ERM Power Limited Notes to the Financial Statements for the HALF YEAR ENDED 31 DECEMBER 2016

Thursday, 23 February 2017

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Please find attached the following documents relating to ERM Power’s results for the six months ended 31 December 2016:

1. Appendix 4D 2. Half Year Financial Report including Management Discussion and Analysis and Directors’ Report

Phil Davis Group General Counsel & Company Secretary ERM Power Limited

About ERM Power ERM Power is an Australian energy company operating electricity sales, generation and energy solutions businesses. The Company has grown to become the second largest electricity provider to commercial businesses and industrials in Australia by load, with operations in every state and the Australian Capital Territory. A growing range of energy solutions products and services are being delivered, including lighting and energy efficiency software and data analytics, to the Company’s existing and new customer base. ERM Power also sells electricity in several markets in the United States. The Company operates 497 megawatts of low emission, gas-fired peaking power stations in Western Australia and Queensland. www.ermpower.com.au

Appendix 4D ERM Power Limited ABN 28 122 259 223

Results for announcement to the market for the half year ended 31 December 2016

Notification in Accordance with Listing Rule 4.2A.3 (The amount and percentage changes are in relation to the previous corresponding period)

1. Results for the half year 1H 2017 1H 2016 $'000 $'000

1.1. Revenue from ordinary activities:

1.1.1 Revenue from ordinary continuing activities: ERM Power Limited and controlled entities up 5% to 1,340,505 1,282,471

1.2. Profit from ordinary continuing activities:

1.2.1. Underlying EBITDAF*: ERM Power Limited and controlled entities down 70% to 11,102 37,062 (*earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss and gains / losses on onerous contracts and other significant items)

1.2.2. Underlying NPAT**: ERM Power Limited and controlled entities down 659% to (50,981) 9,136 (**statutory net profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates)

1.3. Statutory (loss) / net profit after tax for the period attributable to members:

1.3.1 Net (loss) / profit after tax for the period attributable to members: ERM Power Limited and controlled entities down 226% to (18,847) 14,945 2. Dividend

A fully franked interim dividend of 3.5 cents per share has been declared and will be paid on 6 April 2017. Record date is 8 March 2017. The Company’s shares will trade ex-dividend from 7 March 2017. An unfranked 6.0 cents per share dividend was declared on 25 August 2016 and paid on 6 October 2016 to shareholders on record at 12 September 2016. The Company’s dividend reinvestment plan (DRP) will apply to this dividend with no discount. The last date for receipt of notifications to participate in the DRP is 9 March 2017.

3. Brief explanation of any of the figures reported above or other items of importance not previously released to the market

The attached Directors' Report and Management Discussion and Analysis provide further information and explanation.

4. Commentary on the results for the half year

The attached Directors' Report and Management Discussion and Analysis provide further information and explanation.

5. Net tangible assets per share 1H 2017 1H 2016 Cents Cents

Net tangible assets (cents per share) 183 161

6. Entities in which control was gained or lost during the half year

During the period 1 July 2016 to 31 December 2016 the Company did not lose control of any entities.

7. Details of associates and joint ventures

The following entities are proportionately consolidated as joint ventures: • NewGen Power Neerabup Pty Ltd (50%) • NewGen Neerabup Pty Ltd (50%) • NewGen Neerabup Partnership (50%) The following entity is accounted for as a joint venture: • Energy Locals Pty Ltd (33%) The following entity is accounted for as an associate: • 1st Energy Pty Ltd (10.5%)

ERM Power Limited

Half Year Financial Report for the period ended 31 December 2016

ERM Power Limited Half Year Financial Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Contents Page

Management Discussion and Analysis 2 Directors’ Report 16 Auditor’s Independence Declaration 18 Half Year Financial Statements Consolidated Income Statement 19 Consolidated Statement of Comprehensive Income 20 Consolidated Statement of Financial Position 21 Consolidated Statement of Changes in Equity 22 Consolidated Statement of Cash Flows 23 Notes to the Financial Statements 24 Directors’ Declaration 42 Independent Auditor’s Review Report 43 Corporate Information 45

ABN 28 122 259 223

A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the Directors’ Report on page 16. The Directors’ Report does not form part of the financial report.

ERM Power Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is as set out on page 25.

The financial statements were authorised for issue by the directors on 23 February 2017. The directors have the power to amend and reissue the financial statements.

ERM Power Limited and Controlled Entities ABN 28 122 259 223

Management Discussion and Analysis for the half year ended 31 December 2016

ERM Power Limited Management Discussion and Analysis FOR THE HALF YEAR ENDED 31 DECEMBER 2016

CONTENTS Page

1. Results overview 4 2. Review of operating and financial results 5 2.1 Summary of Group financial results 5 2.2 Divisional performance review 6 2.2.1 Electricity sales 6 2.2.2 Generation 8 2.2.3 Corporate and other 9 2.3 Cash flow, balance sheet and dividends 9 2.3.1 Cash flow 10 2.3.2 Balance sheet 10 2.3.3 Dividends 11 3. Safety, environment and community 11 3.1 Safety 11 3.2 Environment 11 3.3 Community 11 Non-IFRS financial information 12 Appendices 13 Glossary 15

ABOUT ERM POWER ERM Power is an Australian energy company operating electricity sales, generation and energy solutions businesses. The Company has grown to become the second largest electricity provider to commercial businesses and industrials in Australia by load, with operations in every state and the Australian Capital Territory. A growing range of energy solutions products and services are being delivered, including lighting and energy efficiency software and data analytics, to the Company’s existing and new customer base. ERM Power also sells electricity in several markets in the United States. The Company operates 497 megawatts of low emission, gas-fired peaking power stations in Western Australia and Queensland.

ERM Power Limited shares are traded on the Australian Securities Exchange under the symbol EPW. This review is for ERM Power (Company, Group, we, our) for the period ended 31 December 2016 with comparison against the previous corresponding period ended 31 December 2015 (previous period, previous year or comparative period).

All reference to $ is a reference to Australian dollars unless otherwise stated. Individual items totals and percentages are rounded to the nearest approximate number or decimal. Some totals may not add down the page due to rounding of individual components.

3 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

1. RESULTS OVERVIEW Key financial measures ($m unless otherwise stated)1 1H FY2017 1H FY2016 Underlying EBITDAF continuing operations2 11.1 37.1 Underlying EBIT continuing operations2 (7.0) 24.7 Underlying NPAT continuing operations2 (51.0) 9.1 Statutory NPAT2 (18.8) 14.9 Net debt / (cash) (78.4) 23.4 Dividends paid (cents per share) 6.0 6.0 Underlying earnings per share (cents) (20.4) 3.7

Key operational measures 1H FY2017 1H FY2016 Electricity sold (TWh) continuing operations 10.4 9.8 Forward contracted electricity sales (TWh) continuing operations 42.1 37.9

Overview Underlying EBITDAF for the Group decreased on the comparative period primarily as a result of reduced first half earnings in our Australia electricity retailing business, given the timing of settlements has weighted earnings to the second half for the Australian retail division. The reduced earnings resulted from the sale of favourably priced Large-scale Generation Certificate (LGC) inventory in FY2016, the timing impact of realising a profit on green certificate forward contracts designated as held for trading at 31 December 2016 in January 2017, as well as some margin compression. The unrealised gain on these forward contracts is included within Statutory NPAT as an unrealised gain but no value is recorded in underlying EBITDAF or underlying NPAT in 1H of FY2017 as the contracts were not settled at 31 December 2016. The amount realised in January 2017 was $48.9m. Refer to section 2.2.1 Electricity sales for further details. Underlying NPAT also reduced substantially as a result of a permanent tax difference arising from a decision to meet a proportion of our 2016 LGC surrender requirements by way of payment of a shortfall charge to the Clean Energy Regulator. This shortfall charge is not tax deductible and accordingly an additional permanent tax expense of $36.6m was recognised in profit and loss during the period. During the period the Group initiated a process to divest the residential customer contracts in the US. Accordingly, the earnings from residential customers are included in discontinued operations and excluded from the underlying earnings figures above and throughout this report. The business was loss-making in 1H. In January the Group secured a $290m facility with ANZ providing for A$240m of three year funding of either cash or bank guarantees and a further A$50m of 18 month funding for additional bank guarantees secured against the Australian Retail business. The facility replaces the existing funding through Macquarie Bank Limited.

1 Underlying earnings comparatives restated to exclude discontinued operation. Refer note 7 of half year financial statements for further information 2 Material negative timing variances related to the settlement of financial instruments have impacted the 1H FY2017 earnings. Further details are contained in section 2.2.1

4 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Outlook The FY2017 outlook for each of the continuing business divisions is as follows:

FY2017 outlook FY2017 outlook Progress 30 June 2016 ASX, 2016 AGM 23 February 2017

Australia Retail3 Sales volume ~18.5TWh Sales volume ~18.5TWh  On track Gross margin ~$3 / MWh Gross margin ~$3 / MWh  Upside potential Opex. Approx. $23m Opex. Approx. $23m  On track

US Retail Sales volume ~5TWh Sales volume ~4.2TWh  Restated for continuing operations only4 Gross margin ~AUD$8 to $8.50 / MWh Gross margin ~AUD$7.50 / MWh 

Opex AUD$4 / MWh Opex AUD$4-4.50 / MWh 

Oakey $14 - $16m EBITDAF $14 - $16m EBITDAF  On track

Corporate & Other ($18)m underlying EBITDAF ($20)m underlying EBITDAF  Reflects additional investment in Energy Solutions

2. REVIEW OF OPERATING AND FINANCIAL RESULTS

2.1 Summary of Group financial results $m 1H FY2017 1H FY2016 Change % Business Energy Australia (4.1) 29.5 (33.6) (114%) Business Energy US 1.9 (2.3) 4.2 183% Generation 20.4 18.6 1.8 10% Corporate and other (7.1) (8.7) 1.6 18% Underlying EBITDAF continuing operations 11.1 37.1 (26.0) (70%) Significant items - (3.3) 3.3 (100%) Statutory EBITDAF continuing operations 11.1 33.8 (22.7) (67%) Depreciation and amortisation (18.1) (12.4) (5.7) 46% Net fair value gain on financial instruments 50.5 13.8 36.7 266% Share of associate (loss) / profit (net of tax) (0.1) 0.3 (0.4) (133%) Finance income 1.6 2.2 (0.6) (27%) Finance expense (15.0) (13.8) (1.2) 9% Profit before tax 30.0 23.9 6.1 26% Tax expense (46.4) (9.3) (37.1) 399% (Loss) / profit from discontinued operations (2.4) 0.3 (2.7) (900%) Statutory net (loss) / profit after tax (18.8) 14.9 (33.7) (226%) Add back: Net fair value gain on financial instruments (net of tax) (34.6) (9.8) (24.8) 253% Share of associate loss / (profit) (net of tax) 0.1 (0.3) 0.4 (133%) Loss / (profit) from discontinued operations 2.4 (0.3) 2.7 (900%) Significant items (net of tax) (0.1) 4.6 (4.7) (102%) Underlying NPAT continuing operations (51.0) 9.1 (60.1) (659%)

