 2.0%. Discount rates used ranged from 6.46% to 8.46%. The recoverable amount of each division exceeds the net assets plus goodwill allocated. Therefore Eastland Group has determined that no impairment to goodwill has occurred during the period.
17 INVESTMENTS
2017 2016 $’000 $’000
Investment in unlisted equity securities (Flick Electric Co.) 5,051 2,229 Total Investments 5,051 2,229
The value of unlisted securities are based on the historic cost of the investment which is the estimated fair value.
18 PAYABLES AND ACCRUALS
2017 2016 $’000 $’000
Trade payables 5,370 4,975 Non-trade payables and accrued expenses 1,306 1,628 Interest payable 439 420 GST payable -44 Total trade and other payables 7,115 7,067
All cash receipts and payments are made through the bank accounts of Eastland Group Limited which provides treasury services to the Eastland Group. Trade and other payables generally have terms of 30 days and are interest free. The directors consider the carrying amount of trade and other payables approximates fair value because the amounts due will be settled within 12 months and are interest free.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F33 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
19 EMPLOYEE ENTITLEMENTS
2017 2016 $’000 $’000
Provisions for: Annual leave 779 689 Short-term benefits 356 998 Post-employment benefits 92 80 Total employee benefit liability 1,227 1,767
Expenses recognised in profit or loss: Wages and salaries 9,844 8,674 Contributions to defined contribution plans 523 427 Total employee entitlement expenses 10,367 9,101
During the year the following number of employees received remuneration of at least $100,000.
2017 2016
100,000 - 109,999 64 110,000 - 119,999 53 120,000 - 129,999 14 130,000 - 139,999 65 140,000 - 149,999 41 150,000 - 159,999 2- 160,000 - 169,999 11 170,000 - 179,999 11 180,000 - 189,999 -- 190,000 - 199,999 -1 200,000 - 209,999 -1 210,000 - 219,999 -- 220,000 - 229,999 1- 230,000 - 239,999 -1 240,000 - 249,999 1- 250,000 - 259,999 -2 270,000 - 279,999 2- 280,000 - 289,999 1- 320,000 - 329,999 11 330,000 - 339,999 1- 540,000 - 550,000 -1 590,000 - 599,999 1-
20 COMMITMENTS As at 31 March 2017, Eastland Group had total capital commitments payable within the next 12 months of $19.3 million (2016: $2.1 million).
F34 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
21 TRANSACTIONS WITH OWNER a) Issued capital Total number of shares on issue is 1,000. There was no movement in the total number of shares during the year. All shares are classed as ordinary, have no par value and are subject to the same rights and privileges and are subject to the same restrictions. There are no restrictions on the distribution of dividends and the repayment of capital.
b) Dividends paid Dividends of $7.8 million were paid during the year (2016: $5.6 million). This included a subvention payment of $1.7 million. The dividend per share is $7,815 (2016: $5,615).
c) Imputation credits As at 31 March 2017, the imputation credits available to the shareholders of the parent and the Eastland Group total $15.0 million (2016: $15.1 million).
d) Capital notes Eastland Group issued capital notes on 1 April 2010 of $30 million to the Eastland Community Trust. The notes have a perpetual term and are subject to repayment, after 31 March 2020, on receipt of 15 months notice. Eastland Community Trust elected to renew the capital notes on 1 April 2015. Eastland Group may elect at any time to redeem all or part of the notes for equity or cash. The capital notes incur interest at 7.10% (2016: 7.10%), which is fixed until 31 March 2020. Interest paid for the year ended 31 March 2017 was $2.1 million (2016: $2.1 million).
e) Other transactions During the year a sale and purchase agreement was signed regarding the purchase of the commerce place properties for $295,000. A deposit has been paid as at 31 March 2017 and settlement will occur during the 2018 financial year. There was also a building sold from the Port for $150,000 in July 2016.
22 OPERATING LEASES a) Operating leases receivable Eastland Group has leased certain investment properties (refer to Note 13) and some other land and buildings, under operating leases. The future minimum lease payments receivable under non-cancellable leases are as follows:
2017 2016 $’000 $’000
Less than one year 2,303 2,025 Between one and five years 4,852 3,611 More than five years 269 345 Total operating leases receivable 7,424 5,981
b) Operating leases payable Eastland Group leases land and/or buildings in Gisborne, Kawerau, Whakatane and Northland, as well as some other office equipment and vehicles. Eastland Group leases land sites throughout the East Coast for the right to lay and maintain power cables and radio transmissions on these sites.
