We make it happen for the future ANNUAL REPORT 2017
Eastland Group Annual Report 2017 Contents
2017 highlights
4
Chairman and Chief Executive’s overview
6
Board of directors
14
Leadership team
16
Eastland Group structure
18
Financial performance trends
22
Eastland Network
24
Eastland Generation
34
Eastland Port
40
Our community
48
Financial statements
F1
Auditor’s report
F2
Notes to the financial statements Company information
2
Eastland Group Annual Report 2017
F9 F46
We’re Gisborne born n’ bred and proud of it At Eastland Group, everything we do is designed to make good things happen for our shareholder, our customers and our East Coast community. Our aim is to develop regional infrastructure, along with products and services that support the growth aspirations of our customers, and at the same time encourage economic growth in the Gisborne, Wairoa and East Coast regions.
Annual Report 2017 Eastland Group
3
2017 Performance highlights
9.9m
$
76.2m 14.8m
$
$
PAID TO ECT
TOTAL INCOME
PROFIT
(Total distributions and interest on capital notes paid to shareholder)
7.0%
481.0m
$
RETURN ON EQUITY
ASSET VALUE
145% GROWTH IN ASSET VALUE compared to 10 years ago
72.2m
$
CAPITAL SPEND
28.7m
$
INVESTED IN TAIRAWHITI
25% REDUCTION in harm related injuries on last year
4
Eastland Group Annual Report 2017
We have a keen eye for commercial gain and love the hunt As Eastland Community Trust’s primary commercial arm, Eastland Group’s job is to make money for the trust, and to develop and maintain our energy and port assets, along with products and services to support regional economic activity. We are the business behind the businesses powering our regional economy. Every day we’re looking for new opportunities to improve the future of everyone who lives here.
Annual Report 2017 Eastland Group
5
CHAIRMAN AND CHIEF EXECUTIVE’S OVERVIEW
Pressing forward for the future Nelson Cull, CHAIRMAN Matt Todd, GROUP CHIEF EXECUTIVE
Strong positive growth remains an important strategic objective as we seek to provide excellent returns for our shareholder, the Eastland Community Trust (ECT). We remain committed to providing fit for purpose infrastructure and products and services that support New Zealand’s regional economies, especially that of the TairawhitiGisborne region.
Eastland Group pressed forward with major growth objectives in the 2017 financial year, making outstanding progress at our Te Ahi O Maui geothermal project near Kawerau and solidifying our commitment to a broadened strategic focus which includes emerging opportunities in the energy sector.
The forecast over the next few years from our existing investments is positive with additional revenues being derived from both the ports and generation businesses, solid cashflows from our regulated electricity network and new revenues from our investments into retailing and emerging technologies. Eastland Group is unique in a New Zealand context, being a diversified (primarily infrastructure) company that has grown from relatively humble beginnings to a business which is now approaching half a billion dollars of assets.
Financial performance We’re proud to report that Eastland Group achieved yet another strong financial performance in the 2017 financial year. Income increased to a record $76.2 million while total profit was $14.8 million. In 2003 when the shareholder purchased Eastland Port, Eastland Group had $80 million of assets. Fourteen years later Eastland Group’s assets are worth $481 million, the result of a capital investment programme driven by increasing demand from customers, and a committed business development approach which is now focused on the opportunities presented by new technologies in the energy sector.
Shareholder distributions ECT was paid dividend distributions of $7.8 million (2016: $5.6 million). Interest paid on shareholder capital notes was $2.1 million (2016: $2.1 million), meaning the total dividend and interest paid to the shareholder was $9.9 million (2016: $7.7 million), a significant increase.
Capital investment
6
Eastland Group's aim is to develop regional infrastructure assets, as well as innovative products and services, to support the growth aspirations of our customers. We invested $72.2 million Annual Report 2017 Eastland Group
during the year on development of assets. Of this just over 23% – or $16.8 million – was spent within Tairawhiti. Our commitment to the TairawhitiGisborne and Wairoa regions is ongoing; over the next five years the company is planning to invest $166.1 million in local infrastructure, as well as around $46.2 million on (predominantly) energy assets outside the region. At 31 March 2017 76.4% ($367.3 million) of the company’s total assets were invested in the Gisborne and Wairoa districts. Equity was $215.3 million (2016: $204.9 million).
Strategic focus Eastland Group’s strategic focus has broadened in the past 12-18 months. Our goal is still to provide excellent returns to our shareholder, at the same time as we develop and operate fit-for-purpose regional infrastructure. The company also continues to aspire to grow its investments and earnings, which will increase shareholder value and diversify risk. However, as a result of our focus on business development, we have reshaped our strategy within the broader energy sector to accommodate the risk and opportunities now emerging from rapid change within this sector. The transformation of the energy industry is being driven by new technologies such as solar photovoltaics, batteries, electric vehicles as well as digital platforms which enable greater consumer choice. The creation of an energy solutions sector is consistent with our previous objective of taking asset-intensive businesses - which require significant capital - and looking for opportunities within the broader supply chain associated with these sectors. We're particularly interested in those opportunities where investment provides an element of control or competitive positioning. We believe that compared to similar businesses in the sectors in which we participate, Eastland Group is relatively fast and agile, seeking out opportunities within the broader supply chains associated with our businesses. For example, our holistic view of the New Zealand electricity sector – with interests in generation, distribution and retail – means we are well positioned to assess how changes to one element of the value chain will potentially impact others and to use this to create strategic advantage.
Returns made to ECT Last 10 years ($ Millions)
10
8
6
4
2
0 ‘07
‘08
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
Impressive returns In 2017 the total dividend and interest paid to ECT was $9.9 million. This is a huge increase of $2.2 million on the $7.7 million paid in 2016 and a fantastic result for the future of our region.
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Our four focus sectors 1.
2.
Capital investment planned over the next five years
Networks
Generation
Networks $50.5m
Electricity distribution and transmission networks (regulated)
Electricity generation from primarily renewable sources
Projects include the replacement of aged or underperforming network assets such as poles, overhead conductors, transformers and high voltage switchgear
Generation $52.2m Projects include completion of Te Ahi O Maui geothermal project
3.
4.
Energy solutions $1.0m
Energy solutions
Ports
Ports $96.0m
Energy retail, emerging technology and customer facing solutions
Eastland Group also has a broader mandate to look at opportunities outside of these four sectors – but within TairawhitiGisborne – where they fit other elements of our investment criteria. Eastland Group is first and foremost a commercial business, seeking to maximise the value the shareholder receives from the capital it has invested. But we are also committed to supporting the region from which we operate – we think of ourselves as ‘creating prosperity from the periphery’. Based on the very eastern edge of New Zealand’s North Island, we have a commercial mind and a regional soul.
Safety happens here Reduction in harm events by year, previous three years
20
25 20
13
15 9
10 5 0 ‘15
8
‘16
‘17
Eastland Group Annual Report 2017
Seaports and airports and associated supply chain investments
Health, safety and environment As Eastland Group grows, our approach to health, safety and the environment is maturing. Our drug testing programme has been in place for three years, and our regular reporting and investigation processes following workplace incidents and near-misses are now well embedded in Eastland Group’s ‘safety happens here’ culture. Our development of a unique health and safety culture included the introduction of a ‘5 by 5 safety process’, as well as the review and re-establishment of an upgraded safety management system. In addition to these initiatives, the company’s main health and safety objective this year was to reduce the number of harm related injuries. In 2015, 20 harm related injuries occurred across Eastland Group businesses, and our aim last year was to reduce this by 25 percent – a target of 15 or fewer such incidents. Thirteen harm related injuries occurred in 2016, so we achieved our target but wanted to further improve this year. The target for the 2017 financial year was therefore to achieve a further reduction of 25 percent, that is, 10 or fewer harm related injuries. Nine such incidents occurred. As we strive towards our aim of ‘zero harm’, a natural next step during the 2017 year was to undertake a review of Eastland Group’s overall structure with regards to both health and safety and human resources. Following the review we created
Projects include the installation of electric vehicle charging stations, an ongoing solar trial and the opening of an energy hub
Projects include the development of the wharfside log yard and other enhancements to accommodate customer projections for forestry harvest
a new executive position of General Manager, People and Performance and appointed internally. The establishment of this new position means we are taking a more strategic view towards health, safety and the environment, and also to ensuring the development of our people is linked very carefully to our business planning cycle. As the financial year came to a close, we introduced a new performance management system which will align each individual employee’s effort with our plan for the year ahead. The ‘Making It Happen’ system – or MIH – fits alongside the brand repositioning work we embarked upon in 2015, and has the potential to add real value for everyone at Eastland Group. Eastland Group is committed to doing whatever it takes to provide safe and healthy environments for employees, contractors and any member of the public.
The future happens here
Solar research trials
Electric vehicles
Energy hub
Eastland Network’s solar research trial to gather real world data is part of its planning for the future electricity needs of the Gisborne, East Coast and Wairoa regions. Solar panels have been installed at nine sites in a trial designed to last between two and five years.
As part of a commitment to ensuring at least 75 percent of our non-commercial vehicle fleet is electric by 2019, three Toyota Prius hybrids, a plug-in BMW i3 hybrid, a Renault Zoe, and a fully-electric Nissan Leaf were added during the 2017 year, bringing our total complement of electric vehicles (EVs) to eight. Most of the vehicles are used as part of Eastland Group’s pool fleet, with individuals booking and driving them as required.
During the year, Eastland Group developed the strategic resources and thinking to engage in a new conversation with energy consumers in the region. We will soon launch an innovative new hub: a place where consumers, emerging technology and energy infrastructure can come together. A place where we can showcase our solar trial, investment in Flick and consumer choices for adopting new energy technologies, and develop new business. We expect to open the doors to this innovative space later in 2017.
The aim is to assess the technical and commercial impacts of new technologies on the distribution network, and to gain some real world data that can help local people to make informed decisions on emerging technology. The trial will help Eastland Network understand the threats, opportunities and economics of the technology, by gathering data about how people are likely to source and manage their electricity needs in the future. We believe the future opportunity is for closer relationship with consumers who are producing their own electricity. We’re trying to understand two things. We need to know how solar – and later batteries – will impact the future operational and technical performance of the network itself, so that we can plan for asset maintenance and development. The network is also tracking how consumers' behaviour and use of energy changes throughout the trial, so that we can understand what kinds of services they might expect in the future.
In May 2016, the government announced its Electric Vehicles Programme, a wide ranging package of measures to encourage the uptake of EVs in New Zealand. The target is to double the fleet each year, reaching 64,000 EV registrations by the end of 2021. Eastland Group has applied for funding for a local charging station network. Our investment in electric and hybrid vehicles, and our planned installation of a regional charging network, will help the people of Gisborne, Wairoa and the East Coast to take advantage of new energy technologies.
Investment in Flick Electric Co. In July 2016, Eastland Group boosted its investment in electricity business Flick Electric Co, raising its shareholding to 18.6 percent. We are attracted to Flick’s technology-driven model, its view of customers as prosumers, disruptive potential and strong customer engagement. Flick raised a further $5 million from existing shareholders to fund its New Zealand growth plans. The company, which received the 2016 New Zealand Hi-Tech Award for Most Innovative Service, passes through wholesale electricity direct from the spot market to its customers. Aside from the commercial return, this investment is helping us to understand changing customer requirements.