3 FY2018 Australian retail outlook in line with consensus 4 Losses from discontinued operations expected to be approximately $7m before tax and any proceeds from sale of residential customer contracts

5 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Performance summary Underlying EBITDAF for the period was $11.1m compared to $37.1m in the previous period. The key drivers of the $26.0m decrease were as follows:  Business Energy Australia earnings decreased $33.6m on the comparative period through a combination of a $20.2m net unfavourable timing impacts between 1H FY2017 and 2H FY2017 and margin compression. The net unfavourable timing impact of $20.2m between 1H FY2017 and 2H FY2017 equates to approximately $2.26 per MWh gross margin. Combined with realised gross margin during the period of $0.73 per MWh, the first half performance closely aligns with the expected overall FY2017 gross margin of $3 per MWh.  Business Energy US earnings increased $4.2m to $1.9m, excluding discontinued operations. This result reflects improved economies of scale in operating costs combined with higher realised gross margins of A$6.56/MWh. Including discontinued operations losses of $2.9m during the period, earnings overall improved marginally by $0.3m on the previous period.  Generation earnings increased overall by $1.8m to $20.4m, including a $0.5m increase for Oakey, a $1.4m increase for Neerabup and small increase in generation operation expenses. Earnings were higher on the comparative half primarily through merchant generation opportunities arising from high wholesale market prices in both Western Australia and Queensland.  Net corporate and other costs reduced by $1.6m to $7.1m. This included an increase in revenue of $2.4m relating to additional software licence fees, consulting and other income, and recognition of $1.4m of lease costs within depreciation on adoption of AASB 16 Leases at 1 July 2016. This was partially offset by operating spend as part of the investment in the growth of the lighting and data analytics businesses acquired in 2H FY2016. Lease costs overall did not reduce but under the accounting policy change it is required that these are recorded within depreciation and finance costs. Underlying NPAT was a loss of $51.0m compared to a profit of $9.1m in the previous period. The key drivers of the $60.1m decrease were as follows:  Net after tax impact of EBITDAF movements of $18.4m;  A permanent tax difference resulting from Clean Energy Regulator shortfall charge of $36.6m. The decision to meet a portion of our 2016 LGC surrender requirements by way of payment of a shortfall charge to the Clean Energy Regulator resulted in an additional permanent tax difference as the shortfall charge is not tax deductible;  After tax impact of net finance cost increase of $1.1m. Sleeving fees in our US operation on a per MWh basis reduced during the period but overall increased as a result of higher load sold; and  After tax impact of increased depreciation of $4.0m. Depreciation increased $2.6m as a result of higher load sold in our US operation and the associated customer contract amortisation charge. Depreciation also increased on early adoption of AASB 16 Leases with $1.4m of pre-tax lease costs previously classified within EBITDAF prospectively classified within depreciation under the new accounting standard. Depreciation across other parts of the business increased by $1.7m. For 2H FY2017 we expect depreciation and net finance costs to be slightly higher than 1H FY2017 reflecting the forecast sales load growth in the US operations. 2.2 Divisional performance review

2.2.1 Electricity sales Business Energy Australia Business Energy US Total 1H FY2017 1H FY20165 1H FY2017 1H FY20166 1H FY2017 1H FY2016 Continuing operations Load sold (TWh) 8.9 9.0 1.5 0.8 10.4 9.8 Contestable revenue ($’000) 613,196 604,304 96,775 51,820 709,971 656,124 Gross margin ($’000) 6,507 40,283 10,008 3,969 16,515 44,252 Opex ($’000) (10,585) (10,833) (8,064) (6,275) (18,649) (17,108) Underlying EBITDAF ($’000) (4,078) 29,450 1,944 (2,306) (2,134) 27,144 Significant items ($’000) - - - (341) - (341) Statutory EBITDAF ($’000) (4,078) 29,450 1,944 (2,647) (2,134) 26,803 Discontinued operations Underlying EBITDAF ($’000) - - (2,895) 1,023 (2,895) 1,023

5 FY2016 figures restated to exclude energy solutions earnings now included in corporate and other 6 Restated following finalisation of Source Power & Gas purchase price allocation to include provision for trailing commission broker costs

6 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Underlying gross margin $/ MW 1H FY2017 2H FY2016 1H FY2016 2H FY2015 1H FY2015 2H FY2014 1H FY2014 Australia5 0.73 3.93 4.49 5.37 4.07 4.71 3.60 US – continuing operations 6.56 6.86 5.31 9.89 - - - Underlying Opex $/ MWh Australia5 (1.19) (1.08) (1.21) (1.32) (1.36) (0.91) (1.65) US – continuing operations (5.29) (6.94) (8.40) (11.45) - - - Load (TWh) C&I Australia 8.5 8.8 8.7 8.0 7.8 7.4 6.5 SME Australia 0.4 0.3 0.3 0.2 0.1 0.1 0.1 US – continuing operations 1.5 1.0 0.8 0.4 - - - Underlying EBITDAF ($’000) Australia5 (4,078) 25,970 29,450 33,176 21,357 28,598 12,709 US – continuing operations 1,944 (80) (2,306) (697) - - - US – discontinued operations (2,895) 1,356 1,023 1,477 - - - (5,029) 27,246 28,167 33,956 21,357 28,598 12,709 Figures above are rounded 1H FY2017 performance

Australian market Gross margin During the half, a number of timing variances as outlined below impacted realised gross margin. On a net basis, timing variances, which will reverse in 2H FY2017 have reduced gross margin per MWh by $2.26 during 1H FY2017. Based on the rising cost of LGCs during 1H FY2017 and optionality allowed in the scheme, ERM Power made a commercial decision during 1H FY2017 to sell rather than surrender a large portion of LGC’s available under forward purchase contracts. This decision resulted in a net cost in 1H as we accrued for the Clean Energy Regulator shortfall charge at $65 per certificate on a shortfall position of approximately 1.9m certificates but a gain in 2H as we settled the sale of the LGC inventory at a profit. A part of this net cost incurred in 1H was the increased cost of the 1 January to 30 June 2016 portion of the LGC liability recognised in FY 2016. Following a decision to meet a large portion of the scheme obligation by way of payment of a shortfall charge, this liability was revalued in 1H FY2017 at an additional cost of approximately $22.9m. Available LGC forward purchase contracts were designated as held for trading at 31 December 2016. The shortfall charge is not tax deductible and accordingly has resulted in a permanent tax difference of $36.6m allowing the Group to utilise available tax losses. The timing impact of realising a profit on LGC forward contracts in January 2017, designated as held for trading at 31 December 2016, reduced gross margin substantially in our Australian electricity retail business against the comparative half. The gain realised on these contracts in January 2017 was $48.9m. A smaller volume of favourably priced LGC inventory was also sold in FY16. As a result of electing to sell these certificates rather than surrender them to the Regulator, the Group has incurred a cost to acquire the optionality to purchase and subsequently surrender certificates within the next three years. In the event that prices materially decrease during the optionality period the Group may recoup this cost. Offsetting these negative timing differences in the first half were net positive timing variances from portfolio optimisation activities including the early settlement of electricity futures contracts in 1H FY2017. As part of our risk management strategy these contracts were realised ahead of the contracted expiry date. Portfolio optimisation of positions for both black electricity and environmental commodity products is a normal part of operations and may involve early settlement of derivative financial instruments. If these instruments do not qualify for hedge accounting, any realised gain or loss is recognised immediately in profit and loss regardless of the original settlement date. Consistent with the FY2017 outlook provided on 20 June 2016, the business has also seen some margin compression, with the roll through of customer contracts written during FY2016 when intense competitive behaviour was apparent. As confirmed on 24 January 2017, the average full year gross margin in FY2017 is expected to be approximately $3 per MWh. FY2018 Australian Retail gross margin is consistent with market consensus, as stated in ERM Power’s ASX release on 24th January 2017. Operations The Australian electricity sales business load remained static against the previous period. SME load grew 26.2% and C&I load sold decreased by 1.8% on the previous period.

7 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

The business has also seen contract lengths reduce as customers take a position on prices decreasing over the medium to long term. To address this trend, ERM Power is leveraging its competitive advantages in information system development and industry leading service to create new transformational online products and value-add analytics. This unique approach to managing a customer’s energy costs through system based innovation has been a significant factor in driving an increase in new business wins. The annual load of customers signed to one systemised product (and an earlier manual version) now represents 33% of our annual sales. Sales on this product are ahead of expectations and the average contract length is materially longer than regular contracts. The success of this product is a testament to the strong value proposition ERM Power continues to provide customers accompanied by our industry leading service. The retail market traditionally adjusts pricing irregularly, which in a rapidly changing wholesale market can lead to large step changes in price. ERM Power’s policy is to make incremental price changes to offers in line with wholesale prices to maintain profit margins. At times of high prices this can lead temporarily to lower contracting volumes but ensures that profit margins are maintained. Conversely, when prices are falling higher contracting volumes than competitors may be experienced. The business has acquired an exposure to the residential mass market through strategic investments in both 1st Energy and Energy Locals (both start up residential electricity retailers). These investments are not majority stakes and are small but strategic in nature. This allows the business a low cost entry to entities with strong growth prospects and exposure to higher residential margins without adversely affecting ERM Power’s business customer focus which is a core part of the proposition. In addition, ERM Power provides these companies with load following hedges whereby these entities receive protection against their spot market exposures in return for a fixed price payment to ERM Power. These deals are, in effect, very similar to C&I business retail contracts which allows ERM Power to effectively make a margin directly against residential load without the need to acquire or serve those customers. Operating costs per MWh in the Australian business remained consistent with the previous period. US market The US electricity sales business Source Power & Gas sold 2.0TWh of electricity during the period, an increase of 1.0TWh on the total load sold in the comparative half. Load sold of 0.5TWh (0.3TWh 1H FY2016) related to the residential business, which is held for sale at 31 December 2016. The results of the residential business are shown as discontinued operations. The Group has monitored the performance of the residential business since acquisition and determined prior to 31 December 2016 that a sale of the residential customer contracts would yield the most value to the Group. A sale process was initiated and we aim to complete a sale before 30 June 2017. The sale of the residential contracts will enable the US electricity sales business to focus on the business energy market and better utilise expertise from operating in this market segment in Australia. The decision to divest the residential business also enables the business to preserve capital that would otherwise be required to build the necessary scale to generate an adequate economic return serving the residential market. Earnings from the discontinued operations include a proportionate share of cost of sales and directly attributable operating, financing and depreciation expenses, which would not be incurred following sale of the residential customer contracts. A large portion of operating costs are fixed and will therefore be retained in continuing operations going forward. Forward electricity sales increased substantially from 10.8TWh at 30 June 2016 to 15.1TWh at 31 December 2016. The significant increase in forward contracted load continues to reflect the previous development of a comprehensive broker engagement plan and significant investment in new systems, processes and people. Of the forward contracted sales of 15.1TWh, approximately 0.6TWh relates to residential customers. Gross margin improved slightly on the previous period following expansion in FY2016 into new markets. Operating costs per MWh continued to reduce as the business builds scale. Earnings from the held for sale residential business were lower than expected due to increased customer numbers combined with load flex during a challenging summer and fall period in Texas. These risks combined with competitive pressures and the large investment required to build the required scale, diversification and supporting operations, has led to the decision to exit this segment of the market to ensure an adequate return on investment.