2017 2016 $’000 $’000
Less than one year 869 866 Between one and five years 3,330 3,328 More than five years 11,310 12,701 Total operating leases payable 15,509 16,895
Operating lease payments of $892,471 were made during this financial year (2016: $767,087).
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F35 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
23 LOANS AND BORROWINGS This note provides information about the contractual terms of Eastland Group’s interest-bearing loans and borrowings. For more information about Eastland Group’s exposure to interest rate and foreign currency risk, see Note 24.
2017 2016 $’000 $’000
The borrowings are repayable as follows: Within two to five years 166,000 114,000 Total bank borrowings 166,000 114,000
Classified as follows: Non-current liabilities 166,000 114,000 Total bank borrowings 166,000 114,000
Drawn Undrawn $’000 $’000
As at 31 March 2017 Facility A maturing 1 April 2021 166,000 44,000 Facility B maturing 30 June 2018 - 15,000 166,000 59,000
As at 31 March 2016 Facility A maturing 1 April 2021 114,000 36,000 Facility B maturing 30 June 2017 - 15,000 114,000 51,000
Eastland Group Limited has arranged bank funding from the ANZ Bank, ASB and BNZ on behalf of Eastland Group. As at 31 March 2017 there were total bank facilities of NZD $225 million (2016 :$165 million) which are unsecured and subject to a Deed of Negative Pledge. The borrowings are in the name of Eastland Group Limited. The guaranteeing subsidiaries of the Group debt held by the Parent entity are as follows: Gisborne Airport Limited Geothermal Developments Limited Eastland Port Limited Inner Harbour Marina Limited Eastland Port Debarking Limited Eastland Network Limited Eastland Investment Properties Limited Eastech Limited Eastland Generation Limited Northland Debarking Limited Te Ahi o Maui Limited Partnership Te Ahi o Maui GP Limited
These borrowings are rolled over at 90 day intervals spread throughout the year. The interest rate on these borrowings is the BKBM rate at the rollover date plus a margin of 0.87% (2016: 0.87%). As at 31 March 2017, the rates on borrowings range from 2.77% to 2.94% (2016: 3.14% to 3.58%). Facilities with the ANZ Bank have expiry dates of 1 April 2021 Tranche A ($210 million) and a perpetual facility of $15 million which expires 18 months from drawdown (2016: $150 million and $15 million). There have been no defaults during the period of principal, interest, sinking fund, covenants or redemption terms of those loans payable during the period.
F36 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS Eastland Group has a comprehensive treasury policy approved by the directors to manage the risks of financial instruments. The policy outlines the objectives and approach Eastland Group applies in its financial risk management processes. The policy covers, among other things, management of credit risk, interest rate risk, funding risk, liquidity risk, currency risk and operational risk. Non-derivative financial liabilities are categorised as ‘amortised cost’. Derivative financial instruments are categorised as ‘fair value through profit and loss’ unless hedge accounting is applied. Hedge accounting is applied for all derivative financial instruments.
(a) Financial assets and liabilities 2017
Other Cash and liabilities at Total cash Cash-flow Loans and amortised carrying Notes equivalents hedges receivables cost amount Fair value $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash equivalents 10 3,251 - - - 3,251 3,251 Trade and other receivables 11 - - 8,369 - 8,369 8,369 Derivative financial instruments 24 - 291 - - 291 291 Investments 17 - - 5,051 - 5,051 5,051 Total financial assets 3,251 291 13,420 - 16,962 16,962
Financial liabilities Payables and accruals 18 - - - (7,115) (7,115) (7,115) Employee entitlements 19 - - - (1,227) (1,227) (1,227) Derivative financial instruments 24 - (11,135) - - (11,135) (11,135) Loans and borrowings 23 - - - (166,000) (166,000) (166,000) Capital notes 21 - - - (30,000) (30,000) (30,000) Total financial liabilities - (11,135) - (204,342) (215,477) (215,477)
Total net financial assets/(liabilities) 3,251 (10,844) 13,420 (204,342) (198,515) (198,515)
2016 Other Cash and liabilities at Total cash Cash-flow Loans and amortised carrying Notes equivalents hedges receivables cost amount Fair value $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash equivalents 10 2,253 - - - 2,253 2,253 Trade and other receivables 11 - - 8,305 - 8,305 8,305 Investments 17 - - 2,229 - 2,229 2,229 Total financial assets 2,253 - 10,534 - 10,558 10,558
Financial liabilities Payables and accruals 18 - - - (7,067) (7,067) (7,067) Employee entitlements 19 - - - (1,767) (1,767) (1,767) Derivative financial instruments 24 - (15,564) - - (15,564) (15,564) Loans and borrowings 23 - - - (114,000) (114,000) (114,000) Capital notes 21 - - - (30,000) (30,000) (30,000) Total financial liabilities - (15,564) - (152,834) (168,398) (168,398)
Total net financial assets/(liabilities) 2,253 (15,564) 10,534 (152,834) (157,840) (157,840)
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F37 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) b) Fair value measurements recognised in the Statement of Financial Position The following methods and assumptions were used to estimate the carrying amount and fair value of each asset class of financial instrument carried at fair value. Where financial instruments are measured at fair value they have been classified at the following levels. Level 1: Quoted prices (unadjusted) in active markets for assets or liabilities; or Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices): or Level 3: Inputs for the asset and liability that are not based on observable market data (unobservable inputs). The valuation of derivative financial instruments are based on Level 2 fair value hierarchy, and were calculated using valuation models applying observable market data. Some of the key observable market data is presented as below.