Annual Report 2017 Eastland Group
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Eastland Group and HBRC are looking at modifications to the existing resource consents - which are now over 30 years old - to make these clearer and more practical, to assist in the operation and management of the Waihi Dam.
Clean, renewable electricity Early in the year, excitement built across Gisborne and the Bay of Plenty as Eastland Generation’s Te Ahi O Maui geothermal project at Kawerau prepared for the first stage of our well-drilling programme. The first phase of drilling was successful – we located the high temperature fluid needed to fuel the plant, as well as the injection capacity required. In parallel with the drilling programme the project has now moved into the next phase: construction of the plant itself. Once operational in 2018, our Te Ahi O Maui geothermal plant will produce 25 Megawatts of clean electricity, as well as financial returns, for 35 years. The project – which is tracking well against both budget and timelines – delivers strong economic returns for us. Situated on the Kawerau geothermal field, it has a strong positive cashflow which will enhance profitability and add value for our shareholder and its beneficiaries within Tairawhiti-Gisborne. Te Ahi O Maui creates diversification for Eastland Group and, once completed, means approximately 30 percent of our investments will sit outside of the region. (See page 36.)
Region-wide power outage
An airport for our people and products As the region grows, transport networks play an increasingly critical role in supporting the economic and social wellbeing of people, business and communities. As the manager and operator of Gisborne Airport, Eastland Group is working with Air New Zealand, the Gisborne District Council (as airport owner) and Eastland Community Trust to develop and deliver a new fit for purpose terminal building. Designed to meet customer needs, this asset will provide a welcoming and fantastic first impression for visitors and locals returning home, at the same time as it reflects exactly ‘who we are’ as a region.
Enabling the forestry sector In order to meet the growing demands of a forestry industry which provides opportunity and employment for our entire region, we spent around $86 million on capital enhancements since 2010 and plan to invest $96 million over the next five years to accommodate customer projections for forestry harvest. Our aim is to provide excellent infrastructure to support a sector which is truly booming. As the financial year drew to its end, our team was working on the first stages of a project which could see an additional berth constructed at Eastland Port. The twin berth development is a staged multi-million dollar construction project likely to take five years. A well-resourced 24-hour port is an essential part of Gisborne’s thriving economy and with the right balance of investment and support the port and its associated industries can make further significant contributions to the local economy. Provided that any risks are responsibly managed we believe the only reasonable solution to ensure the port remains a vital piece of infrastructure for this region is moderate expansion. (See page 40 for more on port development.)
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Eastland Group Annual Report 2017
Waihi dam During the 2017 year, Eastland Group and Hawke’s Bay Regional Council agreed to an out of court settlement relating to our hydroelectricity station at the Waihi dam. In September 2015, storm-damaged sluice gates began discharging silt from the dam into the Waiau River. The gate repairs were completed in March 2016 and the power station has been functioning normally since then. In May 2016, Hawke’s Bay Regional Council laid charges in relation to the works carried out on the dam and the subsequent discharge of silt. However, the two parties agreed that pursuing a court case would have no direct benefit to the Wairoa community (regardless of the outcome). Instead the agreed resolution delivers tangible, positive outcomes for the people of Wairoa as well as the environment. Eastland Group will contribute $100,000 towards the new Wairoa Destination Playground. We are also signing a 10-year sponsorship agreement to contribute $15,000 per year towards Wairoa-focused events and activities, starting in April 2017. Eastland Group will cover Hawke’s Bay Regional Council’s external investigation costs up to $85,000, while Eastland Group’s insurers are working with Wairoa District Council to settle its claim for costs associated with the water treatment plant.
In December 2016, a topdressing plane crashed into high voltage powerlines near Hangaroa, tragically killing two men and interrupting power supply to the entire Tairawhiti region. More than 40,000 Gisborne and East Coast residents were without electricity for 33 hours while Eastland Network crews worked through the night in atrocious conditions to complete repairs to damaged circuits on the 110kV lines. National media attention was high and locals also followed the crews’ progress on social media, sharing messages of encouragement along the way. The network’s publicity team helped raise awareness just a few days later, when the region’s electricity had to be shut down in a planned outage so that final repairs could be completed. Our community is a resilient one, and people largely made the best of a bad situation. We thank them for their support and understanding. Many of Eastland Group’s employees knew the pilot, and his partner worked for the company. Our sympathies go out to Carrie and her children. It was a tough time for everyone, especially for the families of the two men who were killed.
Annual Report 2017 Eastland Group
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Our community Every year Eastland Group delivers real benefits to our local community in the form of commercial excellence, economic development and regional prosperity. Our annual distribution to ECT is substantial and this directly benefits the community in the form of grant distributions by the Trust. There are other flow-ons too. Eastland Group spent nearly $40 million on local goods and services and wages. We also sponsor events, clubs and business initiatives, including Eastland Group Gisborne Speedway and a speaker series with the Gisborne Chamber of Commerce. In February 2017, our free Flywheels event at Gisborne Airport attracted over 2,000 locals who took to the runway on their bikes, skateboards and scooters. We provide tertiary scholarships to Tairawhiti region engineering and accounting students and continues to actively encourage our employees to be involved in a wide range of community activities. This year we were delighted to support a team of women from our Shared Services office who won the Corporate Short Course division of the Whai Ora Spirited Women – All Women’s Adventure Race, and also a group of fishermen led by Eastland Debarking’s Chris Spurr, which hooked the major prize of $30,000 at the Durapanel Snapper Bonanza 90 Mile Beach Surfcasting Competition.
Looking forward In our view, the future of Eastland Group is shining very brightly. In last year’s annual report we promised continued acceleration along our growth path. In the coming year we expect to continue that acceleration; the construction of the Te Ahi O Maui geothermal plant is progressing swiftly, and Eastland Port is pressing ahead with plans to develop the port at the same time as Eastland Network positions itself to take advantage of the energy revolution already underway. We plan to balance this stage of Eastland Group’s evolution carefully – expansion and investment must be planned with the future in mind, at the same time as asset management and maintenance programmes are designed to ensure assets across all our businesses remain fit for purpose alongside changing customer requirements.
Our people make it happen We extend a sincere thank you to our board of directors. In particular, we thank John Clarke, who retired on 30 June after nearly 13 years as a director of Eastland Group. Nelson Cull and Tony Gray were reappointed in August 2016, and Matanuku Mahuika was appointed as a new director in October 2016. Everything Eastland Group achieves is because of the people we employ, and we take this opportunity to thank every single one of you. Our people truly do ‘make it happen’ – they are passionate about what they do, they care about their work and they care about each other. Sadly Eastland Port’s project manager, Annalise Leggett, passed away in September 2016 following a long and brave battle against cancer. Annalise was the wife and best mate of Eastech manager, Tony, and also a wonderful friend and colleague to many people at Eastland Group. A plaque in her memory has been laid at the end of Gisborne Airport’s runway; Annalise was the project manager in charge of resealing the runway last year.
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Eastland Group Annual Report 2017
Nelson Cull, CHAIRMAN
Matt Todd, CHIEF EXECUTIVE
Eastland Group is a special group of companies We plan to balance the next stage of our evolution carefully. Expansion and investment must be planned with the future in mind, at the same time as asset management and maintenance programmes.
Three successful businesses Earnings before interest and tax ($ Millions)
30 25 20 15 10 5 0 2016
2017
Generation Ports Networks
Annual Report 2017 Eastland Group
13
Board of directors
Nelson Cull, CHAIRMAN
Michael Glover, DIRECTOR
Tony Gray, DIRECTOR
Kieran Devine, DIRECTOR
Matanuku Mahuika, DIRECTOR
John Rae, DIRECTOR
14
Eastland Group Annual Report 2017
Nelson Cull, CHAIRMAN
Michael Glover, DIRECTOR
Tony Gray, DIRECTOR
Nelson is also chair and director of MSC Consulting, a structural and civil engineering consultancy firm. Nelson has previously been chair and director of Lanzafuels Ltd and Techscape. His many other directorships include Guardian Healthcare, Kerifresh and Netball New Zealand. He has also fulfilled board advisory roles for Sports New Zealand in football, cycling and swimming. He brings his extensive local and international experience in the oil industry to his role with Eastland Group.
With extensive experience in the commercial arena, Mike has worked in large New Zealand companies as an investment banker and advisor to some of the biggest companies in South-East Asia and Australasia. He manages his own company, FSL Foods, and is a chairman and director of two Nelson companies with national operations. Mike has a law degree and, over the years, has been a director of a number of private companies in New Zealand and Australia, including 10 years as a director of electricity distributor Network Tasman.
Currently executive project advisor to the Hastings District Council, Tony was previously chief financial officer at Hastings District Council. Prior to that, Tony held the senior finance role at Te Runanga o Ngai Tahu (2 years), the CFO role at Mighty River Power (7 years), and the same position at TVNZ (12 years). He has been on the board of various companies including CLEAR Communications and Sky Network Television Limited. Tony is currently a director of Ngati Apa Developments, Maungaharuru Tangitu Limited, Civic Financial Services Limited, Artemis Nominees Limited, Quality Roading and Services (Wairoa) Limited, and chair of Ngati Pukenga Investments.
Kieran Devine, DIRECTOR
Matanuku Mahuika, DIRECTOR
John Rae, DIRECTOR
Kieran is an electrical engineer with more than 40 years’ experience within the electricity and energy industries both in New Zealand and offshore. He has served as a senior manager in generation, transmission and system operations, including managing the real-time electricity market. He has undertaken roles as the interim chief executive and chief engineer of the Institution of Professional Engineers New Zealand. For seven years he was a trustee, and then chair, of the Centre for Advanced Engineering. He is currently an industry member of the Natural Hazards Research Platform Strategic Advisory Group. Kieran is a chartered member of the Institute of Directors, a fellow of IPENZ, a senior member of the IEEE (USA), and a chartered member of the IET (UK).
Matanuku is a lawyer and has been in corporate and private practice since 1991. He is a founding partner of the law firm Kahui Legal, and has also held a wide variety of board roles. These include being the former deputy chair of Aotearoa Fisheries Limited and chairman of Sealord Group Limited. He is the current chairman of Ngati Porou Holding Company Limited, the company that oversees Ngati Porou’s commercial interests. He is also a director of Te Runanganui o Ngati Porou Trustee Company Limited and the NZ Merino Company Limited, a member of the New Zealand Geographic Board, and a former trustee of the Eastland Community Trust.
John has a broad range of management and directorial experience in a variety of different business sectors including banking, investment, venture capital, technology, infrastructure, construction, and engineering. He has had wide-ranging global experience with management and governance responsibility for operations in New Zealand, Australia, Asia and Europe. In addition to chairing the National Infrastructure Advisory Board which provides independent advice to Treasury and the Minister for Infrastructure, John is also currently a director or chairman of a number of other boards across many sectors. In the region he is also chairman of both Activate Tairawhiti (Gisborne’s economic development agency) and the Corson group of companies.
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Leadership team
Matt Todd, GROUP CHIEF EXECUTIVE
Brent Stewart, GENERAL MANAGER NETWORKS
Gavin Murphy, GENERAL MANAGER BUSINESS DEVELOPMENT
Andrew Gaddum, GENERAL MANAGER PORTS
Ben Gibson, GENERAL MANAGER GENERATION
Aaron Snodgrass, CHIEF FINANCIAL OFFICER
Jarred Moroney, GENERAL MANAGER PEOPLE AND PERFORMANCE
Suzanne Winterflood, MARKETING AND COMMUNICATIONS MANAGER
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Eastland Group Annual Report 2017
Matt Todd
Brent Stewart
Gavin Murphy
GROUP CHIEF EXECUTIVE
GENERAL MANAGER NETWORKS
Matt was appointed chief executive of Eastland Group in 2003. He has more than 25 years’ experience in the utilities and infrastructure sectors, including senior roles with major players such as United Networks. Matt has worked in New Zealand, Australia, the United Kingdom, Southeast Asia, South America and the Pacific Islands.