2.2.2 Generation $m 1H FY2017 1H FY2016 Change % Revenue and other income Oakey 23.2 23.2 - - Neerabup 17.2 15.3 1.9 12% Generation development and operations 0.7 1.9 (1.2) (63%) 41.1 40.4 0.7 2% Underlying EBITDAF Oakey 7.2 6.7 0.5 7% Neerabup 13.8 12.4 1.4 11% Generation development and operations (0.6) (0.5) (0.1) (20%) 20.4 18.6 1.8 10%

8 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

1H FY2017 performance Underlying EBITDAF for the period was $20.4m, up 10% from $18.6m in the previous period. High market prices in WA enabled additional merchant revenue to be generated by Neerabup whilst Oakey performed consistently with both the previous period and expectations. Planning for the scheduled fourth quarter major maintenance at Oakey continued during the period as expected, with the major maintenance works contracts finalised. Capital expenditure costs are expected to be approximately $15m. Power station operating performance Oakey operated for 1.9% of the period. Oakey also maintained its outstanding availability and overall performance record, with a forced outage rate of 0.01% and an overall availability of 98.3% during the year. Neerabup operated for 5.4% of the period and also maintained its outstanding availability and overall performance record with a forced outage rate of 0% and availability of 98.5%. Safety During the period the business continued to maintain an outstanding safety record with no lost-time injuries among staff or contractors.

2.2.3 Corporate and other $m 1H FY2017 1H FY2016 Change % Revenue 5.8 1.4 4.4 314% Expenses (12.9) (10.1) (2.8) 28% Underlying EBITDAF (7.1) (8.7) 1.6 18%

1H FY2017 performance Net corporate and other EBITDAF expenses overall decreased on the previous period. Revenue increased on the previous period as a result of additional software licence sales and consulting fees. Revenue from Energy Solutions product offerings increased on the previous period following the acquisition of Lumaled, a lighting efficiency company, and Greensense, a data analytics company. Operating expenses increased as the Group invested in systems, people and processes to scale up the Group’s Energy Solutions offering to customers. The early adoption of AASB 16 Leases, which resulted in lease costs of approximately $1.4m being recognised as a depreciation expense, reduced expenses. Lease costs overall did not reduce but under the accounting policy change required these to be recorded within depreciation and finance costs. Energy Solutions saw the appointment of Megan Houghton to the newly created role of Executive General Manager Energy Solutions in November 2016. The creation of this role signals the growing importance of Energy Solutions to ERM Power and its customers. During the reporting period the focus of the business was on coordination and consolidation of existing Energy Solutions products and development of new services and products to provide customers a comprehensive suite of energy management solutions. The business is developing its energy management consulting expertise in selected energy-intensive industries such as education, with the successful schools pilot leading to a wider rollout.

2.3 Cash flow, balance sheet and dividends $m 1H FY2017 1H FY2016 Change Cash flow Operating cash flow before working capital changes 11.4 37.8 (26.4) Net working capital changes 125.2 40.2 85.0 Operating cash flow 136.6 78.0 58.6 Total investing cash flow 0.1 (5.6) 5.7 Net (repayment) / draw down of borrowings (20.7) 11.4 (32.1) Net repayment of leases (1.8) - (1.8) Finance costs (13.5) (13.1) (0.4) Dividends paid (14.1) (13.9) (0.2) Net change in cash 86.6 56.8 29.8

9 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

$m 31 December 30 June 2016 Change 2016 Balance sheet Net assets 557.0 471.4 85.6 Net working capital (185.8) (8.9) (176.9) Net capital employed including working capital 271.1 435.6 (164.5) Net derivative balances 392.6 158.7 233.9

Net debt Neerabup free cash 16.9 13.7 3.2 Other free cash 127.9 53.6 74.3 Total free cash 144.8 67.3 77.5 Neerabup restricted cash 9.3 9.1 0.2 Other restricted cash 125.9 116.1 9.8 Total restricted cash 135.2 125.2 10.0 Total cash 280.0 192.5 87.5

Neerabup debt (non-recourse) 191.1 193.6 (2.5) Other debt 10.5 27.9 (17.4) Total borrowings 201.6 221.5 (19.9)

Net debt / (cash) on balance sheet (78.4) 29.0 (107.4) Net financial debt / (cash) excluding Neerabup net debt (243.3) (141.8) (101.5)

Dividends Dividends paid (cents per share) 6.0 6.0 - Franking percentage 0% 0% -

2.3.1 Cash flow Operating cash flow before working capital changes of $11.4m was $26.4m lower than the previous period as a result of a decrease in earnings. Working capital changes were $85.0m higher than the previous period principally as a result of timing related to wholesale and counterparty settlements and a higher emissions trading scheme liability at 31 December 2016.

Investing cash flows include the receipt of $14.9m in August 2016 from the sale of Western Australia joint venture gas interests to Empire Oil & Gas NL in February 2015. Offsetting this, intangible asset payments increased as cash spent on customer acquisition costs in our US business increased on the previous period as a result of higher load, which had an effective average acquisition cost of approximately A$2.50 per MWh during the period. Australian customer acquisition costs decreased on the previous period as the acquisition of SME customers slowed during the period. During the period $1.1m was also invested in start-up electricity retailer 1st Energy. Finance costs and dividend payments remained consistent with the previous period whilst lease payments under adoption of AASB 16 Leases are shown separately on a prospective basis in the cash flow statement. The net change in cash translated to an increase in free cash on the 30 June 2016 cash balances held with only a small increase in restricted cash holding requirements.

2.3.2 Balance sheet

Net assets increased substantially during the six month period from 30 June 2016. The increase was principally as a result of an increase in net derivative balances following a sharp increase in forward market prices. Net working capital overall decreased due to both an increase in the calendar 2016 LGC scheme liability leading up to the February 2017 payment date and an increase in net wholesale counterparty settlements accrued at 31 December 2016. Property, plant and equipment and intangibles increased primarily as a result of initial spend on the Oakey major maintenance and continued customer acquisition spend in both the Australian and US electricity sales operations.

10 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

2.3.3 Dividends A fully franked interim dividend of 3.5 cents per share for 1H FY2017 was declared on 23 February 2017 equating to a gross dividend yield of 7.8% at 31 December 2016. When determining the dividend payable, directors take into consideration current and future cash flow and growth capital requirements and any significant non-recurring items in respect of either earnings or capital expenditure. Directors intend to pay dividends bi-annually after the respective period results are published. The final decision to pay a dividend will be made subject to actual results and other considerations with reference to the underlying cash flow requirements of the business.

3. SAFETY, ENVIRONMENT AND COMMUNITY

3.1 Safety ERM Power maintains its outstanding safety record with a focus on its key safety vision of “Zero Harm” to any employee or contractor. Safety performance is measured by recording the number of injuries experienced in a year.

The Company reports to the Board monthly on measures including number of near misses, lost time or permanent injuries. There was one ERM Power personnel lost time injury during the period totalling one day absent from work. There were no lost time injuries at the Oakey Power Station or Neerabup Power Station during the period.

3.2 Environment ERM Power’s key environmental value is to care for people and the planet, and environmental performance is measured by recording the number of environmental incidents in a year, and monitoring carbon emissions and water usage.

During the period there were no reportable environmental incidents, nor were there any breaches of any environmental licence conditions at Oakey or Neerabup.

During the period Oakey and Neerabup’s carbon dioxide emissions were in line with expectations and the carbon emission intensity of the facilities was less than the average carbon emissions intensity of comparable facilities in each state.

Water usage at the power stations is low in comparison to other technologies, with little domestic fresh water used in the operation of the stations. There were no unexpected changes in water usage at Oakey or Neerabup during the period.

3.3 Community ERM Power is committed to giving back to the community and supporting causes and activities that reflect the interests and passions of staff and customers. The sponsorship program is based on two pillars – community engagement and corporate sponsorships. The program and sponsorship portfolio evolves over time to ensure it is aligned to our culture, our business objectives and our aspirations.

The Community Program is delivered through four key areas:

Dollar Matching Program for staff-initiated group activity ERM Power staff teams are engaged in a number of charitable initiatives and causes, ranging from Movember and Oxfam Trailwalker to the Bridge to Brisbane fun run. These are supported through the Company’s dollar matching program.

Chosen Charities For 2016/17 ERM Power’s chosen corporate charity is St Vincent de Paul Society (Vinnies). Vinnies in Australia has more than 40,000 members and volunteers, who work hard to assist people in need and combat social injustice, including homelessness, across Australia. ERM Power has introduced a Volunteer Leave entitlement to enable staff to participate in approved formal volunteering activities during work hours. This allows staff to take one day’s paid leave each year for volunteer work to support Vinnies, as the chosen charity. CEO Jon Stretch participates in the annual CEO Sleepout and was a top 5 fund raiser, supporting Vinnies work with homeless people. Staff collected thousands of canned goods as part of Vinnies Christmas appeal.