Derivative instruments The total carrying amount of derivative instruments is the same as the fair value and includes interest accrued. The calculation of fair value for each financial instrument for either measurement or disclosure purposes are explained below. In each case, interest accrued is included separately in the statement of financial position either in receivables or prepayments for interest payable.
Loans and receivables, trade payables and other creditors, cash and cash equivalents and short term deposits The total carrying amounts of these items is equivalents to their fair value. Loans include the principal and interest accrued. Bank overdrafts are set-off against cash balances pursuant to any right of set-off. Receivables are net of doubtful debts provided.
Bank loans, working capital loans and floating rate notes The total carrying amount includes the principal, interest accrued and unamortised costs.
Capital notes The total carrying amount includes the principal, interest accrued and unamortised costs.
c) Interest rate risk Eastland Group actively manages interest rate exposures in accordance with treasury policy. In this respect, at least fifty percent of all current debt must be at fixed interest rates or effectively fixed using interest rate swaps, forward rate agreements, options and other derivative instruments. The main objectives are to minimise the cost of total debt, control variations in the interest expense of the debt portfolio from year to year and to match where practicable the interest rate risk profile of debt with the risk profile of Eastland Group’s assets. The treasury policy sets parameters for managing the interest rate risk profile. Eastland Group enters into interest rate swaps, collars and caps to hedge its exposures to changes in the floating interest rates on loans. Eastland Group has elected to apply cash-flow hedging to all of its interest rate swaps, collars and caps with a notional value totalling $170 million (2016: $175 million) these include forward starting swaps of $75 million with start dates effective from 30 July 2017 to 30 July 2020. Interest rate swaps, collars and caps have terms or maturity dates which are between 24 and 84 months and swap interest on a floating rate for fixed interest of between 2.85% to 5.94% (2016: 2.87% to 5.94%). The last cash-flow hedge swap matures on 30 July 2025. The interest rate swaps, collars and caps that have been designated as cash-flow hedges affect profit and loss at the same time as the underlying interest expense is recognised on the retrospective borrowings (see Note 23). Any ineffective portion of cash-flow hedges is removed from equity and recognised immediately in the Statement of Financial Performance 2017: $Nil (2016: $Nil). The hedge relationships are expected to be highly effective over the life of the swaps.
2017 2016 Notional Amount Notional Amount $’000 $’000
Interest rate swaps (floating to fixed) Maturing in less than 1 year 25,000 15,000 Maturing between 1 and 2 years - 25,000 Maturing between 2 and 5 years 60,000 60,000 Maturing after 5 years 85,000 75,000 170,000 175,000
F38 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
d) Foreign currency risk Eastland Group is exposed to exchange risk through the Te Ahi o Maui construction project. Foreign exchange exposure is primarily managed through entering into derivative forward contracts. The board of directors require that all foreign currency borrowings are hedged into NZD at the time of commitment.