Brent Stewart leads the team responsible for the overall management and operation of the electricity distribution and transmission network assets of Eastland Network. He has worked in the electricity distribution industry for more than 30 years. Brent joined Eastland Network in 2002 after management positions within the industry in Wellington and the Bay of Plenty.
GENERAL MANAGER BUSINESS DEVELOPMENT
Andrew Gaddum
Ben Gibson
Aaron Snodgrass
GENERAL MANAGER PORTS
GENERAL MANAGER GENERATION
CHIEF FINANCIAL OFFICER
Born on the East Coast, Andrew has been involved in the local forestry industry from an early age, from driving trucks in Mangatu forest to planting around Ruatoria. Andrew worked offshore in various project management positions before returning home to New Zealand to complete a Masters in Engineering Management. He started with Eastland in 2004. His role encompasses the management of Eastland Port and its associated debarking operations in Gisborne and Northland, Gisborne Airport, as well as the Cookstores, Gisborne's largest cold and dry store facility.
Originally from the Waikato, Ben joined Eastland Group in 2004 following a three year role with London Underground on the Public Private Partnership project to modernise the system through the privatisation of the maintenance and upgrade of the network. While in the UK, Ben obtained a Diploma in Financial Management which complemented his training as a mechanical engineer. He has also worked in the construction sector as a process engineer for Firth Stresscrete.
Aaron is responsible for the finance, shared services, legal, company secretary, property and technology functions of the company. He supports the group chief executive, the board of directors, the businesses within the group, and the company's growth initiatives. Prior to working at Eastland Group, Aaron worked in the financial services sector for Deutsche Bank in New York.
Jarred Moroney
Suzanne Winterflood
GENERAL MANAGER PEOPLE AND PERFORMANCE
MARKETING AND COMMUNICATIONS MANAGER
Jarred has spent more than 10 years specialising in health and safety management. At Eastland Group his key focus is ensuring the right attitudes towards safety management are achieved at all levels right across the company. Prior to his current role, Jarred was Hikurangi Forest Farms’ health, safety and environmental manager. Earlier in his career, Jarred established and operated Integrated Safety Solutions, an occupational health and safety company in Gisborne.
Suzanne grew up in Gisborne and has more than 25 years’ experience in advertising, marketing, public relations and journalism. She was a creative director at Publicis Worldwide in London, Sydney and Auckland, and has created award-winning campaigns for clients including Air New Zealand and Mercury Energy. More recently Suzanne consulted to local economic development agency Activate Tairawhiti.
Gavin Murphy joined Eastland Group in 2004 after many years heading projects and teams in New Zealand and offshore. He has extensive experience in the utility sector, particularly the electricity industry, which saw him spend time in Indonesia heading a key project.
Annual Report 2017 Eastland Group
17
Eastland Group structure
Ports
Networks
Generation
Energy solutions
Eastland Port
Eastland Network
Waihi Hydro
Energy Hub
Gisborne Airport
Diesel Gensets
Flick Electricity Co.
Northland Debarking
Geothermal Developments
Properties Inner Harbour Marina
Eastland Debarking Te Ahi O Maui
Eastland Group’s primary companies are: Eastland Port provides a vital piece of infrastructure for a forestry industry that has been the single biggest contributor to regional GDP since 2012. Eastland Port is the most easterly commercial port in New Zealand, and is proud to be the country’s third largest and most efficient log export port. Gisborne Airport provides an all-weather runway, airfield and associated airport facilities, to meet the growing air transport and recreational needs of the region. Eastland Port is a 50 percent shareholder in the Eastland Debarking joint venture.
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Eastland Group Annual Report 2017
Northland Debarking is our debarking operation at Northport, south of Whangarei.
Eastland Generation is the lead partner in the Te Ahi O Maui geothermal development project.
Eastland Network provides electricity distribution and transmission services to the 54,000 people who live and work in Gisborne, Wairoa and the East Coast. Eastech is the 24/7 fault response team for the entire region.
Consents are in place to build a 25MW power plant which is expected to be operational by the end of 2018.
Eastland Generation owns and operates various electricity generation projects. These include the 9MW Geothermal Developments (GDL) plant in Kawerau, the 5MW Waihi hydroelectricity scheme near Wairoa and six 1MW diesel gensets.
Eastland Investment Properties is the owner of key commercial property in Gisborne, including the inner harbour area and marina berths.
How Eastland Group benefits our community In the 2017 financial year we spent:
$
38.5m
ON WAGES LOCAL GOODS AND SERVICES
98,000
$
ON SPONSORSHIP
$ The money that Eastland Group earns helps our shareholder, the Eastland Community Trust, make distributions to encourage regional economic development and support business and community initiatives
9.9m
Dividend and interest on capital notes paid to the Eastland Community Trust
Annual Report 2017 Eastland Group
19
Eastland Group locations
Gisborne Airport
Northland Debarking
Eastland Generation Geothermal Developments Te Ahi O Maui
Eastland Network
Gisborne Eastland Generation
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Eastland Group Annual Report 2017
Portfolio allocation by region
Regional (76%) Non-regional (24%)
Eastland Network
Eastland Group
Portfolio allocation
Eastland Properties
by business
Inner Harbour Marina
Eastland Port Eastland Debarking
Networks (32%) Generation (26%) Ports (36%) Other (6%)
Annual Report 2017 Eastland Group
21
Financial performance trends Financial Performance
2013
2014
2015
2016
Income
70.5
71.0
73.9
73.9
76.2
Operating expenditure
(31.7)
(32.2)
(34.4)
(31.7)
(34.6)
Earnings before interest, income tax, depreciation and amortisation (EBITDA)
2017
38.8
38.8
39.5
42.2
41.6
(10.9)
(12.0)
(12.7)
(14.8)
(15.1)
Earnings before interest and income tax (EBIT) *
27.9
26.8
26.8
27.4
26.5
Net interest
(9.7)
(8.6)
(8.4)
(8.4)
(7.8)
1.1
1.6
1.4
1.4
1.4
Profit before income tax
19.3
19.8
19.8
20.4
20.1
Depreciation and amortisation
Share of profit of joint venture Income tax
(5.8)
(5.6)
(5.5)
(5.2)
(5.3)
Profit from continuing operations
13.5
14.2
14.3
15.2
14.8
Discontinued operations
(0.7)
0.7
(0.2)
Profit
12.8
14.9
Operating cashflows
25.6
19.3
-
-
14.1
15.2
14.8
23.1
28.6
25.9
* Referred to as operating profit
Financial Position
2013
2014
2015
2016
2017
Total Assets
365.9
365.5
385.7
422.2
481.0
Total Liabilities
184.9
179.1
195.9
217.3
265.7
Bank Debt
93.0
94.5
105.0
114.0
166.0
Capital Notes
30.0
30.0
30.0
30.0
30.0
61.9
54.6
60.9
73.3
69.7
Total Equity
181.0
186.4
189.8
204.9
215.3
Bank Debt % of Assets
25.4%
Other Liabilities
Distributions to shareholder
25.9%
27.2%
27.0%
34.5% 2017
2013
2014
2015
2016
Interest on capital notes
2.6
2.6
2.6
2.1
2.1
Dividends to shareholder
4.6
4.8
5.0
5.6
7.8
Cumulative dividends paid (A)
38.7
43.5
48.5
54.1
61.9
Cumulative growth in equity (B)
132.1
137.5
138.5
139.5
140.5
170.8
181.0
187.1
193.7
202.5
Shareholder value (A+B) Compound Dividend Return ** Compound Shareholder Value Return **
6.4%
6.4%
6.9%
6.9%
7.0%
14.4%
13.7%
13.9%
13.2%
12.7%
** Calculated from 2003
Business segment
2013
2014
2015
2016
2017
Networks
•
•
•
•
•
Generation
•
•
•
•
•
Airport
•
•
•
•
•
Port
•
•
•
•
•
Aviation
•
Strategic property investments
•
•
•
•
•
2013
2014
2015
2016
2017
144
112
120
110
111
2013
2014
2015
2016
2017
307
300
300
309
302
25,550
25,353
25,387
25,410
25,455
2013
2014
2015
2016
2017
2.0
2.3
2.2
2.3
2.5
2013
2014
2015
2016
2017
71.4
77.1
78.7
71.6
71.1
HR Employees Networks Energy distributed (GWHr) Customer connections Ports Total export volumes (mill tonnes) Generation Energy generated (GWHr)
22
Eastland Group Annual Report 2017
Shareholder Value Added Cumulative Dividend ($ Millions) Total Equity ($ Millions)
300 250 200 150 100 50 0 ‘07
‘08
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
Total Assets $ Millions
600 500 400 300 200 100 0 ‘07
‘08
‘09
Profit vs. Income Profit ($ Millions) Income ($ Millions)
90
16
80
14
70
12
60
10
50
8
40
6
30
4
20
2
10 0
0 ‘07
‘08
‘09
‘10
‘11
‘12
‘13
‘14
‘15
Annual Report 2017 Eastland Group
‘16
‘17
23
2017 Network highlights
302
25,455
590
GIGAWATT HOURS
TOTAL CONNECTIONS
POWER POLE REPLACEMENTS
58.7
11,952
COINCIDENTAL MAX DEMAND MW
SQUARE KILOMETRES
before interest and tax
3,552km
34,316
397km
OF OVERHEAD LINES
POWER POLES
OF UNDERGROUND CABLES
distributed across the network
13.2m
$
EARNINGS
covered by our network
3,742 Eastland Group’s largest asset is our electricity distribution network. It delivers electricity to about 54,000 people and covers more than 10,000 square kilometres across Gisborne, Wairoa and the East Coast.
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SUBSTATIONS
Eastland Network is the electricity lines company for Gisborne, Wairoa and the East Coast. We own and maintain the poles, wires and underground cabling used by electricity retailers to supply customers with electricity. Since 31 March 2015, we’ve also owned the region’s high voltage electricity transmission network: the steel towers and poles that connect our region to the national grid.
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We make it happen day and night Eastland Network provides electricity to 19,426 domestic consumers and 6,029 non-domestic consumers in the Gisborne, East Coast and Wairoa areas. We bill line charges to the end-user’s energy retailer, which then incorporates them into each customer’s power bill. Line charges make up around 40 percent of consumer electricity costs. The remaining approximately 60 percent of costs are determined by energy retailers.
Network performance
Regulatory management
Over the past 12 months, the region’s electricity usage remained steady, with a warm winter and energy-saving appliances keeping customer consumption and demand at slightly less than the previous year. We expect this to continue for the next year.
Regulation continues to impact the cost and complexity of owning an electricity distribution network in New Zealand. The declining costs of new technologies such as solar power, electric vehicles and battery technologies and their increasing use pose challenges for the network. However, constraints placed upon network businesses under current regulation make managing our way through this new environment even more challenging and is something that regulators around the world are grappling with.