ERM Power also makes a significant contribution through its long-term support of school based indigenous programs.

Payroll Giving Dollar Matching Staff have the opportunity to salary sacrifice donations to Vinnies on a regular (monthly) basis from their pre-tax salary. ERM Power matches monthly payroll giving donations made by employees.

Grass Roots Sponsorships Oakey and Neerabup Power Stations each have a range of charitable activities such as fundraising golf days or local school events, recognising the important roles that they play in their local communities.

11 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

NON-IFRS FINANCIAL INFORMATION The directors believe the presentation of certain non-IFRS financial measures is useful for the users of this document as they reflect the underlying financial performance of the business. The non-IFRS financial profit measures are used by the managing director to review operations of the Group and include but are not limited to: 1. EBITDAF - Earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit. EBITDAF excludes any profit or loss from associates. 2. Underlying EBITDAF - EBITDAF excluding significant items. 3. Underlying NPAT - Statutory net profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates. All profit measures refer to continuing operations of the Group unless otherwise noted. A reconciliation of underlying NPAT and underlying EBITDAF is detailed in Appendix A1.1 of this document. The above non-IFRS financial measures have not been subject to review or audit. These non-IFRS financial measures form part of the financial measures disclosed in the books and records of the Consolidated Entity, which have been reviewed by the Group’s auditor. The Group is required to value its forward electricity purchase contracts at market prices at each reporting date. Changes in values between reporting dates are recognised as unrealised gains or losses in the particular reporting year either in profit or loss or the hedging reserve. The directors believe that underlying EBITDAF and underlying NPAT provide the most meaningful indicators of the Group’s business performance. Significant items adjusted in deriving these measures are material items of revenue or expense that are unrelated to the underlying performance of the Group.

12 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

APPENDICES

A1.1 Reconciliation of underlying EBITDAF and underlying NPAT

To allow shareholders to make an informed assessment of operating performance for the year, a number of significant items of revenue or expense in each year have been identified and excluded to calculate an underlying EBITDAF and underlying NPAT measure. These items may relate to one-off transactions or revenue or costs recognised during the year that are not expected to routinely occur as part of the Group’s normal operations. A reconciliation of underlying EBITDAF and underlying NPAT are shown in the tables below.

1H FY2017

$m Business Business Generation Corporate Group Energy AU Energy US and other

Statutory EBITDAF continuing operations (4.1) 1.9 20.4 (7.1) 11.1 Significant items - - - - - Underlying EBITDAF continuing operations7 (4.1) 1.9 20.4 (7.1) 11.1

Statutory NPAT (18.7) 4.8 2.5 (7.4) (18.8) Significant items EBITDAF adjustments (above) - - - - - a) Effective interest revenue unwind - - - (0.2) (0.2) Tax effect of above adjustments - - - 0.1 0.1 b) Discontinued operations net of tax - 2.4 - - 2.4 Total significants items - 2.4 - (0.1) 2.3 Fair value (gain) / loss on financial instruments net of tax (25.5) (10.5) 1.4 - (34.6) Associate loss after tax - - - 0.1 0.1 Underlying NPAT continuing operations7 (44.2) (3.3) 3.9 (7.4) (51.0) a) Recognition of Empire Oil & Gas NL loan at present value and interest revenue unwind. b) Net earnings from discontinued US residential sales business.

7 Material negative timing variances related to the settlement of financial instruments have impacted the 1H FY2017 earnings. Further details are contained in section 2.2.1

13 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

A1.1 Reconciliation of underlying EBITDAF and underlying NPAT (continued)

1H FY2016

$m Business Business Generation Corporate Group Energy AU Energy US and other

Statutory EBITDAF continuing operations 29.5 (2.7) 18.6 (11.6) 33.8 Significant items a) New business establishment costs - 0.4 - 0.2 0.6 b) Staff rationalisation cost - - - 1.0 1.0 c) Provision for onerous contract - - - 1.7 1.7 Total significant items - 0.4 - 2.9 3.3 Underlying EBITDAF continuing operations 29.5 (2.3) 18.6 (8.7) 37.1

Statutory NPAT 31.5 (6.4) 0.4 (10.6) 14.9 Significant items EBITDAF adjustments (above) - 0.4 - 2.9 3.3 d) Effective interest revenue unwind - - - (0.5) (0.5) e) Tax effect on sale of Metgasco shares - - - 2.6 2.6 Tax effect of above adjustments - (0.1) - (0.7) (0.8) f) Discontinued operations net of tax - (0.3) - - (0.3) Total significants items - - - 4.3 4.3 Fair value gain / (loss) on financial instruments net of tax (14.6) 2.4 2.6 (0.2) (9.8) Associate profit after tax - - - (0.3) (0.3) Underlying NPAT continuing operations 16.9 (4.0) 3.0 (6.8) 9.1 a) Costs incurred in respect of integrating Source Power & Gas and acquiring Greensense. b) Costs associated with rationalisation of staff. c) Impairment of the contract to sublease office space. d) Recognition of Empire Oil & Gas NL loan at present value and interest revenue unwind. e) De-recognition of deferred tax asset upon sale of Metgasco shares. f) Net earnings from discontinued US residential sales business.

14 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

GLOSSARY $m Millions of dollars

C&I Commercial and Industrial

Contestable Revenue Contestable revenue is the electricity sales revenue component on which we earn a margin and excludes pass-through items such as network charges

EBITDAF Earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss. EBITDAF excludes any profit or loss from associates

EBIT Earnings before interest and tax

ERCOT Electric Reliability Council of Texas

1H First half of financial year

2H Second half of financial year

FY Financial year ended or ending 30 June

GWh Gigawatt hours is a unit of energy representing one billion watt hours

IFRS International Financial Reporting Standards

MWh Megawatt hours is a unit of energy representing one million watt hours

NEM The National Electricity Market

NPAT Net profit after tax

PJM Pennsylvania, Jersey, Maryland Power Pool

Sleeving Credit sleeving through intermediary to trade and hedge with third parties

SME Small to Medium Enterprise

Source Power & Gas SPG Energy Group LLC

TWh Terawatt hours is a unit of energy representing one thousand gigawatt hours (GWh)

UMI Survey Utility Market Intelligence (UMI) survey of major retail electricity retailers by independent research company NTF Group in 2016. Research based on survey of 300 business electricity customers between November 2016 and January 2017. Four major electricity retailers benchmarked

Underlying EBITDAF EBITDAF excluding significant items

Underlying EBIT EBIT after excluding the unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying EBIT excludes any profit or loss from associates

Underlying NPAT Statutory net profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates

US or USA United States of America

15 ERM Power Limited Directors’ Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

The directors submit their report for the half year period ended 31 December 2016. The term “ERM Power Group” or “Group” is used throughout this report to refer to the company ERM Power Limited (“Company”) and its controlled subsidiary entities.

1. DIRECTORS The following persons were directors of ERM Power Limited during the period and up to the date of this report, unless otherwise noted:

Anthony (Tony) Bellas Independent Non-Executive Chairman Trevor St Baker Non-Executive Deputy Chairman and Founder Albert Goller Independent Non-Executive Director Martin Greenberg Independent Non-Executive Director (resigned 26 October 2016) Georganne Hodges Independent Non-Executive Director (appointed 26 October 2016) Antonino (Tony) Iannello Independent Non-Executive Director Wayne St Baker Non-Executive Director Jonathan (Jon) Stretch Managing Director and CEO

2. COMPANY SECRETARY Phil Davis was company secretary of ERM Power Limited during the financial period and up to the date of this report.

3. DIVIDENDS A fully franked interim dividend of 3.5 cents per share has been declared and will be paid on 6 April 2017. Record date is 8 March 2017. The Company’s shares will trade ex-dividend from 7 March 2017. The Company’s dividend reinvestment plan (“DRP”) will apply to this dividend with no discount. The last date for receipt of notifications to participate in the DRP is 9 March 2017. An unfranked 6.0 cents per share dividend was declared on 25 August 2016 and paid on 6 October 2016 to shareholders on record at 12 September 2016. An interim unfranked 6.0 cents per share dividend was paid in respect of the half year to 31 December 2015.

4. PRINCIPAL ACTIVITIES The principal activities of the Group during the financial period were:  electricity sales to businesses in Australia and the United States of America;  generation of electricity; and  energy solutions.

5. REVIEW OF OPERATIONS A review of the operations of the Group can be found in the Management Discussion and Analysis (“MD&A”) on pages 2 to 15.

6. SIGNIFICANT EVENTS AFTER THE BALANCE DATE In January the Group secured an A$290m facility with ANZ providing for A$240m of three year funding of either cash or bank guarantees secured against the Australian business energy receivables and a further A$50m of 18 month funding for additional bank guarantees. The facility replaces the existing funding through Macquarie Bank Limited.

As announced to the market on 24 January 2017, after 31 December 2016 the Group made a payment to the Clean Energy Regulator of $123.5M in respect of its calendar 2016 Large-Scale Generation Certificate (LGC) scheme. An associated $48.9m gain on sale of LGCs held for trading was also settled after 31 December 2016.

Other than the above matters there have been no matter or circumstance that has arisen since 31 December 2016 that has significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in the future.

7. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 18.

16 ERM Power Limited Directors’ Report (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016

8. ROUNDING OF AMOUNTS The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Group and the Company under ASIC Class Order 98/100. The Group and the Company are entities to which the class order applies.

This report is made in accordance with a resolution of the Board of directors.

A Bellas Chairman 23 February 2017

Auditor’s Independence Declaration

As lead auditor for the review of ERM Power Limited for the half-year ended 31 December 2016, I declare that to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

(b) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of ERM Power Limited and the entities it controlled during the period.