e) Liquidity risk Liquidity risk is the risk that Eastland Group will not be able to meet its financial obligations as they fall due. Eastland Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Eastland Group’s reputation. Eastland Group’s cash management function is managed at Group level with all cash transactions and funding taking place as part of Eastland Group’s treasury function. Eastland Group Limited has sufficient funding and banking facilities available to meet the liquidity requirements of Eastland Group. For details of the funding and banking facilities arranged by Eastland Group Limited, please refer to Note 23. Eastland Group has entered into interest rate swaps, caps and collars to hedge its exposure to variability in interest rate payments on these borrowings. This is discussed further below.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F39 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) 2017
6-12 Notes <6 months months 1-3 years 3-5 years >5 years Total $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash equivalents 10 3,251 - - - - 3,251 Trade and other receivables 11 8,369 - - - - 8,369 Derivative financial instruments 24 288 - 3 - - 291 Investments 17 - - - - 5,051 5,051 Total financial assets 11,908 - 3 - 5,051 16,962
Financial liabilities Payables and accruals 18 (7,115) - - - - (7,115) Employee entitlements 19 (1,227) - - - - (1,227) Derivative financial instruments 24 (2,737) (676) (411) (2,710) (4,601) (11,135) Loans and borrowings 23 - - - (166,000) - (166,000) Capital notes 21 - - - - (30,000) (30,000) Total financial liabilities (11,079) (676) (411) (168,710) (34,601) (215,477)
Liquidity gap 829 (676) (408) (168,710) (29,550) (198,515)
2016
6-12 Notes <6 months months 1-3 years 3-5 years >5 years Total $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash equivalents 10 2,253 - - - - 2,253 Trade and other receivables 11 8,305 - - - - 8,305 Investments 17 - - - - 2,229 2,229 Total financial assets 10,558 - - - 2,229 12,787
Financial liabilities Payables and accruals 18 (7,067) - - - - (7,067) Employee entitlements 19 (1,767) - - - - (1,767) Derivative financial instruments 24 (1,666) (1,553) (2,048) (3,983) (6,314) (15,564) Loans and borrowings 23 - - - - (114,000) (114,000) Capital notes 21 - - - - (30,000)(30,000) Total financial liabilities (10,500) (1,553) (2,048) (3,983) (150,314) (168,398)
Liquidity gap 58 (1,553) (2,048) (3,983) (148,085) (155,611)
F40 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
f) Credit risk Credit risk is the risk of financial loss to Eastland Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the cash and cash equivalents, trade receivables and related party balances. The treasury function of Eastland Group is provided to all the subsidiary companies. Credit risk exposure in relation to the subsidiaries is not considered to be significant, and no specific risk management policies have been put in place in relation to inter-group balances. Credit risk in relation to customers is spread across Eastland Group with the largest customers by dollar value being in the energy and logistics sectors. The retailers are of good credit standing and management believes that Eastland Group is not exposed to any undue risk, which is supported by past history of payment by these customers. The credit risk in relation to the remaining trade receivables is not considered to be significant. There are no financial assets that have been pledged as collateral for liabilities or contingent liabilities. Eastland Group recognises impairment losses on trade and other receivables that are believed to be irrecoverable. Specific impairment losses are made for individually significant exposures that are known at year end. The impairment loss allowance at 31 March 2017 was $45,463 (2016: $19,979). Actual bad debts written off in the Statement of Financial Performance were $19,186 (2016: $28,505) and there was no adjustment to the specific allowance. A collective impairment loss component is established for groups of similar receivables in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
MATURITY PROFILE 2017
1-60 61-90 91-180 Over 180 Current days days days days Total $’000 $’000 $’000 $’000 $’000 $’000
As at 31 March 2017 Trade receivables 6,560 458 65 45 106 7,234 Total due 6,560 458 65 45 106 7,234
Impaired Trade receivables - - - - 48 48 Total impaired financial assets - - - - 48 48
The above receivables are determined to be impaired due to the nature of the debtor and the lack of payment to date.