Total energy distributed across network, 301.8 GWHr (2016: 308.5 GWHr). Co-incidental maximum demand, 58.7 GWHr (2016: 60.32 GWHr). Eastland Network’s total line charge revenue for the 2017 financial year was $34.5 million. In total, network connections increased from 25,410 to 25,455 – an increase of 45 ICPs (installation control points). The majority of these new connections were for new domestic dwellings. Energy retailers trading on our networks increased by two – from 15 to 17. The trading agreements with all energy retailers are in accordance with a standard agreement which is closely aligned with the Electricity Authority’s Model Use of System Agreement. During the year the net book value of Eastland Network’s assets (including land, buildings and work in progress) increased to $151 million.
The biggest regulatory challenge for Eastland Network is in pricing. Distributors are being strongly encouraged by the Electricity Authority to adopt pricing tariffs that are more reflective of the costs of running the network. This may mean a shift to more sophisticated pricing tariffs that reflect use of the network during periods of congestion rather than a simple kilowatt hour variable charge or they may reflect the capacity requested by a customer (similar to internet charges). The ability to introduce such cost-reflective tariffs is hindered by the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations. While these regulations were developed with good intentions, they do not work well in the current environment and often no longer benefit the very people they were designed to protect. New technologies also mean that for the first time, networks are facing competition in the form of new ways in which customers can access electricity in their homes. Our ability to respond rapidly to these changes depends on the regulatory boundaries imposed upon the industry and the speed at which these regulations adjust to the new environment.
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Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group
27
Unplanned power outages
The 2017 financial year was one of the most challenging on record Unplanned outages impacted the network in ways we could never have foreseen. Most of the Tairawhiti region lost electricity supply at around 9am on 12 December, when a topdressing plane crashed into Eastland Network’s double circuit high voltage powerlines near Hangaroa, severing the region’s connection to the national grid. Tragically, two men lost their lives as a result of the accident.
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Eastland Group Annual Report 2017
More than 40,000 residents were without electricity for 33 hours, as line mechanic crews worked through the night in treacherous conditions to complete repairs to damaged circuits on the 110kV lines. The network then advised residents to expect a further loss of electricity within the next few days, so that final and permanent repairs to the lines could be carried out. These repairs were completed on 18 December, four hours ahead of the advertised time schedule. The financial impact of the outages was in the order of $250,000 repair costs and $95,000 lost line charge revenue. These 110kV outages also contributed significantly to Eastland Network exceeding the annual quality limit for average customer outage duration as set by the Commerce Commission. Also earlier in the year, in August, all of Eastland Network’s 25,000 customers suffered power cuts during the weekend after snow settled on Transpower’s 220kV circuit at Wairakei to Whirinaki (Taupo to Hawkes Bay) and interrupted electricity to the region. As a result the network lost electricity supply on Saturday from 2.45am until 5am, in a widespread power outage which affected all of Hawke’s Bay, Wairoa, Gisborne and the East Coast. At 10am continued build-up of snow in Hawke’s Bay again tripped the same Transpower circuit causing the same areas to lose power supply until almost midday. As the affected assets are owned by Transpower the cost of repairs had no financial or regulatory quality implications for Eastland Network.
Annual Report 2017 Eastland Group
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Eastland Group Annual Report 2017
Asset management The network is constantly upgrading its services and reinvesting in the region. Future plans for the sustainable management and development of the network are described in our Asset Management Plan (AMP). The AMP is updated annually and our current one covers a planning period for the next ten years. Included in the plan are prioritised programmes and projects for the maintenance, renewal and development of the network. These are designed to deliver optimum customer service, safe and operational efficiency within financial boundaries.
Maintenance and capital expenditure Maintenance and capital expenditure on the network were once again successfully managed within budget and in accordance with Eastland Network’s Asset Management Plan. While expenditure on the renewal of aged and underperforming assets predominated, reticulation upgrades and overhead-to-underground conversions were also carried out. All within a continuing programme to meet load growth and improve security of supply requirements along main arterial routes and/or those with high amenity value within the Gisborne and Wairoa areas. Eastland Network’s Asset Management Plan forecasts expenditure of $49 million on network capital projects and $29 million on maintenance work over the next five years.
Connections and developments Domestic The year brought a continuation of a trend noticed over the previous four years, with only a low number of new residential developments and/or subdivisions requiring reticulation. The total new reticulation installed at 13 separate locations will allow for the supply to approximately 20 new domestic connections. Non-domestic As with the previous year there was an increase in the number of non-domestic development projects completed to meet the new or enhanced supply requirements of customers. Those of note were: •
Grey Street – the installation of a 300KVA transformer and 11kV switchgear and network configuration alterations associated with facilitating new and additional customer load.
•
Dunstan Road - the installation of 11kV switchgear for a private 1000KVA transformer supplying a new wood processing facility.
•
Lytton Road – the installation of 11kV cabling, switchgear and two 1000KVA transformers to supply an expanded and upgraded food processing facility.
•
Continuation of asset renewal and upgrading projects in the Manutuke, Muriwai and Whatatutu and Maungatu areas (rural Gisborne), Te Araroa to Ruatoria on the East Coast and Wairoa to Nuhaka (rural Wairoa). This work included the replacement of 590 11kV and 400V poles, the upgrading of transformers and removal of redundant overhead plant.
•
Continuing clearance of trees from the vicinity of overhead lines throughout the Gisborne and Wairoa areas.
Compliance Public safety management plan In accordance with the Electricity Act and Electricity (Safety) Regulations 2010, Eastland Group’s Public Safety Management Plans (covering both distribution and generation assets) met regulatory compliance during the 2016 year, subject to an interim audit. This year, the interim audit that was undertaken by an accredited third party against NZ 7901:2008 Electricity and Gas Industries – Safety Management Systems for Public Safety, concluded that our plans and associated systems are fully compliant with requirements.
Asset replacements
Electricity Distribution Default Price Quality Path Determination 2016 The 2017 year was the second year of the current five year regulatory period. Eastland Network achieved regulatory compliance for pricing under the Default Price Quality Path Determination 2015. It also achieved compliance with the SAIFI* quality standards, however the SAIDI* quality exceeded the limits set by the Commerce Commission for the year.
Eastland Network’s planned programme of aged-asset replacement and asset maintenance continued on the Gisborne and Wairoa networks. Of significance were:
Outages related to the plane strike of the double circuit 110kV line between Tuai and Gisborne in December 2016 resulted in 87.26 reportable SAIDI minutes.
•
Fourteen urban ground mounted distribution transformers replaced (11 in Gisborne and three in Wairoa).
•
Eleven sets of ground mounted 11kV switchgear replaced.
•
Replacement of nine 400V link boxes.
Under the current Price-Quality regulations Eastland Network may exceed the limit only once in a three year rolling period without being considered a breach of quality standards. This non-compliant result is the first in a three year period.
•
Replacement of 590 power poles.
•
Completion of 11kV overhead conductor replacement projects where a total route length of 4kms of conductor was replaced. Of note were projects in Russell Street, Gisborne, an 11kV line diversion to facilitate the replacement of the Motu Bridge and work associated with the Puketiti Wall SH35 road stabilisation/realignment in Te Puia.
•
Nelson Road – the installation of 11kV cabling and a 200KVA transformer to supply an upgraded hot house facility.
•
SH2 Makaraka – 1000KVA transformer upgrade to increase supply to an upgraded pack house facility.
*SAIDI limit = 285.8 Actual SAIDI with 110kV Outages = 285.8 Actual SAIDI without 110kV outages = 222.73 SAIFI limit = 3.77 Actual SAIFI with 110kV Outages = 3.32 Actual SAIFI without 110kV outages = 2.77 110kV outages – reportable SAIDI = 87.26 and SAIFI = 0.55
Annual Report 2017 Eastland Group
31
Eastech
Looking ahead
An organisational review of our in-house network service provider, Eastech, was completed during the year. The purpose of the review was to ensure that Eastech continued to meet its primary objective of providing line mechanic and fault man resources as required to deliver an effective and efficient 24/7 fault restoration service. The efforts of the Eastech team and their timely response to network and customer faults are crucial to Eastland Network meeting compliance regulatory network performance thresholds and meeting the needs of customers.
Annual pricing review Eastland Network’s pricing schedule for the period 1 April 2017 to 31 March 2018 includes a small increase in line charges which is likely to add about $4.30 including GST to an average household’s monthly bill. The amount is made up of around $3.25 towards Eastland Network’s distribution line charges, and approximately $1.05 for Transpower’s increased transmission charges.
Overhead-to-underground conversion projects completed during the year were: • Aberdeen Road - between Lytton Road and Albert Street and Wellington Street and Roebuck Road – installation of 400V cabling and new service connections and the removal of overhead 400V road crossings. • Grey Street – Gisborne CBD between Kahutia Street and Awapuni Road – installation of 11kV & 400V cabling and 11kV switchgear and the removal of 11kV and 400V overhead plant. •
Tuckers Road – rural Gisborne – the installation of 11kV cabling and overhead line reconfiguration to facilitate improved clearance to 110kV overhead lines.
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Eastland Group Annual Report 2017
Eastland Network’s tariff structure has not been altered, and remains the same as last year. As part of New Zealand’s regulated electricity sector, any change in Eastland Network’s revenue must comply with the Commerce Commission’s Default Price Quality Path Determination requirements. The network pricing is reviewed annually, and the pricing model which determines the components making up individual tariff categories has been updated. It factors in a wide number of considerations, including: meeting compliance requirements, accounting for forecasted distributed energy volumes, reviewing advised contract charges, and other costs. Eastland Network plans to adopt more cost reflective pricing tariffs by 1 April 2020 due to the increasing use of new technologies such as solar, batteries and electric vehicles and the changing way in which the network is being used. Existing tariffs are no longer suited to the new environment and may sometimes have the effect of encouraging investment in technologies that may decrease the cost for the individual consumer but place a greater share of the network costs on the rest of the community. Consequently, new tariffs are being strongly encouraged by the Electricity Authority.
Eastland Network celebrating 90 years
Prices have changed too In 1927, the electricity price was three pence for the first 20 units per month, two pence for the next 40 units and 1.5 pence for every unit over 60 units per month. Decimal currency was introduced to New Zealand in 1967. Until then, the New Zealand pound was divided into twenty shillings or 240 pennies. One unit of electricity is equivalent to one kilowatt hour. The power prices from 1927 sound cheap, however what you bought for one pound in 1912 would cost $163 today. In 2016, an average household used about 600 kilowatt hours each month. On that basis if you paid the same for electricity then as you did in 2016, your monthly bill would have been $645.
Timeline 1 NOVEMBER 2016 Happy 90th birthday to Eastland Network! Since 1930, the number of customers connected in Gisborne and the East Coast has grown from 4,000 to about 21,000. Today, Eastland Network also supplies electricity to a further 5,000 customers in Wairoa.
2010
2000 1998 Contact Energy assumed control of Eastland Energy’s retail energy business as Government reformed the electricity sector. 1989 Poverty Bay Electric Power Board moved to the new Gentrack computer billing system.
1990
1980
1999 Eastland Energy renamed Eastland Network. 1993 Poverty Bay Electric Power Board became Eastland Energy and the Eastland Energy Community Trust was formed.
1980 New 110kV transmission line from Gisborne to Tokomaru Bay went live.
1970
1960
1950
1940
1930
1 NOVEMBER 1926 License issued to supply electricity in the Poverty Bay district.
20 MARCH 1912 Gisborne Borough Council commenced supply to the township from diesel generators located in Carnarvon Street, illuminating 12 street lamps in Gladstone Road, between Roebuck Road and Kaiti Bridge.