Michael Shewan Brisbane Partner 23 February 2017 PricewaterhouseCoopers

PricewaterhouseCoopers, ABN 52 780 433 757 480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation. ERM Power Limited Consolidated Income Statement FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Half year ended 31 December 31 December Notes 2016 2015 $’000 $’000 CONTINUING OPERATIONS Revenue 3 1,340,505 1,282,471 Other income 439 225 Total revenue 1,340,944 1,282,696 Expenses (1,329,842) (1,247,121) Provision for onerous contract - (1,741) EBITDAF 11,102 33,834 Depreciation and amortisation (18,149) (12,385) Net fair value gain on financial instruments designated at fair value through profit or loss 50,527 13,802 Results from operating activities 43,480 35,251 Share of net (loss) / profit of associates accounted for (137) 258 using the equity method Finance income 1,606 2,230 Finance expense (14,982) (13,801) Profit before income tax 29,967 23,938 Income tax expense 4 (46,410) (9,243) (Loss) / profit from continuing operations (16,443) 14,695 ( Loss) / profit from discontinued operation (attributable to 7 equity holders of the company) (2,404) 250 Statutory (loss) / profit for the period attributable to

equity holders of the Company (18,847) 14,945

Statutory earnings per share based on continuing operations attributable to the ordinary equity holders Cents Cents of the Company Basic earnings per share 12 (6.57) 6.02 Diluted earnings per share 12 (6.57) 6.02 Statutory earnings per share based on earnings attributable to the ordinary equity holders of the Cents Cents Company Basic earnings per share 12 (7.53) 6.13 Diluted earnings per share 12 (7.53) 6.13

The above consolidated income statement should be read in conjunction with the accompanying notes. Operational business segment performance and underlying profit of the consolidated entity is presented in note 2.

19 ERM Power Limited Consolidated Statement of Comprehensive Income FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Half year ended 31 December 31 December 2016 2015 $’000 $’000

Statutory (loss) / profit for the period (18,847) 14,945

Other comprehensive income Items that may be reclassified subsequently to profit and loss Change in the fair value of cash flow hedges, net of tax 116,163 36,614

Exchange differences on translation of foreign subsidiaries 1,454 1,118 Items that will not be reclassified subsequently to profit and loss Change in fair value of financial assets at fair value through - (63) other comprehensive income, net of tax

Other comprehensive income for the year attributable to

equity holders of the Company, net of tax 117,617 37,669 Total comprehensive income for the year attributable to

equity holders of the Company 98,770 52,614

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

20 ERM Power Limited Consolidated Statement of Financial Position AS AT 31 DECEMBER 2016

Notes 31 December 2016 30 June 2016 ASSETS $’000 $’000 Current Assets Cash and cash equivalents 280,012 192,467 Trade and other receivables at amortised cost 277,942 330,596 Inventories 35,442 22,082 Current tax assets - 94 Other assets 5,187 5,333 Derivative financial instruments 6 325,818 158,698 924,401 709,270 Assets classified as held for sale 7 4,416 - Total Current Assets 928,817 709,270 Non-Current Assets Trade and other receivables at amortised cost 41 32 Financial assets at fair value through other comprehensive income 150 150 Investments accounted for using the equity method 2,488 1,500 Derivative financial instruments 6 107,348 51,429 Property, plant and equipment 400,732 391,266 Deferred tax assets 3,916 6,036 Intangible assets 94,088 79,041 Total Non-Current Assets 608,763 529,454 TOTAL ASSETS 1,537,580 1,238,724 LIABILITIES Current Liabilities Trade and other payables 481,406 367,043 Current tax liabilities 23,029 - Borrowings 5 10,500 27,861 Borrowings – limited recourse 5 8,593 9,332 Lease liabilities 3,250 - Derivative financial instruments 6 4,285 6,838 Provisions 17,247 10,999 548,310 422,073 Liabilities directly associated with assets classified as held for sale 7 576 - Total Current Liabilities 548,886 422,073 Non-Current Liabilities Borrowings – limited recourse 5 182,505 184,305 Lease liabilities 19,891 - Derivative financial instruments 6 36,275 44,599 Deferred tax liabilities 168,921 99,917 Provisions 24,126 16,427 Total Non-Current Liabilities 431,718 345,248 TOTAL LIABILITIES 980,604 767,321 NET ASSETS 556,976 471,403 EQUITY Contributed equity 8 334,088 332,355 Reserves 221,846 103,413 Retained earnings 1,042 35,635 TOTAL EQUITY 556,976 471,403

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

21 ERM Power Limited Consolidated Statement of Changes in Equity FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Contributed Retained Total Note equity Reserves earnings equity $'000 $'000 $'000 $'000

Balance at 1 July 2015 326,816 (42,391) 35,291 319,716 Profit for the period - - 14,945 14,945 Other comprehensive income - 37,669 - 37,669 Total comprehensive income for the period - 37,669 14,945 52,614

Transactions with owners in their capacity as owners: Dividends paid 9 708 - (14,648) (13,940) Issue of shares and share options exercised pursuant to employee incentive scheme 8 7,234 (1,136) - 6,098 Purchase of treasury shares 8 (3,428) - - (3,428) Share based payment expense - 936 - 936 Sale of financial assets (net of tax) - 6,098 (6,098) - Balance at 31 December 2015 331,330 1,176 29,490 361,996

Balance at 1 July 2016 332,355 103,413 35,635 471,403 Adjustment on adoption of AASB 16 Leases 1(b)(ii) - - (732) (732) Loss for the period - - (18,847) (18,847) Other comprehensive income - 117,617 - 117,617 Total comprehensive income / (loss) for the period - 117,617 (18,847) 98,770

Transactions with owners in their capacity as owners: Dividends paid 9 878 - (15,014) (14,136) Issue of shares and share options exercised pursuant to employee incentive scheme 8 5,408 (652) - 4,756 Purchase of treasury shares 8 (4,553) - - (4,553) Share based payment expense - 1,468 - 1,468 Balance at 31 December 2016 334,088 221,846 1,042 556,976

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

22 ERM Power Limited Consolidated Statement of Cash Flows FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Half year ended 31 December 31 December Notes 2016 2015 $’000 $’000 Cash flows from operating activities Receipts from customers 1,552,712 1,422,866 Payments to suppliers and employees (1,390,308) (1,349,435) Transfer (to) / from broker margin account (27,268) 2,813 Interest received 1,374 1,742 Income tax refund received 73 - Net cash flows from operating activities 136,583 77,986

Cash flows from investing activities Payments for plant and equipment (1,920) (1,435) Payments for intangible assets (11,719) (7,338) Proceeds on disposal of gas assets 14,921 - Purchase of shares in non-listed companies (1,125) - Sale of shares in listed companies - 3,223 Net cash flows from / (used in) investing activities 157 (5,550)

Cash flows from financing activities Proceeds from borrowings including receivables financing facility 406,981 1,225,790 Repayments of borrowings including receivables financing facility (424,342) (1,211,594) Repayments of borrowings - limited recourse (3,311) (2,844) Lease repayments (1,846) - Finance costs (13,476) (13,043) Dividends paid 9 (14,136) (13,940) Net cash flows used in financing activities (50,130) (15,631)

Net increase in cash and cash equivalents 86,610 56,805 Cash and cash equivalents at the beginning of the half year 192,467 172,836 Effects of exchange rate changes on cash and cash equivalents 935 755 Cash and cash equivalents at the end of the half year 280,012 230,396

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

23 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

INDEX TO NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 1 BASIS OF PREPARATION OF THE HALF YEAR REPORT 25 2 SEGMENT REPORT 27 3 REVENUE 30 4 INCOME TAX 31 5 BORROWINGS 32 6 FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES 33 7 DISCONTINUED OPERATIONS 36 8 CONTRIBUTED EQUITY 37 9 DIVIDENDS PAID AND PROPOSED 38 10 COMMITMENTS AND CONTINGENCIES 38 11 RELATED PARTY DISCLOSURES 40 12 STATUTORY EARNINGS PER SHARE 41 13 SUBSEQUENT EVENTS 41

24 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

1. BASIS OF PREPARATION OF THE HALF YEAR REPORT

This interim financial report covers ERM Power Limited the consolidated entity (“Group” or “consolidated entity”) consisting of ERM Power Limited and its subsidiaries. The report is presented in Australian dollars. ERM Power Limited (“Company”) is incorporated and domiciled in Australia. Its registered office and place of business is Level 52, One One One, 111 Eagle Street, Brisbane, Queensland, 4000. A description of the nature of the Group's operations and of its principal activities is included in the review of operations and activities in the Directors' Report on page 16.

This report was reviewed and approved by the directors on the recommendation of the Audit & Risk Committee.

(a) Statement of compliance

This interim financial report for the half year reporting period ended 31 December 2016 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001.

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual financial statements of the Company for the year ended 30 June 2016 and any public announcements made by the Company during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the Australian Securities Exchange Listing Rules.

(b) Significant accounting policies

Except for the changes stated below, the accounting policies adopted are consistent with those of the previous financial year, which are accessible at http://www.ermpower.com.au/investor-centre.

(i) AASB 15 Revenue from Contracts with Customers

The Group has elected to apply AASB 15 Revenue from Contracts with Customers as issued in December 2014 and AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15. In accordance with the transition provisions in AASB 15, the new rules have been adopted retrospectively.

While AASB 15 does not need to be applied until 1 January 2018, the Group has decided to adopt it early from 1 July 2016. There was no material difference between the previous carrying amount and the revised carrying amount of the trade receivables, other receivables and accrued income at 1 July 2015 to be recognised in opening retained earnings nor were there any changes in classification of the contract assets and liabilities.

As outlined above, there has been no material impact on adopting AASB 15 and no restatement of the prior period has occurred.

The accounting policies for the Group’s main types of revenue are explained in Note 3.

(ii) AASB 16 Leases

The Group has also early adopted AASB 16 Leases with a date of initial application of 1 July 2016. As a result, the Group's policies were amended to comply with AASB 16 as issued in February 2016. AASB 16 replaces AASB 117 Leases and results in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The lease liability is measured at the present value of the lease payments that are not paid at the balance date and is unwound over time using the interest rate implicit in the lease and operating lease repayments. The right-of-use asset comprises the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. The asset is depreciated over the term of the lease. The new standard replaces the Group’s operating lease expense with an interest and depreciation expense.

The Group has elected to apply the “Modified Retrospective Approach” when transitioning to the new standard. Under this approach, the Group will not be required to restate the comparative information for its operating leases and the cumulative effect of the initial application is adjusted against opening retained earnings. The opening balance adjustment to retained earnings was a reduction of $0.7 million.

The Group leases office premises in Brisbane, Sydney, Melbourne, Perth and Houston.