2016
1-60 61-90 91-180 Over 180 Current days days days days Total $’000 $’000 $’000 $’000 $’000 $’000
As at 31 March 2016 Trade receivables 6,404 795 43 9 86 7,337 Total due 6,404 795 43 9 86 7,337
Impaired Trade receivables - - - - 20 20 Total impaired financial assets - - - - 20 20
The above receivables are determined to be impaired due to the nature of the debtor and the lack of payment to date.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F41 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) g) Market risk Market risk is the risk that changes in market prices, such as interest rates, will affect Eastland Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage market risk exposures within acceptable parameters, while optimising the return. Those risks include:
i. Cash flow interest rate risk Eastland Group’s main interest rate risk exposure arises on external borrowings (see Note 23). All borrowings are at variable interest rates, which expose Eastland Group to cash flow interest rate risk. Eastland Group adopts a policy of ensuring that a portion of its exposure to changes in interest rates on borrowings is on a fixed rate basis. This is achieved by entering into interest rate swaps, caps and collars. For further details on interest rate swaps, caps and collars refer to Note 24 (c). Eastland Group is exposed to interest rate risks on that portion of external loans not swapped to fixed rates, gains or losses arising from the differences between variable rates and fixed rates on the swap instruments in place, and interest payable on the loans and capital notes. At balance date, an increase of 100 basis points on borrowings would result in a decrease in profit before tax of $710,000 (2016: $290,000). A decrease of 100 basis points on borrowings would result in an increase in profit before tax of $710,000 (2016: $290,000). ii. Price risk Eastland Group is exposed to price risk on bank facilities when they mature and capital notes on their election date if the capital notes are not redeemed for cash or converted to ordinary shares. The price for new bank facilities and capital notes is determined when they are refinanced or reissued and reflects market pricing at that time. At balance date, an increase of 25 basis points on bank lending costs would result in a decrease in profit before tax of $562,500 (2016: $412,500). A decrease of 25 basis points on bank lending costs would result in an increase in profit before tax of $562,500 (2016: $412,500).
h) Capital management The directors’ policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The directors monitor the return on capital on a regular basis. This involves the management of reserves and issued capital. The directors also monitor the level of dividends to ordinary shareholders. The directors seek to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in Eastland Group’s approach to capital management during the current or prior year. Eastland Group is not subject to externally imposed capital requirements.
i) Hedge accounting and sensitivity analysis The sensitivity analysis has been determined based on the exposure to interest rates and foreign exchange rates for both derivatives and non-derivative instruments at balance date. It is assumed that the amount of the liability at balance date was outstanding for the whole year. A one percent increase or decrease is used for interest rates and these changes represent management’s current assessment of the reasonably possible change over a year. Interest rate swaps and collars hedging the floating rate debt are hedge accounted and treated as cash flow hedges and hence any changes in interest rates would have no material impact on profits as changes in the fair value of these swaps and collars are taken through other comprehensive income where the hedge is an effective hedge. The fair value of these interest rate swaps is a $7.8 million loss (2016: $5.7 million loss). A fall of 1% in interest rates would result in a loss in other comprehensive income of $3.4 million (2016: $1.8 million) whereas an increase of 1% in interest rates would result in a gain in other comprehensive income of $3.2 million (2016: $1.7 million). Forward starting interest rate swaps and collars hedging the forecasted floating rate debt are also hedge accounted and treated as cash flow hedges and hence any changes in interest rates would have no material impact on profits as changes in the fair value of these swaps are taken through comprehensive income where the hedge is an effective hedge. The fair value of these interest rate swaps and collars is a $2.0 million loss (2016: $5.0 million loss). A fall of 1% in interest rates would result in a loss in other comprehensive income of $2.7 million loss (2016: $4.8 million loss) whereas an increase of 1% in interest rates would result in a gain in other comprehensive income of $2.5 million (2016: $4.3 million).
F42 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
25 RELATED PARTIES
a) Parent and ultimate controlling party Eastland Group Limited is fully owned by Eastland Community Trust (ECT). Payments were made during the year of $2.1 million (2016: $2.1 million) of interest on capital notes of $30 million, and paid dividends of $7.8 million (2016: $5.6 million).
b) Key management personnel compensation Key management personnel compensation comprises of:
2017 2016 $’000 $’000
Short term employee benefits 2,190 1,903 KiwiSaver and other contributions 135 128 Total key management personnel compensation 2,326 2,032
c) Directors’ fees Directors’ fees are paid by Eastland Group Limited to the directors, as the directors of the Group. Total fees paid were $324,811 (2016: $308,069). There are no separate fees paid in respect of the subsidiaries.