1920
14 DECEMBER 1923 Poverty Bay Electric Power Board district constituted, comprising a total area of 1,735 square miles.
1910
Annual Report 2017 Eastland Group
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2017 Generation highlights
71.1GWHr 60.7GWHr 9.98GWHr OVERALL GENERATION OUTPUT
91,825 MAN HOURS WITHOUT A LOST TIME INJURY at Te Ahi O Maui geothermal project
Construction of the Te Ahi O Maui geothermal project continued through the 2017 financial year. Once operational, the plant will generate around 25MW of electricity.
34
Eastland Group Annual Report 2017
GDL GEOTHERMAL OUTPUT
116m
$
WAIHI HYDROELECTRICITY OUTPUT
35 years
FORECAST COST
LIFESPAN
of Te Ahi O Maui development
of Te Ahi O Maui geothermal plant
The Eastland Generation business includes geothermal, hydro and diesel electricity generation plants Our focus is on building strong, long-term, mutually beneficial relationships from the ground up, together with the owners of the land on which the plants operate. We power a realisation of value to our land owner partners and deliver a resource that wouldn’t otherwise be available. Annual Report 2017 Eastland Group
35
We make it happen clean and green Worldwide, the energy industry is being disrupted by advances in solar energy conversion and storage, and we are working to position Eastland Group as a leader in the adoption of new technologies. At the same time as Eastland Network is focussed on learning more about the impact of the widespread adoption of solar on the lines network, so that it can develop commercial opportunities for the future, Eastland Generation also has a watching brief on developments in the generation space. Overall generation output for the year was 71.1 gigawatt hours.
Te Ahi O Maui geothermal project Construction on the Te Ahi O Maui geothermal project continued through the 2017 financial year following the decision to proceed in September 2016. The project is a partnership between Eastland Generation and the Kawerau A8D Ahu Whenua Trust, who are owners of the land on which the plant is being constructed. The project is located 2.3 kilometres north-east of the Kawerau township, in the Whakatane district. Once operational, the Te Ahi O Maui geothermal power plant will generate approximately 25MW net of electricity; that’s enough to power 25,000 homes. In May the Te Ahi O Maui partnership signed a deal with Israeli company Ormat for the construction of the plant. Ormat is a world leader in the development of binary cycle geothermal power plants and also own and operate a number of them worldwide. There are currently 13 Ormat plants operating in New Zealand and the Te Ahi O Maui plant will utilise some of the latest technological developments and innovations from Ormat’s vast experience. We are partnering with local firms MB Century for the design and construction of the steam field as well as Horizon, the lines company in the Bay of Plenty, to construct the transmission line for the plant. Te Ahi O Maui and Ormat are also working closely with local and national civil, mechanical and electrical contractors, engineers, surveyors and builders on a wide variety of project construction activities. During the financial year, drilling for one production and two injection wells was undertaken. While results from the injection wells were excellent, some further drilling is required to secure all the production requirements. This additional drilling was allowed for in the project business case and budget and will leverage off the knowledge gained from the earlier campaign.
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Eastland Group Annual Report 2017
Eastland Generation has measures in place to ensure Te Ahi O Maui has minimal impact on the surrounding environment and its people. For example, our standards for environmental care go over and above Regional Council consent conditions. Our project team has worked hard to ensure the project is executed in an environmentally friendly, sustainable and culturally appropriate way, working alongside the A8D Trust to understand and accommodate their needs as tangata whenua. Te Ahi O Maui holds resource consent for the take and discharge of 15,000 tonnes per day of geothermal fluid from the Kawerau geothermal reservoir. Earthwork for the power plant and separator pads commenced in June and these were completed in November. In early 2017 Ormat mobilised to site to begin the foundation works for the power plant. It is expected that construction will continue through 2017 and the plant will be fully operational in 2018. Te Ahi O Maui is part of Eastland Group’s wider commitment to renewable generation in New Zealand. The project is consistent with Eastland Group’s strategy of developing a portfolio of renewable electricity generation. Geothermal will provide complementary base load generation to support an emerging market where solar photovoltaic (PV) plays a greater part in meeting the country’s energy needs.
Waihi hydro generation scheme Normal operation of the Waihi hydro scheme was resumed in 2017 following extensive repairs to dam flood gates which were damaged by extreme weather events during the previous year. All operational and safety issues were resolved prior to the start of 2017. Waihi production for the year was however slightly below target (9.98 GWHr vs 11.09 GWHr) due to the annual rainfall in the dam catchment being 16 percent less than average.
Annual Report 2017 Eastland Group
37
38
Eastland Group Annual Report 2017
Te Ahi O Maui progress These images show how well the development is progressing.
Geothermal Developments Ltd geothermal plant Our GDL (Geothermal Developments Ltd) plant produced 60.7GWHrs of electricity, down from the previous year’s 65.9GWHrs. The plant was on load 93.6 percent of the time, down slightly from 2016 due to the requirement to undertake unexpected extra maintenance on the turbine bearing. The plant continues to sell electricity on the wholesale electricity market and a number of contracts for difference have been placed with third parties, providing price certainty through the year. These contracts have performed well especially during periods of low price in Kawerau as a result of issues with Transpower’s transformers at their substation.
Diesel generation
1.
April 2016. Preparation of the well pads and the drilling camp site, and the start of earthworks for the power plant.
The six, one megawatt diesel generators strategically located throughout the network collectively generated 445.9 MWhrs during the year. There was no call on the arrangement with an energy retailer to operate the gensets at times of high wholesale electricity prices. Consequently all of the annual production was to maintain supply to customers during faults and scheduled maintenance, or to reduce maximum demand at transmission grid supply points. As in previous years, the operation of the diesel gensets over the year saved in excess of 100 SAIDI minutes. The plant continues to sell electricity on the wholesale electricity market and a number of contracts for difference have been placed with third parties providing price certainty through the year. These contracts have performed well especially during periods of low price in Kawerau as a result of issues with Transpower’s transformers at their substation.
2. August 2016. Drilling of an injection well, with the drilling camp in the foreground. Earthworks on the power plant pad continue.
3. March 2017. Major earthworks are completed and installation of foundations is underway.
Annual Report 2017 Eastland Group
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2017 Port highlights
2.5m
136
TONNES EXPORTED
SHIPS VISITED
276,000 TONNES OF LOGS processed by Eastland Debarking
11,600
156,146
109,000
TONNES OF WOOD LOADED EACH DAY
TOTAL PASSENGER MOVEMENTS
processed by Northland Debarking
(on average)
at Gisborne Airport
Eastland Port is growing side-by-side with the region’s flourishing forestry industry. Log volumes keep growing and records continue to be broken – a reflection of the East Coast’s forestry success story.
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Eastland Group Annual Report 2017
TONNES OF LOGS
Eastland Port broke another annual record in the financial year ending 31 March 2017 – moving 2.5 million tonnes of product across its wharves The volume is an 8.49 percent increase on last year and reflects the increased volume of export logs coming out of East Coast forests. An estimated 2.6 to 2.8 million tonnes of logs are expected for 2017 and 2018. Beyond that, five million tonnes of export product is expected per year so we are focused on planning for major capital improvements to unlock the port’s potential.
Annual Report 2017 Eastland Group
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We make it happen for exports The port has been a catalyst in this region’s evolution since the early 20th century and played a major role in people and freight transportation in and out of the district. These days Eastland Port provides a vital piece of infrastructure for a forestry industry that has been the single biggest contributor to regional GDP since 2012. The port continues to grow to meet the increasing demand for export capacity from the region’s forestry industry. The year saw the introduction of ISO onto the port providing a log marshalling operation, and C3 moving into stevedoring. The safe and efficient integration of operations between the two companies has been a key focus for management during the year.
2017 performance An unprecedented 430,000 tonnes were exported through the port in February and March. More than 2.5 million tonnes – mostly logs – were exported from Eastland Port during the 2017 financial year, yet another record. Of the 136 ships to dock at Eastland Port over the 2017 financial year, 126 were logging ships, reflected in the fact that 99.4 percent of total exports were logs (98.4% in 2016). The remaining exports were six percent squash and one percent kiwifruit. In addition to export vessels, three coastal shipments of fertiliser were completed and 10 cruise ships plus one naval vessel visited during the 12 months to 31 March 2017.
Safety at Eastland Port Towards the end of 2016 the port employed its own health, safety and environmental manager. Historically this role had been covered by the Group however as the business continues to grow so does our responsibility in these areas, and having a dedicated on site resource was a natural progression. The sector continues its strong focus on improving safety outcomes on the port, which is a complex multi-PCBU environment. (A PCBU is a 'person conducting a business or an undertaking'. Most New Zealand businesses are classed as PCBUs under the Health and Safety at Work Act 2015.)
A 60,000L reservoir was installed to capture stormwater off the primary storage block for treated logs. The reservoir now captures 90 percent of all rain events under 13mm. This water is then recycled for use by our debarking operation instead of town supply. Since installation copper levels have been compliant for four bi-monthly water sampling rounds. Previously, copper levels had not consistently been compliant. Annual harbour sediment monitoring along with that associated with the upper log yard was undertaken in February 2017 to test for metals and metalloid (arsenic) with sediments on the seabed that could have resulted from water discharge or potentially be dredged by port operations. All tests were compliant and have been since testing started in 2006.
Risk management
We worked hard through the year to improve storm water discharge quality, with a further rain garden installed in the upper log yard and significant testing of storm water to determine what further treatment methods maybe available.
All of our resource consents are being migrated into the Obligations module of Risk Manager for a more accessible, userfriendly solution. Risk Manager has been a success for administrating and reporting health and safety by port operations and management. This move will make the management of environmental and consenting obligations more accessible and transparent.
Ranging from no dilution requirement to 19x, NIWA concluded that ‘discharging stormwater, at a rate that limits the receiving environment concentration after Eastland Group Annual Report 2017
Debarker stormwater recycling
Environment
Whole effluent toxicity testing (WETT) undertaken in the receiving environment of the upper log yard and the Kopuwhakapata Stream confirmed there are no significant adverse effects on aquatic life from the log yard discharge. WETT testing was undertaken at the NIWA laboratory to assess the toxicity of the stormwater discharge to a population of fish, invertebrates, and algae by exposing them to the effluent and assessing their responses.
42
reasonable mixing to 5% (i.e. a 20 fold dilution of stormwater) would result in no significant toxicity’ and that this was in line with the upper log yard consent application evidence which estimated 36x dilution was available in the Kopuwhakapata Stream and a further 6.5x dilution in the inner harbour. The report also illustrated the background water quality of the stream would have more of an adverse effect on the aquatic life than the upper log yard stormwater discharge.
Sponsorship The port also continued its sponsorship of the extremely successful EnviroSchools programme funding a number of school based environmental projects, from vegetable garden creation through to rainwater storage and use.
Log exports by tonne/year Last 10 years
2.5
2.0
1.5
1.0
0.5
0 ‘07
‘08
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
Another record export year to report
Annual Report 2017 Eastland Group
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Eastland Group Annual Report 2017
Wharfside log yard
Cookstores
Consent for the redevelopment of the wharfside log yard was granted during the year. The conditions associated with the consent were particularly onerous, and it has taken some time to determine the workability of the consent. With this now clarified management plan to have the project under way in spring of 2017. Once the wharfside log yard is completed, all of the port’s log yards will be sealed with world class storm water treatment systems in operation. This will be a significant milestone for the port and for the region as a whole.