25 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

1. BASIS OF PREPARATION OF THE HALF YEAR REPORT (continued)

The Group has changed the presentation of certain amounts on the balance sheet to reflect the terminology of AASB 16. In summary, the following adjustments were made to the amounts recognised on the balance sheet at the date of initial application (1 July 2016):

‘000s Note AASB 117 carrying Adjustment AASB 16 carrying amount 1 July 2016 amount 1 July 2016 Property, plant and equipment 391,266 14,408 405,674 Trade and other payables i 367,043 (4,891) 362,152 Current lease liabilities - 2,925 2,925 Current provisions ii 10,999 (328) 10,671 Non-current lease liabilities - 19,270 19,270 Non-current provisions ii 16,427 (1,522) 14,905 Deferred tax liability 99,917 (314) 99,603

i. Reduction in the operating lease incentive liability. ii. Elimination of the current and non-current portions of the onerous contract provision.

As outlined above, no restatement of the prior period has occurred. The overall earnings impact on adoption of AASB 16 at 31 December 2016 is an increase in EBITDAF of $1.6m, and a corresponding increase in depreciation and amortisation of $1.4m and finance expense of $0.5m.

The Group has reclassed interest income from revenue to finance income.

(d) Estimates and critical judgements applied

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.

The Group’s US residential electricity sales operation assets and liabilities are held for sale at 31 December 2016 (refer note 7 for further information). Accordingly, the Group has estimated an expected sales price for the assets and determined that the carrying value of the net assets and liabilities held for sale at 31 December 2016 is not less than the expected sales proceeds. Accordingly, no fair value adjustment has been made at 31 December 2016.

The residential operation represents a major line of business in our US operations and the only residential electricity sales operation within the Group. Following the decision to divest of the associated assets of this business, it has been classified as a discontinued operation.

Except for the above changes, in preparing this interim financial report, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2016.

26 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016 2. SEGMENT REPORT Business Energy Australia Business Energy US(i) Generation Assets Other Total Half year ended Half year ended Half year ended Half year ended Half year ended 31 December 31 December 31 December 31 December 31 December $’000 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Revenue and other income 1,167,545 1,169,271 126,524 71,529 41,100 40,427 5,775 1,469 1,340,944 1,282,696 Intersegment sales - - - - 4,862 1,176 1,055 722 5,917 1,898 Segment revenue 1,167,545 1,169,271 126,524 71,529 45,962 41,603 6,830 2,191 1,346,861 1,284,594 Expenses (1,171,623) (1,139,821) (124,580) (74,176) (25,581) (23,011) (13,975) (12,011) (1,335,759) (1,249,019) Provision for onerous contract ------(1,741) - (1,741) EBITDAF(ii) (4,078) 29,450 1,944 (2,647) 20,381 18,592 (7,145) (11,561) 11,102 33,834 Depreciation and amortisation (3,484) (2,722) (5,135) (2,474) (7,011) (6,121) (2,519) (1,068) (18,149) (12,385) Net fair value gain / (loss) on financial instruments designated at fair value through profit or loss 36,360 20,934 16,184 (3,651) (2,017) (3,700) - 219 50,527 13,802 Results from operating activities 28,798 47,662 12,993 (8,772) 11,353 8,771 (9,664) (12,410) 43,480 35,251 Share of net profit of associates for using the equity method ------(137) 258 (137) 258 Finance income 1,075 1,355 - - 228 233 303 642 1,606 2,230 Finance expenses (4,218) (3,938) (2,339) (1,446) (7,995) (8,349) (430) (68) (14,982) (13,801) Profit / (loss) before income tax 25,655 45,079 10,654 (10,218) 3,586 655 (9,928) (11,578) 29,967 23,938 Income tax expense (46,410) (9,243) (Loss) / profit from continuing operations (16,443) 14,695 (Loss) / profit from discontinued operation (attributable to equity holders of the company) (2,404) 250 Statutory profit after tax attributable to equity holders of the Company (18,847) 14,945

Underlying NPAT continuing operations(iii) (50,981) 9,136

(i) The Group has reclassed the broker commission costs incurred in the US from expenses to depreciation. The reclass occurred following the finalisation of the SPG Energy Group LLC purchase price allocation in FY2016 to include a provision for trailing commission broker costs and a corresponding customer acquisition cost asset. (ii) Earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss. (iii) Statutory profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates. Revenue in the other segment comprises interest, consulting, metering, energy solutions revenue and other income. Sales between segments are carried out at arm’s length and eliminated on consolidation. No single customer amounts to 10% or more of the consolidated entity’s total external revenue for either the current or comparative period. All segment activity takes place in Australia and the United States of America.

27 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

2. SEGMENT REPORT (continued) The directors believe that EBITDAF, underlying EBITDAF and underlying NPAT provide the most meaningful indicators of the Group’s underlying business performance. Underlying NPAT is statutory net profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates. Significant items adjusted in deriving underlying NPAT are material items of revenue or expense that are unrelated to the underlying performance of the Group. The directors utilise underlying NPAT as a measure to assess the performance of the segments. A reconciliation of underlying NPAT to the statutory profit after tax is as follows:

Half year ended 31 December

$’000 2016 2015 Statutory (loss) / profit after tax attributable to equity holders of the Company (18,847) 14,945 Adjusted for the following items: Net unrealised change in fair value of financial instruments designated at fair value through profit or loss after tax (34,559) (9,843) Share of net loss / (profit) of associates accounted for using the equity method 137 (258) Loss / (profit) from discontinued operations 2,404 (250) Other significant items New business establishment costs (i) - 486 Unrealised foreign exchange loss / (gain) (ii) 8 (9) Staff rationalisation costs (iii) - 1,010 Provision for onerous contract (iv) - 1,741 Effective interest revenue unwind (v) (174) (474) Tax effect on sale of Metgasco shares (vi) - 2,614 Tax expense / (benefit) on other significant items (vii) 50 (826) Underlying NPAT continuing operations (50,981) 9,136

(i) Costs incurred in respect of integrating Source Power & Gas and acquiring Greensense. (ii) Unrealised foreign exchange losses / (gains) on funds held. (iii) Costs associated with rationalisation of staff. (iv) Impairment of the contract to sublease office space. (v) Recognition of Empire Oil & Gas NL loan at present value and interest revenue unwind. (vi) Derecognition of deferred tax asset upon sale of Metgasco shares. (vii) Tax effect of the above other significant items.

Material negative net timing variances related to the settlement of financial instruments have impacted the 1H FY2017 underlying NPAT earnings. Further details are contained in section 2.2.1 Electricity sales of the Management Discussion and Analysis accompanying this report.

28 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

2. SEGMENT REPORT (continued) Business Energy Business Energy US Generation Assets Other Total Australia As at As at As at As at As at 31 30 31 30 31 30 31 30 31 30 December June December June December June Decembe June December June $’000 2016 2016 2016 2016 2016 2016 r 2016 2016 2016 2016 Assets Total segment assets 918,417 644,124 145,906 91,983 409,901 425,660 59,440 70,921 1,533,664 1,232,688 Deferred tax assets 3,916 6,036 Total assets 1,537,580 1,238,724

Liabilities Total segment liabilities 421,963 333,856 106,911 70,350 229,257 247,661 30,523 15,537 788,654 667,404 Current and deferred tax liabilities 191,950 99,917 Total liabilities 980,604 767,321

SEGMENT DESCRIPTION Management has determined the operating segments based on reports reviewed by the Managing Director who is the chief operating decision maker for the consolidated entity. The Managing Director regularly receives financial information on the underlying profit of each operating segment so as to assess the ongoing performance of each segment and to enable a relevant comparison to budget and forecast underlying profit.

Business segments: Products and services: Business Energy Australia Electricity sales to business customers in Australia Business Energy US Electricity sales to business customers in the United States of America Generation Assets Gas-fired power generation assets and delivery of power generation solutions, from the initial concept through to development and operations Other Data Analytics, Lighting Solutions, Metering, Gas, Software Development and Corporate

Segment assets and liabilities are measured in the same way as in the financial statements. Both assets and liabilities are allocated based on the operations of the segment and the physical location of the asset. The Group’s current and deferred tax balances are not considered to be a part of a specific segment but are managed by the Group’s central corporate function.

29 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016 3. REVENUE

(a) Disaggregation of revenue The Group derives revenue from both the transfer of goods and services over time and at a point in time. In the following table revenue is disaggregated by primary geographical market, major product or service line and by timing of revenue recognition.

Business Energy Australia Business Energy US Generation Assets Other Total Half year ended Half year ended Half year ended Half year ended Half year ended 31 December 31 December 31 December 31 December 31 December $’000 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Primary geographical markets Australia 1,167,545 1,169,271 - - 41,084 40,416 5,352 1,255 1,213,981 1,210,942 US - - 126,524 71,529 - - - - 126,524 71,529 1,167,545 1,169,271 126,524 71,529 41,084 40,416 5,352 1,255 1,340,505 1,282,471 Major product / service lines Sale of electricity 1,167,545 1,169,271 126,524 71,529 - - - - 1,294,069 1,240,800 Electricity generation - - - - 40,820 40,134 - - 40,820 40,134 Energy solutions products and services ------3,019 793 3,019 793 Consulting fees - - - - 264 282 785 462 1,049 744 Other revenue ------1,548 - 1,548 - 1,167,545 1,169,271 126,524 71,529 41,084 40,416 5,352 1,255 1,340,505 1,282,471 Timing of revenue recognition Recognised at a point in time - - - - 41,084 40,416 5,248 1,255 46,332 41,671 Recognised over time 1,167,545 1,169,271 126,524 71,529 - - 104 1,294,173 1,240,800 1,167,545 1,169,271 126,524 71,529 41,084 40,416 5,352 1,255 1,340,505 1,282,471

30 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

3. REVENUE (CONTINUED) (b) Accounting policies and significant judgements i) Sale of electricity Revenue is recognised at the amount of consideration to which the Group is entitled, excluding amounts collected on behalf of third parties (i.e. duties and sales taxes). Using the practical expedient, the Group recognises revenue in respect to electricity sales over time as there is a right to invoice when the customers have consumed the performance obligation of electricity supply. Electricity sales revenue from customer sales contracts is recognised on measurement of electrical consumption (KWh) at the metering point, as specified in each contractual agreement, and is billed monthly in arrears. When the consideration received is subject to variability, such as prompt payment discount, an assessment is performed to determine whether it is highly probable that the consideration will be received. At each balance date, sales and receivables include an amount of sales delivered to customers but not yet billed and recognised as accrued income. ii) Electricity generation Electricity generation revenue is recognised from the generation of electricity at the point when the electricity has been supplied or the performance obligation has been met. Revenue also includes income received from off-take agreements that provide a fixed revenue stream for the respective power station. Revenue on these contracts is recognised on a daily basis over the contract term. At each balance date, sales and receivables include an amount of revenue for which performance obligations have been met under the respective contracts but have not yet settled. These amounts are recognised as accrued income. iii) Energy solutions products and services Energy solutions products and services includes the sale of products and services such as lighting solutions, data analytics and energy monitoring, metering and demand response income. Revenue from customer sales contracts is recognised at the point that relevant performance obligations are satisfied. Revenue is apportioned to these contracts either in accordance with specific contract terms or the estimated stand alone selling price of goods or services provided. For any contracts that are recurring in nature such as annual subscriptions, a liability is recorded for revenue received in advance and revenue is recognised over the term of the contract. iv) Consulting fees and other revenue Consulting fee revenue and other income are recognised at the point that relevant performance obligations are satisfied. Revenue is apportioned to these contracts either in accordance with specific contract terms or the estimated stand alone selling price of goods or services provided. For any contracts that are recurring in nature such as annual licences, a liability is recorded for revenue received in advance and revenue is recognised over the term of the contract.