APPROVED DIRECTOR REMUNERATION FOR 2017/2018
$’000 Board Chairman 92 Board member 46 Chairman of audit and finance committee 10 Audit and finance committee 5 Chairman of performance and remuneration committee 3 Performance and remuneration committee 1.5
Performance Audit and and Finance Remuneration Director Board Fees Committee Committee Total 2016 Notes
J Clarke 14,333 - - 14,333 42,365 Retired June 2016. Former Chairman of Performance and Remuneration Committee
N Cull 89,715 4,011 - 93,726 85,240 Board Chairman M Glover 44,858 - 1,884 46,742 42,365 Chairman of Performance and Remuneration Committee
T Gray 44,858 8,358 - 53,215 47,343 Chairman of Audit and Finance Committee
J Rae 44,858 3,997 - 48,855 45,154
K Devine 44,858 - 949 45,806 26,379
M Mahuika 21,173 - 962 22,134 - Appointed October 2016
A Blackburn - - - - 19,223
Total 304,651 16,366 3,795 324,811 308,067
Total Fee Pool 324,811 Approved with effect from 18 August 2016 348,000
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F43 and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
25 RELATED PARTIES (continued)
Directors are appointed by our shareholder, the Eastland Community Trust. They are appointed as Directors of Eastland Group Limited, Eastland Network Limited, Gisborne Airport Limited and Eastland Port Limited. In addition, they may be appointed to boards of various organisations, which may transact on a commercial basis, with Eastland Group and its subsidiaries. The following entries were on record in the interests register as at 31 March 2017:
Mr N J P Cull gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. MSC Consulting Group Limited
Mr M Mahuika gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. NPWF Holdings Limited Ngati Porou Wind Farms Limited Kahui Legal Tuku Kerero (2006) Limited New Zealand Geographic Board The NZ Merino Company Limited Pakihiroa Farms Limited Ngati Porou Holding Company Limited Paraumu A1 St Mary’s Church & Cemetery Trust J P Ferguson Trustee Company Limited Ngati Porou Berries Limited Te Runanganui O Ngati Porou Trustee Limited
Mr J M Rae gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Gobble Limited and associated companies F J Hawkes & Co Limited and associated companies Smart Environmental Limited National Infrastructure Advisory Board The Lines Company Limited and subsidiary companies Activate Tairawhiti and associated Trusts Ngapuhi Asset Holding Company Limited and subsidiary companies Cavalier Corporation and associated companies Thos. Corson Holdings Limited and subsidiary companies Abodo Wood Limited
Mr M J Glover gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Goldpine Properties Limited FSL Foods Limited Simla Holdings Limited Kihilla Properties Limited Richmond Glass (2014) Limited Rio Dolores (2006) Limited Goldpine Industries Limited Cold Storage Nelson Limited Goldpine Group Limited
Mr K J Devine gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Natural Hazards Research Platform Strategic Advisory Group
F44 Eastland Group Annual Report 2017 These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45 Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Mr A T Gray gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Ngati Apa Developments Limited Civic Financial Services Limited Maungaharuru-Tangitu Limited Local Government Mutual Fund Trustees Limited Civic Assurance Property Pool Ngati Pukenga Investments Limited Artemis Nominees Limited Quality Roading and Services (Wairoa) Limited Origin Earth Limited Advisory Board Member Hastings District Council
d) Chief Executive Mr M Todd, Group Chief Executive Officer, leases an aircraft hangar and uses the landing services at Gisborne Airport. Landing charges and the terms of Mr Todd’s lease are on a commercial arm’s length basis. The annual rental paid for the hangar and landing charges is $7,817 (2016: $5,650). Mr Todd also uses his own aircraft for Eastland Group business charging the equivalent to the ruling aero club hire charge for a similar aircraft. Payments made during the year totalled $11,610 (2016: $8,235).
e) Other related party transactions There are no guarantees held regarding subsidiary balances. The management of all Eastland Group debtors and creditors is carried out by Eastland Group Limited.
2017 2016 $’000 $’000
Transactions with associates and joint ventures Oncharge of costs to Debarking Joint Venture 820 821
26 SUBSEQUENT EVENTS Eastland Group is unaware of any significant events between the preparation and authorisation of these financial statements as at 24 May 2017.
These financial statements should be read in conjunction with notes Annual Report 2017 Eastland Group F45 and accounting policies on pages F4-F45 Eastland Group Limited Company Information For the year ended 31 March 2017
Board of Directors
Nelson Cull (CHAIRMAN) Kieran Devine Matanuku Mahuika John Rae Michael Glover Tony Gray
Chief Executive Matt Todd
Chief Financial Officer Aaron Snodgrass
Senior Leadership Team Andrew Gaddum Ben Gibson Brent Stewart Jarred Moroney Gavin Murphy Suzanne Winterflood
Auditors Deloitte Limited
Lawyers Chapman Tripp
Bankers ANZ ASB Bank of New Zealand Westpac Banking Corporation
Registered Office 37 Gladstone Rd, PO Box 1048 Gisborne, 4040, New Zealand T: 06 986 4800 E: [email protected] W: www.eastland.nz
F46 eastland.nz/AR2017