Eastland Port’s Cookstores went through a year of reorganisation following the end of the long term operations agreement with Heinz Watties. All of the freezer storage on site is now leased to local food products producer Cedenco, with the balance of the dry storage area leased to various tenants.
Slipway refurbishment Design work has been completed for the slipway refurbishment. This project is the first step in enabling the twin log berth project, which will ultimately mean the port can berth two log ships alongside at one time. The newly configured slipway will also provide the landing point for a proposed pedestrian bridge from the other side of the Turanganui River, as part of the Navigations Project. When complete this will be a significant community asset, providing residents and visitors alike with a unique experience.
Floating plant The year saw a new addition to the port’s floating plant, with the arrival of the purpose built pilot boat Rere Moana. The vessel was purchased second hand out of Australia and was refurbished and re-engined in Auckland. The Rere Moana has replaced the Turanganui, providing greater safety and comfort for the pilot transfer operation.
Eastland Debarking Eastland Port’s joint venture with Hikurangi Forest Farms processed 276,000 tonnes of logs (2016: 301,000 tonnes).
Northland Debarking Our 1.1 hectare operation at NorthPort near Whangarei provides debarking and antisap staining services to Northland forestry customers. In the twelve months to 31 March 2017, the plant processed 109,000 tonnes of logs (2016: 121,000 tonnes). During the year the plant started trials for customers to debark logs instead of using methyl-bromide. If proven successful this will be a great outcome for our customers, the environment and our business.
Gisborne Airport There were 15,494 take-offs and landings at the airport during the 2017 year, compared to 15,629 for the previous year. This slight decrease on the previous year is a result of Air New Zealand’s up-gauging of the aircraft type (exclusively Q300s, 50 seaters) now serving our airport. Total passenger movements through the airport were 156,146 for the year ended 31 March 2017 as compared to 141,085 for the year ended 31 March 2016. This represents an increase of 15,061 or 10.7 percent on the previous year. This is a direct result of the boosted capacity and lower fare structures provided by the larger aircraft and Air New Zealand’s continued commitment to this region. Larger aircraft using the airport on a regular basis has led to the deployment of a Fire Rescue Service. The service has a dedicated fire appliance with at least one officer on duty during operational hours. Redevelopment of the existing airport terminal has been in the wind for some time. This has been brought to a head with the upgrading of the Air New Zealand fleet servicing Gisborne. The current terminal cannot comfortably accommodate the arrival and departure of two Q300 aircraft simultaneously. The terminal facility also requires some earthquake strengthening to meet new building standards. With this in mind work has progressed on the development of a new terminal complex capable of accommodating more people and larger aircraft, future proofing a key regional infrastructural asset. It is recognised there are a number of key stakeholders in this process and we are working to bring these parties together to deliver a facility the region can be proud of moving forward. During the year the previous aging car park system was replaced, with a new system similar to that used by many larger airports. This new system will make for a greatly improved customer experience for users.
Looking ahead With Asia ravenous for wood as fast as the district can grow it, Tairawhiti’s log sector is booming. The volume of logs needing to be exported through Eastland Port is forecast to nearly double to five million tonnes of wood in the future, and the port needs to increase its capacity to meet this demand. As the financial year came to a close, planning work was well underway to ensure the port remains fit for purpose. We believe that in order to cope with increasing log export volumes and other cargoes a second berth capable of taking a second 200m vessel is required. A second berth will enable simultaneous loading of two 200m long log vessels, or a combination of logging ship and container vessel . As well as being able to handle more wood, a second berth would future-proof the port for coastal shipping and new international trade and exports. Once consented, this would be a staged multi-million dollar construction project likely to take five years. Between the investment on port and at Gisborne Airport these developments will contribute to one of the most significant infrastructure spends undertaken within the region for many years.
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Our planned developments at Eastland Port and Gisborne Airport make up one of the most significant infrastructure investments in the region for many years.
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Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group
47
We make good things happen for our customers and our community
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Eastland Group Annual Report 2017
Annual Report 2017 Eastland Group
49
Our community
Eastland Group’s primary sponsorships include: Eastland Group Raceway
Part of being a Gisborne-based business – especially one owned by a community trust – is truly embracing and connecting with the place we call home. At Eastland Group we are active sponsors of community events, local clubs and business initiatives.
Eastland Group Raceway is home to Gisborne’s Speedway Club. Our ten year partnership with the club has seen it go from strength to strength. Highlights during the season included the New Zealand Streetstocks Grand Prix, the New Zealand Stockcar and Streetstock Teams Championships and the New Zealand Saloon Car Championships. These events attracted both visitors and locals and encouraged the kind of spending that boosts regional economic activity.
Eastland Group Speaker Series Another of our key sponsorships is our partnership with Gisborne’s Chamber of Commerce. In the past five years Eastland Group’s Speaker Series has brought many of the country’s biggest business names to Gisborne to deliver thought-provoking talks to sold-out audiences. Our aim is for the series to foster local conversations not only about how to make sure Gisborne businesses succeed, but also how to boost prosperity across the entire region. Our speakers in the past year included inventor and former New Zealander of the Year, Sir Ray Avery; Michaela Vodanovich, regional manager of The Icehouse; and Equal Opportunities Commissioner Dr Jackie Blue.
Enviroschools Eastland Port’s partnership with the Tairawhiti Action Fund makes $5,000 available each year for student-led action projects. We have been providing schools with bark from the port’s debarking plant for some time, but the Action Fund, now in its third year, allows individual schools to turn their visions into reality.
Engineering Tertiary Scholarships For some time now Eastland Group has awarded a $5,000 scholarship to an Eastland student undertaking tertiary study in the field of civil, mechanical or electrical engineering, subjects that complement Eastland Group’s operations. In 2016 we opened applications to students studying chemical engineering, a reflection of our growing business in
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Eastland Group Annual Report 2017
the geothermal energy space. Four scholarships were awarded in the 2017 financial year - $5,000 each to Kelsey Coronno, Brian Thomas and Connor Mitchell, and $2,500 to Sam Godwin.
Accounting Tertiary Study Scholarships Eastland Group also contributes annually to a scholarship fund administered by the Chartered Accountants Australia New Zealand (CAANZ). Each year CAANZ awards a scholarship to Gisborne tertiary accounting students. This year two young Gisborne accounting students Ashley Haddad and Bayley Taylor-Law were the recipients of scholarships from Eastland Group and CAANZ.
Flywheels Our Flywheels event at Gisborne Airport in February 2017 was a chance to encourage the people of Gisborne to have some fun riding along the runway, which was resealed in a night works operation the previous year. The turnout surpassed our expectations with over 2,000 locals turning up with their bikes, skateboards and scooters on a beautiful summer’s evening. Attendees enjoyed a special guest appearance by the Wa165 steam train and the sky high lolly scramble with ECT Rescue Helicopter.
Licence to Work Eastland Group signed on for the Licence to Work programme during the 2017 year. The programme helps students from all walks of life to learn employability skills such as attitude, work ethic and resilience, enabling them to be ready for work. The region’s economic development organisation, Activate Tairawhiti, worked hard to bring this initiative to the region, and we believe it will make a significant difference to youth and participating businesses. With our diverse network of roles across Eastland Group, we can offer the region’s young people real world experience, and a taste of different career paths they might want to take.
Eastland Wood Council Forestry Awards The annual Eastland Wood Council Awards celebrate the local forestry industry, recognising individuals and businesses who perform at the highest level. The aim of the awards is to motivate excellence and innovation across the sector.
Gisborne Regional Wine Awards An annual celebration of our local vineyards and winemakers, this event’s formal awards dinner is a well-established highlight of the region’s wine calendar.
Poverty Bay Kayak Club Eastland Port supports the Poverty Bay Kayak Club, a centre for local paddling enthusiasts. Since its beginnings in 1978, the club has been home to paddlers who have gone on to reign supreme on national and international stages.
IPENZ – Engineering careers In April 2016, Eastland Group teamed up with the local branch of the Institution of Professional Engineers NZ (IPENZ) for a combined stand at the Gisborne Herald Careers Expo. The expo was a chance for us to help young people and their families understand the options for a career in engineering.
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We make it happen for the future
Eastland Group Limited Financial Statements For the year ended 31 March 2017 The directors are pleased to present the consolidated financial statements of Eastland Group Limited for the year ended 31 March 2017. For and on behalf of the Board of Directors.
Nelson Cull
Tony Gray
DIRECTOR
DIRECTOR
Chairman
Chair of Audit and Finance Committee
24 May 2017
Annual Report 2017 Eastland Group
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1
Independent Auditor’s Report To the Shareholder of Eastland Group Limited
Opinion We have audited the financial statements of Eastland Group Limited and its subsidiaries (the ‘Group’), which comprise the consolidated statement of financial position as at 31 March 2017, and the consolidated statement of financial performance, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements, on pages F4 to F45, present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2017, and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards ('NZ IFRS’).
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Other than in our capacity as auditor and the provision of other assurance services relating to the audit of regulatory disclosure statements, we have no relationship with or interests in the Group. These services have not impaired our independence as auditor of the Group.
Other information The directors are responsible for the other information. The other information comprises the information in the Annual Report that accompanies the financial statements and the audit report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and consider whether it is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If so, we are required to report that fact. We have nothing to report in this regard.
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Directors’ responsibilities for the consolidated financial statements The directors are responsible on behalf of the Group for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible on behalf of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the External Reporting Board’s website at: https://www.xrb.govt.nz/Site/Auditing_Assurance_ Standards/Current_Standards/Page7.aspx This description forms part of our auditor’s report.
Restriction on use This report is made solely to the Group’s shareholder, as a body, in accordance with Section 207B of the Companies Act 1993. Our audit has been undertaken so that we might state to the Group’s shareholder those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group’s shareholder as a body, for our audit work, for this report, or for the opinions we have formed.