4. INCOME TAX

CONSOLIDATED Half year ended 31 December 31 December 2016 2015 $’000 $’000 Numerical reconciliation of prima facie tax benefit to prima facie tax Profit from continuing operations 29,967 23,938 Income tax expense calculated at 30% 8,990 7,181 Other income taxes 93 53 Net effect of expenses / (income) that are not deductible / (non-assessable) in determining taxable profit 190 (92) Capital loss not recognised - 2,614 Clean Energy Regulator shortfall charge 36,637 - Difference in overseas tax rates 500 (513) Income tax expense 46,410 9,243

31 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

CONSOLIDATED 5. BORROWINGS 31 December 2016 30 June 2016 Current $’000 $’000 Secured Bank loans - Receivables financing facility (i) - 17,361 Bank loan - Inventory repurchase (ii) 10,500 10,500 Total secured borrowings 10,500 27,861

Secured limited recourse Bank loan - Neerabup working capital facility (iii) 3,000 3,000 Bank loans - Neerabup term facility (current portion) (iv) 5,593 6,332 Total limited recourse borrowings 8,593 9,332 Total current borrowings 19,093 37,193

Non-current Secured limited recourse Bank loans - Neerabup term facility (iv) 132,762 135,212 Convertible notes (v) 49,743 49,093 Total non-current borrowings 182,505 184,305

Total borrowings 201,598 221,498

(i) Amounts drawn down on receivables financing facility secured against billed and unbilled electricity sales customer revenue receivables. (ii) Sale and repurchase agreement in respect of renewable energy certificates. The equivalent renewable energy certificate assets, over which the Group has the right of repurchase, are included within inventory at 31 December 2016. (iii) Amounts drawn down on a limited recourse bank working capital facility by Neerabup Partnership. This debt has recourse to the assets of Neerabup Partnership only. (iv) Amounts drawn down on a limited recourse term debt facility in respect of the Neerabup Partnership. This debt has recourse to the assets of Neerabup Partnership only. (v) Convertible notes are redeemable by the issuer from 30 September 2010 until maturity in February 2023. Notes have a coupon rate that is variable based on BBSY plus 4%. The notes are accounted for using the effective interest method at 7.46% (30 June 2016: 7.78%). The notes can only be converted to shares in the issuing subsidiary upon failure to redeem them at maturity or other named event of default. The notes have recourse to the Group’s 50% interest in the Neerabup partnership only.

32 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

6. FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES

(a) Fair value of financial assets and liabilities

The carrying amounts and estimated fair values of all the Group’s financial instruments recognised in the financial statements are materially the same, with the exception of the following:

CONSOLIDATED 31 December 31 December 2016 2016 $’000 $’000 Note Carrying value Fair value Financial assets Electricity, renewable and gas derivative financial instruments (i) 433,078 463,485 433,078 463,485

(i) The carrying value of derivative financial assets recognised excludes a day one gain on certain electricity derivatives. In accordance with the Group’s accounting policy a day one gain has not been recognised with the day one value of certain instruments entered into initially valued at the transaction price, which is the best indicator of fair value. Any gain subsequently realised is progressively recognised as the instruments are settled. The measurement of the instruments at 31 December 2016 excludes the remaining balance of the deferred day one gain of $30.4m. At inception the day one gain was $31.9m. The movement in the day one gain balance relates to settlement of derivatives through profit and loss during the year.

The financial assets and liabilities held by the group are outlined below:

Cash and cash equivalents The carrying amount is fair value due to the asset’s liquid nature.

Derivative financial instruments The fair value of derivative instruments included in hedging assets and liabilities is calculated using quoted prices. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods, such as discounted cash flows, and makes assumptions that are based on market conditions existing at each balance date. These amounts reflect the estimated amount which the Group would be required to pay or receive to terminate (or replace) the contracts at their current market rates at balance date.

Equity investments The fair value of financial assets and financial liabilities with standard terms and conditions, and traded on active liquid markets, is determined with reference to quoted market prices.

Other financial assets Due to their short-term nature, the carrying amounts of loans, receivables, and cash and cash equivalents approximate their fair value.

Other financial liabilities at amortised cost The Group holds various trade payables and borrowings at period end. Due to the short-term nature of the trade payables the carrying value of these are assumed to approximate their fair value. The fair value of borrowings is not materially different then the carrying amounts as the interest rates are close to current market rates or are short-term in nature.

33 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

6. FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

(b) Fair value hierarchy The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The following tables present the Group’s assets and liabilities measured and recognised at fair value at 31 December 2016 and 30 June 2016.

As at 31 December 2016 Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 Assets Electricity, renewable and gas derivatives 61,239 371,839 - 433,078 Foreign exchange derivative contract - 88 - 88 Financial assets at fair value through other comprehensive income 150 - - 150 Total assets 61,389 371,927 - 433,316 Liabilities Electricity and gas derivatives 2,063 4,392 - 6,455 Interest rates swaps - 34,105 - 34,105 Total liabilities 2,063 38,497 - 40,560

As at 30 June 2016 Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 Assets Electricity and gas derivatives 1,889 208,035 - 209,924 Foreign exchange derivative contract - 203 - 203 Financial assets at fair value through other comprehensive income 150 - - 150 Total assets 2,039 208,238 - 210,277 Liabilities Electricity and gas derivatives 4,534 5,275 - 9,809 Interest rates swaps - 41,628 - 41,628 Total liabilities 4,534 46,903 - 51,437

Level 1 The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.

Level 2 The fair values of financial instruments that are not traded in an active market are determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for long-term debt for disclosure purposes. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

Level 3 A valuation technique for these instruments is based on significant unobservable inputs.

The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. For the periods ending 31 December 2016 and 30 June 2016 there were no transfers between the fair value hierarchy levels.

34 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

6. FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

(c) Offsetting of financial assets and financial liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet where the Group currently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Group has also entered into arrangements that do not meet the criteria for offsetting but still allow for the related amounts to be set off in certain circumstances, such as bankruptcy or the termination of a contract.

The following table presents the recognised financial instruments that are offset, or subject to enforceable master netting arrangements and other similar agreements but not offset, as at 31 December 2016 and 30 June 2016. The column ‘net exposure’ shows the impact on the Group’s balance sheet if all set-off rights were exercised.

The below table provides a reconciliation of the Group’s gross financial assets and liabilities offset to those presented on the consolidated statement of financial position as at 31 December 2016 and as at 30 June 2016.

As at 31 December 2016 $’000 Gross carrying Gross Cash collateral Net amount Related amounts not offset Net exposure amount amounts and futures presented Financial Cash (before offset margin instruments(i) collateral offsetting) deposits (received) / owing Financial assets Electricity, 478,934 (46,481) 625 433,078 (665) (625) 431,788 renewable and gas derivatives contracts Foreign exchange 88 - - 88 - - 88 derivative contract Total 479,022 (46,481) 625 433,166 (665) (625) 431,876

Financial liabilities Electricity and gas 60,648 (46,481) (7,712) 6,455 (665) - 5,790 derivatives contracts Interest rate swaps 34,105 - - 34,105 - - 34,105 Total 94,753 (46,481) (7,712) 40,560 (665) - 39,895

As at 30 June 2016 $’000 Gross Gross amounts Cash Net amount Related amounts not offset Net exposure carrying offset collateral presented Financial Cash amount and futures instruments(i) collateral (before margin offsetting) deposits received Financial assets Electricity and gas 248,844 (29,431) (9,489) 209,924 (1,022) (1,889) 207,013 derivatives contracts Foreign exchange 203 - - 203 - - 203 derivative contract Total 249,047 (29,431) (9,489) 210,127 (1,022) (1,889) 207,216

Financial liabilities Electricity and gas 39,240 (29,431) - 9,809 (1,022) - 8,787 derivatives contracts Interest rate swaps 41,628 - - 41,628 - - 41,628 Total 80,868 (29,431) - 51,437 (1,022) - 50,415 (i) Financial instruments that do not meet the criteria for offsetting but may be offset in certain circumstances. 35 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

7. DISCONTINUED OPERATIONS

A review of the Group’s US residential electricity sales operation was completed during the period. The review indicated that the residential customer segment would only gain sufficient scale to generate sufficient return over the long term if significant capital was invested to acquire customers and build further operating capacity. The Group determined such capital would be better utilised for a higher return over the medium to long term in our US and Australian business electricity segment. Consequently, in December 2016 a sales process was initiated for all residential customer contract assets. The Group is of the view that any future value of the residential customer contract assets will be linked to any sales proceeds and accordingly these assets and associated liabilities are classified as held for sale at 31 December 2016.

The residential operation represents a major line of business in our US operations and the only residential electricity sales operation within the Group. Following the decision to divest of the associated assets of this business it has been classified as a discontinued operation.

Profit and loss and cash flow results from the residential electricity sales operation for the current and prior period are separated from continuing operations.

As at the date of this report the Group has not entered into a binding sale agreement to sell these assets.