Wellington, New Zealand 24 May 2017
This audit report relates to the consolidated financial statements of Eastland Group Limited (the ‘Group’) for the year ended 31 March 2017 included on the Group’s website. The Directors are responsible for the maintenance and integrity of the Group’s website. We have not been engaged to report on the integrity of the Group’s website. We accept no responsibility for any changes that may have occurred to the consolidated financial statements since they were initially presented on the website. The audit report refers only to the consolidated financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these consolidated financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited consolidated financial statements and related audit report to confirm the information included in the audited consolidated financial statements presented on this website.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
3
F
Statement of Financial Performance FOR THE YEAR ENDED 31 MARCH 2017
Notes
Revenue Other income
2017 $’000
2016 $’000
73,832
71,632
2,371
2,242
Total income
6
76,203
73,874
Network expenses
5
(9,000)
(8,538)
Generation expenses
5
(2,124)
(2,428)
Port expenses
5
(3,388)
(3,180)
19
(10,367)
(9,101)
Personnel expenses Administrative expenses
7
Operating expenditure Earnings before interest, income tax, depreciation and amortisation (EBITDA) Depreciation and amortisation
7
Profit before interest and income tax (EBIT) Finance expenses
8
Share of profit of joint venture
15
Profit before income tax Income tax expense
9
Profit from continuing operations (Loss) from discontinued operations
Total profit
(9,679)
(8,422)
(34,558)
(31,669)
41,645
42,205
(15,069)
(14,845)
26,576
27,360
(7,792)
(8,361)
1,360
1,442
20,144
20,441
(5,307)
(5,214)
14,837
15,227
-
(45)
14,837
15,182
14,865
15,203
Attributable to: Equity holders of the parent Non-controlling interest
(28)
(21)
14,837
15,182
2017 $’000
2016 $’000
14,837
15,182
4,720
(9,780)
Statement of Comprehensive Income FOR THE YEAR ENDED 31 MARCH 2017
Total profit Other comprehensive income Cash flow hedges Revaluation of property, plant and equipment Tax on comprehensive income Other comprehensive income, net of income tax Total comprehensive income
(325)
17,328
(1,287)
(2,165)
3,108
5,383
17,945
20,565
17,973
20,586
(28)
(21)
17,945
20,565
Attributable to: Equity holders of the parent Non-controlling interest
4
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Statement of Financial Position AS AT 31 MARCH 2017
Notes
2017 $’000
2016 $’000
ASSETS Current assets Cash and cash equivalents
10
3,251
2,253
11
8,369
8,305
56
38
24
291
-
11,967
10,596
12
442,487
385,826
Investment properties
13
14,065
16,350
Intangible assets
16
6,285
6,341
Investment in joint venture
15
1,150
861
Investments
17
Trade and other receivables Inventory Derivative financial instruments Total current assets Non-current assets Property, plant and equipment
5,051
2,229
Total non-current assets
469,038
411,607
TOTAL ASSETS
481,005
422,203
7,115
7,067
934
1,120
LIABILITIES Current liabilities Payables and accruals
18
Income tax Employee entitlements
19
1,227
1,767
Derivatives financial instruments
24
3,179
3,219
12,455
13,173
Total current liabilities Non-current liabilities Loans and borrowings
23
166,000
114,000
Capital notes
21
30,000
30,000
Deferred tax
9
48,833
47,320
24
7,956
12,345
Derivative financial instruments Income in advance
413
465
Total non-current liabilities
253,202
204,130
TOTAL LIABILITIES
265,657
217,303
NET ASSETS
215,348
204,900
214,893
204,417
EQUITY Equity holders of the parent Non-controlling interest TOTAL EQUITY
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
455
483
215,348
204,900
Annual Report 2017 Eastland Group
5
F
Statement of Changes in Equity FOR THE YEAR ENDED 31 MARCH 2017 2017
Balance at beginning of period - 1 April 2016
Issued capital
Hedge reserve
Asset revaluation reserve
Retained earnings
Noncontrolling interest
Total equity
$’000
$’000
$’000
$’000
$’000
$’000
15,400
(11,103)
132,208
67,912
483
204,900
(28)
Comprehensive income - Net profit for the period
-
-
-
14,865
Net change in fair value of cash flow hedges
-
4,720
-
-
-
4,720
Disposals of property, plant and equipment
-
-
-
-
(325)
(325) 35
Income tax relating to components of comprehensive income
-
(1,322)
Total comprehensive income
-
3,398
De-recognition of reserves
-
-
-
319
-
319
Joint venture distributions
-
-
-
(1)
-
(1) (1,680)
(290)
14,865
-
14,837
(28)
(1,287) 17,945
Transactions with owners
Dividend - Subvention payment
-
-
-
(1,680)
-
Dividend
-
-
-
(6,135)
-
(6,135)
Total transactions with owners
-
-
-
(7,497)
-
(7,497)
131,918
75,280
455
215,348
Balance at end of period - 31 March 2017
15,400
(7,705)
2016
Balance at beginning of period - 1 April 2015
Issued capital
Hedge reserve
Asset revaluation reserve
$’000
$’000
$’000
$’000
$’000
$’000
15,400
(4,061)
119,783
58,210
434
189,766
-
15,203
(21)
15,182
-
-
Retained earnings
Noncontrolling interest
Total equity
Comprehensive income - Net profit for the period
-
Net change in fair value of cash flow hedges
-
-
-
Disposals of property, plant and equipment
-
-
(118)
-
-
(118)
Revaluation of property, plant and equipment
-
-
17,446
-
-
17,446
(9,780)
Income tax relating to components of comprehensive income
-
2,738
(4,903)
Total comprehensive income
-
(7,042)
12,425
15,203
(21)
(9,780)
(2,165) 20,565
Transactions with owners Movement in non-controlling interest
-
-
-
-
70
70
De-recognition of reserves
-
-
-
116
-
116
Joint venture distributions
-
-
-
(2)
-
(2)
Dividend
-
-
-
(5,615)
-
(5,615)
-
(5,501)
70
(5,431)
132,208
67,912
483
204,900
Total transactions with owners Balance at end of period - 31 March 2016
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Eastland Group Annual Report 2017
15,400
(11,103)
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Statement of Cash Flows FOR THE YEAR ENDED 31 MARCH 2017 2017 $’000
2016 $’000
75,604
74,095
22
13
75,626
74,108
(34,894)
(29,707)
Interest paid
(9,532)
(9,246)
Income tax paid
(5,268)
(6,534)
(49,694)
(45,487)
25,932
28,621
Cash flows from operating activities: Cash provided from: Receipts from customers Interest received Cash applied to: Payments to suppliers and employees
Net cash flows from operating activities Cash flows from investing activities: Cash provided from: Proceeds from sale of investment property Proceeds from sale of property, plant and equipment
669
-
1,868
97
2,537
97
Cash applied to: Purchase of intangibles Purchase of property, plant and equipment
-
(90)
(68,530)
(30,416)
Purchase of investments
(2,822)
(2,229)
Purchase of investment properties
(1,255)
(244)
(72,607)
(32,979)
(70,070)
(32,882)
Net cash flows used in investing activities Cash flows from financing activities: Cash provided from: Proceeds from bank borrowings Distributions from associates
52,000
9,000
951
1,164
52,951
10,164
(7,815)
(5,615)
(7,815)
(5,615)
45,136
4,549
998
288
-
739
998
1,027
Cash applied to: Equity dividends paid
Net cash flows from financing activities Net cash flows from continuing operations Net cash flows from discontinued operations Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period
2,253
1,226
Cash and cash equivalents at end of period
3,251
2,253
Annual Report 2017 Eastland Group
F
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
7
Statement of Cash Flows FOR THE YEAR ENDED 31 MARCH 2017 Reconciliation of the Profit for the Period with Net Cash from Operating Activities
Profit for the period
2017 $’000
2016 $’000
14,837
15,182
15,069
14,845
(498)
(143)
Adjustments for: Depreciation and amortisation Vested assets Impairment loss Loss on sale or disposal of property, plant and equipment Loss on sale or disposal of investment property Income from joint venture Change in fair value of investment property Net operating cash flow from discontinued operations Interest capitalised to fixed assets Deferred tax expense
19
258
620
293
495
-
(1,241)
(1,306)
(181)
(408)
(1,737)
(795) (688)
225
(669)
12,771
11,387
(Increase)/Decrease in trade and other receivables
(83)
685
(Increase)/Decrease in inventory
(18)
34
Movement in working capital:
Decrease in assets held for sale (Decrease)/Increase in employee entitlements (Decrease) in income tax payable (Decrease) in income in advance (Decrease) in payables and accruals
Net cash from operating activities
8
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Eastland Group Annual Report 2017
-
840
(540)
246
(186)
(652)
(52)
(50)
(797)
949
(1,676)
2,052
25,932
28,621
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements FOR THE YEAR ENDED 31 MARCH 2017
1
REPORTING ENTITY Eastland Group Limited is a company domiciled in New Zealand and registered under the Companies Act 1993. The address of Eastland Group Limited’s registered office is 37 Gladstone Road, Gisborne. Eastland Group Limited and its subsidiaries (“Eastland Group”) consolidated, is a reporting entity for the purposes of the Financial Reporting Act 2013 and its financial statements comply with the requirements of that Act. The financial statements of Eastland Group are for the year ended 31 March 2017 and were authorised for issue by the directors on 24 May 2017. Eastland Group is a profit-oriented entity whose primary operations include electricity distribution and generation, the operation of Gisborne’s port and airport and the ownership of strategically located investment property. Eastland Group is owned by the Eastland Community Trust.
2
BASIS OF PREPARATION a) Statement of compliance The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for Tier 1 for-profit entities. They also comply with International Financial Reporting Standards. b) Basis of measurement The financial statements have been prepared on the historical cost basis except for the following: •
derivative financial instruments are measured at fair value;
•
land and buildings, electrical distribution assets, electrical generation assets and logistics assets, are measured at revalued amounts;
•
certain other property, plant and equipment are measured at revalued amounts;
•
investment properties are measured at fair value; and
•
investments are measured at fair value.
c) Functional and presentation currency These financial statements are presented in New Zealand dollars ($), which is Eastland Group’s functional currency, and have been rounded to the nearest thousand unless otherwise stated. d) Use of estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Outcomes in the next financial period may be different to the assumptions made. It is impracticable to quantify the impact should assumptions be materially different to actual outcomes, which may result in material adjustments to the carrying amounts of investments, goodwill and property, plant and equipment and financial instruments reported in these financial statements. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below. Revenue recognition The timing of customer payments for services does not always coincide with the timing of delivery of these services. For example customers may pay for services a period of time after the services are delivered. Customers may also prepay for services. Judgment is therefore required in deciding when revenue is to be recognised. Where the relationship between the payments and multiple services delivered under the related contract is not immediately clear, management must apply judgment in unbundling elements of the contract and allocating payments to the respective services before applying the revenue recognition accounting policy. Sales of services are recognised at fair value of the consideration received or receivable as the services are delivered or to reflect the percentage completion of the related services where delivered over time. Third party contributions towards the construction of property, plant and equipment are recognised in the Statement of Financial Performance. Revenue is recognised when all obligations to perform are satisfied. Classification of investments Classifying investments as either subsidiaries, associates, joint ventures or financial assets valued at fair value through profit or loss, requires management to judge the degree of influence which the Group holds over the investee. Management look at many factors in making these judgments, such as examining the constitutional documents that govern decision making, governance around current and future representation amongst the Board of Directors, and also other less formal arrangements which can lead to having influence on the operating and financial policies. These judgments impact upon the basis of consolidation accounting which is used to recognise the Group’s investments in the consolidated financial statements. Further information regarding the basis of consolidation is included in the following section on significant accounting policies.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
F
9
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
2
BASIS OF PREPARATION (continued) Classification of expenditure in relation to property, plant and equipment On initial recognition of items of property, plant and equipment, judgments must be made about whether costs incurred relate to bringing the items to working condition for their intended use, and therefore are appropriate for capitalisation as part of the cost of the item, or whether they should be expensed as incurred. As required by NZ IAS 16, Property, Plant and Equipment, management must exercise their judgment to assess the amount of overhead costs which can be reasonably directly attributed to the construction or acquisition of items of property, plant and equipment. For example, employee costs arising directly from such activities are capitalised within the initial cost of property, plant and equipment. Thereafter, judgment is also required to assess whether subsequent expenditure increases the future economic benefits to be obtained from that asset and is therefore also appropriate for capitalisation or whether such expenditure should be treated as maintenance and expensed.