The results of the discontinued operations for the year are presented below:

(a) Profit and loss results

CONSOLIDATED 31 December 31 December 2016 2015 $’000 $’000

Revenue 48,586 39,559 Expenses (51,481) (38,536) EBITDAF (2,895) 1,023 Depreciation (340) (232) Net finance costs (463) (407) (Loss) / profit before tax (3,698) 384 Income tax benefit / (expense) 1,294 (134) Net (loss) / profit from discontinued operations (2,404) 250

(b) Cash flow results

CONSOLIDATED 31 December 31 December 2016 2015 $’000 $’000

Operating cash flows 4,344 996 Investing cashflows (340) (232) Financing cash flows (463) (407) Net cash flow from discontinued operations 3,541 357

36 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

8. CONTRIBUTED EQUITY Note CONSOLIDATED CONSOLIDATED 31 December 30 June 31 30 June 2016 2016 December 2016 2016 Number of Number of shares shares $’000 $’000 Issued ordinary shares – fully paid 5(a) 252,129,512 245,836,004 345,905 339,669 Treasury shares 5(b) (7,856,897) (3,370,583) (11,817) (7,314) 244,272,615 242,465,421 334,088 332,355 (a) Movement in ordinary share capital At the beginning of the period 245,836,004 242,021,217 339,669 332,134 Issue of shares – employee incentive scheme 5,384,422 2,952,134 5,356 6,430 Issue of shares – dividend reinvestment plan 909,086 862,653 878 1,479 Transfer from share based payment reserve - - 52 1,288 Transfer to treasury shares - - (50) (1,662) At the end of the period 252,129,512 245,836,004 345,905 339,669

(b) Terms and conditions of contributed equity Ordinary shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

Treasury shares Treasury shares are unvested shares in ERM Power Limited that are held in trust for the purpose of employee incentive schemes.

Dividend reinvestment plan The Company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash.

Employee Incentive scheme and Options The share based payments accounting policies adopted in this half year report are consistent with those of the previous financial year. These are accessible at http://www.ermpower.com.au/investor-centre.

37 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

9. DIVIDENDS PAID AND PROPOSED

During the half year ended 31 December 2016, an unfranked final dividend of 6.0 cents per share was paid on 6 October 2016 (2015: 6.0 cents final dividend). Cents Total amount Unfranked Franked Date per of payment share $’000 $’000 $’000 2016 Final ordinary share dividend (cash and 6.0 15,014 15,014 - 6 October 2016 shares) 2017 Interim ordinary share dividend estimated 3.5 8,825 - 8,825 6 April 2017 based upon shares on issue at 31 December 2016

31 30 June December 2016 2016 $’000 $’000 Franking credits available to shareholders in subsequent years 184 256 The franking account balance is adjusted for:  franking credits that will arise from the payment of income tax;  franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and  franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

10. COMMITMENTS AND CONTINGENCIES CONSOLIDATED

31 December 30 June 2016 2016 $’000 $’000 (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date, not provided for but payable (including share of associates and joint ventures): – not later than one year 21,913 11,905 – later than one year and not later than five years 815 6,227 – later than five years - - 22,728 18,132

38 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)

(b) Contingent liabilities

Details of contingent liabilities are set out below. The directors are of the opinion that provisions are not required in respect of these items as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

CONSOLIDATED

31 December 30 June 2016 2016 Note $’000 $’000 Bank guarantees - Australian Energy Market Operator and other counterparties (i) 183,273 173,903 Bank guarantees - lease arrangements (ii) 2,934 3,008 Futures margin deposits (iii) 53,973 12,366 Security deposits (iv) 115 1,005 Bank guarantees - Western Power (v) 300 300 Bank guarantees - NSW exploration licence (vi) 75 75 240,670 190,657

(i) The Group has provided bank guarantees in favour of the Australian Energy Market Operator to support its obligations to settle electricity purchases from the National Electricity Market. Bank guarantees have also been provided to various counterparties in relation to electricity derivatives. A portion of the guarantees are supported by term deposits. $150m of the bank guarantees are supported by non-cash backed guarantees at 31 December 2016 (30 June 2016: $150m). (ii) The Group has provided bank guarantees in relation to lease arrangements for premises in Brisbane, Sydney, Melbourne and Perth. These guarantees are supported by term deposits. (iii) Futures margin deposits represent cash lodged with the Group’s futures clearing brokers. The deposits are in relation to various futures contracts on the Australian Securities Exchange and may be retained by the clearing brokers in the event that the Group does not meet its contractual obligations. (iv) Security deposits represent interest bearing cash lodged as eligible credit support with various counterparties to the Group’s electricity derivative contracts and may be retained by those counterparties in the event that the Group does not meet its contractual obligations. (v) The Group has provided a bank guarantee in favour of Western Power. This can be called upon if the Neerabup partnership fails to pay its monthly transmission invoices. (vi) The Group has provided bank guarantees in favour of the New South Wales (NSW) Government in connection with surrendered gas exploration licences in NSW. These guarantees are supported by term deposits.

39 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

11. RELATED PARTY DISCLOSURES

Transactions with Sunset Power International Pty Ltd A subsidiary of the Company, ERM Power Retail Pty Ltd (“ERM”), has entered into a long term electricity swap contract with the Vales Point power station in New South Wales to hedge electricity purchases in relation to its eastern state electricity load from the NEM. The power station is 100% owned by Sunset Power International Pty Ltd (“Sunset”) which in turn is owned and controlled by Trevor St Baker, a Director of ERM Power Limited.

The swap contract was entered into on 20 November 2015. The contract terms and conditions are no more favourable to Sunset than those that it is reasonable to expect ERM would have adopted if dealing at arms-length with an unrelated person and are not adverse to ERM. The components of the contract are as follows:

 Firm flat swap sold to ERM priced at market prices (based on market observed ASX 24 Energy contract prices)  Firm peak swap sold to ERM priced at market prices (based on market observed ASX 24 Energy contract prices)  Call option for ERM to purchase additional off-peak swaps  Call option for ERM to purchase additional peak swaps  Reallocation and capital efficiency payments over the term of the contract

ERM have access to the respective hedge volumes under the agreement out to 31 December 2022. The total premiums payable for the option over the period 1 January 2017 to 31 December 2022 is $5.8m.

All accounts payable are within payment terms of the agreement and no impairment loss has been recognised during the period in relation to the transaction. The agreement expires on 31 December 2022 and under the agreement ERM is expected to hedge approximately 21% of ERM’s electricity load sales over the term of the agreement prior to exercise of any of the available options.

As at 31 December 2016 net assets of $195.4m have been recognised in relation to the above transaction comprising the following: MTM of electricity swaps of $130.6m of which $92.3m is current MTM of electricity options of $62.4m of which $13.6m is current Accrued income of $2.4m

During the period ended 31 December 2016 total net receipts of $19.7m were recognised in profit and loss in respect of the swap agreement.

Under the terms of the swap agreement Sunset has posted a bank guarantee in favour of ERM for $8.5m. The guarantee is accessible under a range of financial risk events.

Other related party transactions In the normal course of business the Company enters into the following transactions with related parties:  Project management and operations management fees are charged to jointly controlled entities;  Interest is paid on shareholder loans; and  Directors’ personal travel insurance is provided under standard terms of a directors and officers business travel insurance policy taken out by the Company. Cover under this policy for directors’ personal travel is provided by the insurer at no additional cost to the Company.

There is no allowance account for impaired receivables in relation to any outstanding balances, and no expense has been recognised in respect of impaired receivables due from related parties.

40 ERM Power Limited Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 2016

12. STATUTORY EARNINGS PER SHARE CONSOLIDATED 31 December 2016 31 December 2015 Cents Cents Basic earnings per share From continuing operations attributable to the ordinary equity (6.57) 6.02 holders of the company From discontinued operation (0.96) 0.11 Total basic earnings per share attributable to the ordinary equity (7.53) 6.13 holders of the company

Diluted earnings per share From continuing operations attributable to the ordinary equity (6.57) 6.02 holders of the company From discontinued operation (0.96) 0.11 Total diluted earnings per share attributable to the ordinary equity (7.53) 6.13 holders of the company

Information concerning earnings per share The weighted average number of ordinary shares is used as the denominator in calculating basic earnings per share. Earnings for the purpose of the calculation of basic earnings per share is the net profit attributable to the ordinary equity holders of the Company. Earnings for the purpose of the calculation of diluted earnings per share is also the net profit attributable to the ordinary equity holders of the Company. Options granted are usually considered to be potential ordinary shares and taken into account in the determination of diluted earnings per share and are not included in the determination of basic earnings per share.

13. SUBSEQUENT EVENTS

In January the Group secured an A$290m facility with ANZ providing for A$240m of three year funding of either cash or bank guarantees secured against the Australian business energy receivables and a further A$50m of 18 month funding for additional bank guarantees. The facility replaces the existing funding through Macquarie Bank Limited.

As announced to the market on 24 January 2017, after 31 December 2016 the Group made a payment to the Clean Energy Regulator of $123.5m in respect of its calendar 2016 Large-Scale Generation Certificate (LGC) scheme. An associated $48.9m gain on sale of LGC’s held for trading was also settled after 31 December 2016.

41 ERM Power Limited Directors’ Declaration

In the opinion of the directors of ERM Power Limited (the Company): (a) the financial statements and notes set out on pages 24 to 41 are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the financial position of the consolidated entity as at 31 December 2016 and of its performance for the half year then ended; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Regulations 2001 and other mandatory professional reporting requirements; and; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors:

A Bellas Chairman 23 February 2017

Independent auditor's review report to the members of ERM Power Limited

Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of ERM Power Limited (the company), which comprises the consolidated statement of financial position as at 31 December 2016, the consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, selected explanatory notes and the directors' declaration for ERM Power Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled during that half- year.

Directors' responsibility for the half-year financial report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error.

Auditor's responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Australian Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of ERM Power Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of ERM Power Limited is not in accordance with the Corporations Act 2001 including:

PricewaterhouseCoopers, ABN 52 780 433 757 480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

1. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its performance for the half-year ended on that date;

2. complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

PricewaterhouseCoopers

Michael Shewan Brisbane Partner 23 February 2017

Corporate Information

Directors Tony Bellas (Non-Executive Chairman) Principal Place of Business Trevor St Baker (Non-Executive Deputy Chairman and Founder) Level 52, One One One Albert Goller 111 Eagle Street Georganne Hodges Brisbane QLD 4000 Tony Iannello Telephone: (07) 3020 5100 Wayne St Baker Facsimile: (07) 3220 6110 Jon Stretch (Managing Director and CEO) Bankers Company Secretary National Australia Bank Limited Phil Davis Macquarie Bank Limited Australia and New Zealand Banking Group Limited Registered Office Level 52, One One One Auditors 111 Eagle Street PricewaterhouseCoopers Brisbane QLD 4000 Telephone: (07) 3020 5100 Internet Address Facsimile: (07) 3020 6110 www.ermpower.com.au