Valuation of goodwill and property, plant and equipment The carrying value of goodwill is assessed at least annually to ensure that it is not impaired. Performing this assessment requires management to estimate future cash flows to be generated by operating segments to which goodwill has been allocated. Estimating future cash flows entails making judgments including the expected rate of growth of revenues, margins expected to be achieved, the level of future maintenance expenditure required to support these outcomes and the appropriate discount rate to apply when discounting future cash flows. Note 16 of these financial statements provides more information surrounding the assumptions management have made in this area. Property, plant and equipment is revalued by management on a cyclical basis as described in the notes. Valuations are performed by registered valuers. Depreciation is recognised on a straight-line basis considering the estimated useful life of the asset and its residual value. Management must also consider whether any indicators of impairment have occurred which might require impairment testing of the current carrying values of property, plant and equipment. Assessing whether individual assets or a grouping of related assets (which generate cash flows co-dependently) are impaired may involve estimating the future cash flows that those assets are expected to generate. This will in turn involve assumptions, including rates of expected revenue growth or decline, expected future margins and the selection of an appropriate discount rate for discounting future cash flows.
Valuation of financial instruments Management have estimated the fair value of Eastland Group’s financial instruments based on valuation models that use observable market inputs. Note 24 of these financial statements provides a list of the key observable inputs that management have applied in reaching their estimates of the fair values of financial instruments and also provides a sensitivity analysis detailing the potential future impacts of reasonably possible changes in those observable inputs over the next financial period.
10
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements: a)
Basis of consolidation Subsidiaries Subsidiaries are entities controlled, directly or indirectly by Eastland Group. The financial statements of subsidiaries are included in the consolidated financial statements using the acquisition method of consolidation. Associates Associates are entities in which Eastland Group has significant influence but not control over the operating and financial policies. Investments in associates are accounted for using the equity method. Eastland Group’s share of the profit or loss of associates is recognised in the Statement of Financial Performance after adjusting for differences, if any, between the accounting policies of Eastland Group and the associates. Eastland Group’s share of any other gains and losses of associates charged directly to equity is recognised in the Statement of Financial Performance. Dividends received from associates are credited to the carrying amount of the investment in associates in the consolidated financial statements. Joint ventures Joint ventures are contractual arrangements with other parties which establish joint control for each of the parties over the related operations, assets or entity. Eastland Group is jointly and severally liable in respect of costs and liabilities, and shares in any resulting profit/(loss) or output. The Group accounts for these using the equity method. Acquisition or disposal during the period Where a business becomes or ceases to be a part of Eastland Group during the period, the results of the business are included in the consolidated results from the date that control or significant influence commenced or until the date that control or significant influence ceased. Where a business is acquired all identifiable assets, liabilities and contingent liabilities are recognised at their fair value at acquisition date. The fair value does not take into consideration any future intentions by Eastland Group. Goodwill arising on obtaining control of a subsidiary or an associate Where an acquisition results in obtaining control of a subsidiary or an associate for the first time, the carrying amount of any previous non-controlling interest held by Eastland Group is first re-measured to fair value and the difference between the carrying amount and the re-measured fair value is recognised in the Statement of Financial Performance. Goodwill is then calculated as the sum of the fair value of the consideration paid, the re-measured fair value of the noncontrolling interest previously held by the acquirer and the recognised amount of any remaining non-controlling interest in the acquiree held by third parties less the fair value of the total identifiable assets and liabilities of the acquiree at the date of the acquisition. If the fair value of the total identifiable assets and liabilities acquired exceeds the sum of the fair value of the consideration paid, the re-measured fair value of the non-controlling interest previously held by the acquirer and the recognised amount of any remaining non-controlling interest in the acquiree held by third parties, then a gain representing a bargain purchase is recognised in the Statement of Financial Performance. Goodwill arising on acquisition of an additional interest in an associate while retaining significant influence Where an acquisition results in Eastland Group obtaining an additional non-controlling interest in an associate while retaining significant influence, goodwill is calculated as the difference between the fair value of the consideration paid and the amount of Eastland Group’s acquired incremental share of the fair values of the total identifiable assets and liabilities of the acquiree at the date of the acquisition. If Eastland Group’s acquired incremental share of the fair values of the acquiree’s total identifiable assets and liabilities exceeds the fair value of the consideration paid, the excess is included in the share of net profit from associates in the Statement of Financial Performance. Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded as equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Subsequent measurement of goodwill Subsequent to initial recognition goodwill is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment. Transactions eliminated on consolidation Intra-group advances to and from subsidiaries are recognised at amortised cost within current assets and current liabilities in the separate financial statements of the parent. Subsidiaries’ advances from and to the parent are repayable on demand. Any interest income and interest expense incurred on these advances is eliminated in the Statement of Financial Performance on consolidation. All intra-group advances are eliminated on consolidation.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b)
Financial instruments i.
Non-derivative financial instruments Financial assets Financial assets consist of cash and cash equivalents, loans, receivables and investments. Cash and cash equivalents, loans and receivables Trade receivables, loans, cash and cash equivalents and other receivables are initially recorded at fair value and subsequently measured at amortised cost less impairment. Fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the inception of the loan or receivable. Discounting is not undertaken when the receivable is expected to be collected within twelve months. A provision for doubtful debts is recognised to allow for the reduction in fair value attributable to expected doubtful or delayed collection of receivables. Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, Eastland Group has a legal right to offset the amounts and intend to either settle on a net basis or realise the asset and settle the liability simultaneously. Cash and cash equivalents comprise cash on hand, cash in banks and short term deposits maturing within three months. Bank overdrafts that are repayable on demand and form an integral part of Eastland Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows. Investments Investments are valued at fair value through profit and loss. Financial liabilities Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in finance costs in the Statement of Financial Performance over the period of the borrowing using the effective interest rate method. Other financial liabilities comprise trade and other payables. Discounting is not undertaken when the payable is expected to be paid within twelve months. Eastland Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, Eastland Group has a legal right to offset the amounts and intend to either settle on a net basis or realise the asset and settle the liability simultaneously.
ii.
Derivative financial instruments Eastland Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including interest rate and foreign exchange forwards, swaps and options. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance date. The resulting gain or loss is recognised in the Statement of Financial Performance immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Statement of Financial Performance depends on the nature of the designated hedge relationship. Eastland Group designates certain derivatives as either hedges of the fair value of recognised assets, liabilities or firm commitments (fair value hedges), or hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction Eastland Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Eastland Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Statement of Financial Performance immediately, together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. The gain or loss relating to both the effective and the ineffective portion of interest rate swaps hedging fixed rate borrowings is recognised in the Statement of Financial Performance within finance costs. Changes in the fair value of the underlying hedged fixed rate borrowings attributable to interest rate risk are also recognised in the Statement of Financial Performance within finance costs. Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the Statement of Financial Performance from that date.
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion, if any, is recognised immediately in the Statement of Financial Performance within finance costs. Amounts accumulated in equity are recognised as finance costs in the Statement of Financial Performance in the periods when the hedged item is recognised in the Statement of Financial Performance. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the Statement of Financial Performance within finance costs, when the underlying transaction affects earnings. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a nonfinancial liability, the gains and losses previously recognised in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Thereafter, any cumulative gain or loss previously recognised in equity is only recognised in the Statement of Financial Performance when the forecast transaction is ultimately recognised in the Statement of Financial Performance. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was previously recognised in equity is recognised immediately in the Statement of Financial Performance. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Financial Performance within finance costs. Non-derivative financial instruments comprise of trade and other receivables, cash and cash equivalents, related party borrowings, capital notes, and payables and accruals. iii.
Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. If there is no contractual obligation to deliver cash or another financial asset, then the instrument is classified as equity. All other instruments are classified as liabilities. Compound financial instruments Capital notes issued by Eastland Group can be converted to share capital or redeemed for cash at the option of Eastland Group. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest and dividends Interest paid and dividends paid are classified as expenses or as distributions of profit consistent with the Statement of Financial Position classification of the related debt or equity instruments.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c)
Property, plant and equipment i.
Recognition and measurement Property, plant and equipment are tangible assets expected to be used during more than one financial period and include spares held for the servicing of property, plant and equipment. The initial cost of purchased property, plant and equipment is the value of the consideration given to acquire the property, plant and equipment and the value of other directly attributable costs, which have been incurred in bringing the property, plant and equipment to the location and condition necessary for the intended service. The initial cost of self-constructed property, plant and equipment includes the cost of all materials used in construction, direct labour on the project, financing costs that are attributable to the project, costs of ultimately dismantling and removing the items and restoring the site on which they are located (where an obligation exists to do so) and an appropriate proportion of the other directly attributable overheads incurred in bringing the items to working condition for their intended use. Costs cease to be capitalised as soon as the property, plant and equipment is ready for productive use and do not include any costs of abnormal waste. Where an asset takes a substantial period of time to get ready for its intended use, and it is a qualifying asset, such as a power generation facility, borrowing costs are to be capitalised to the asset using the effective interest method for the directly attributable costs. Subsequent expenditure relating to an item of property, plant and equipment is added to its gross carrying amount when such expenditure can be measured reliably and either increases the future economic benefits beyond its existing service potential, or is necessarily incurred to enable future economic benefits to be obtained, and that expenditure would have been included in the initial cost of the item had the expenditure been incurred at that time. The costs of day-to-day servicing of property, plant and equipment are recognised in the Statement of Financial Performance as incurred. Land and buildings, electricity distribution, electricity generation equipment and walls, wharves and surfaces are subsequently stated at revalued amounts, less any subsequent accumulated depreciation and impairment losses. Land and buildings, electricity distribution and electricity generation equipment are revalued with sufficient regularity to ensure that the carrying amount of these items does not significantly differ from that which would be determined using fair value at the date of the financial statements. Land and building revaluations are carried out on a cyclical basis that does not exceed three years, by independent valuers. For electricity distribution and electricity generation equipment assets and wharves, walls and surfaces, revaluations are carried out on a cyclical basis not exceeding five years, by independent valuers. The basis of valuation is discussed in note 12. Any movement on revaluation is reflected through equity reserves for that class of asset unless there is insufficient reserve in which case that would flow through to the Statement of Financial Performance. All other plant and equipment are valued at historical cost. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised in ‘other income’ or ‘other administrative expenses’, depending on whether a gain or a loss respectively. When revalued assets are sold, the amounts included in the equity reserve are transferred to retained earnings and recognised through other comprehensive income.
ii.
Depreciation Depreciation is recognised in the Statement of Financial Performance on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives for significant classes of assets for the current and comparative periods are as follows: Buildings Electricity distribution equipment Electricity generation equipment Plant and equipment Motor vehicles Wharves, walls and surfaces Floating plant
40-50 years 10-70 years 15-50 years 3-20 years 5-10 years 3-100 years 2-25 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
d)
Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value with any change recognised in the Statement of Financial Performance within administrative expenses and disclosed separately in the financial statements. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. Property that is being constructed for future use as investment property is accounted for as property, plant and equipment until construction or development is complete, at which time it is revalued to a fair value and reclassified as investment property. Any gain or loss arising on revaluation is recognised in the Statement of Financial Performance within administrative expenses. When the use of a property changes from owner-occupied to investment property, the property is revalued to fair value and reclassified as investment property. Any gain arising on revaluation is recognised directly in equity. Any loss is recognised immediately in the Statement of Financial Performance.
e)
Exploration and evaluation expenditure Exploration and evaluation expenditure in relation to geothermal sites is accounted for in accordance with the area of interest method. The cost of drilling wells on an established geothermal field are capitalised on the basis that it is expected the expenditure will be recovered through future energy sales, or alternatively, by sale of the assets. Depreciation commences once the wells are put into productive use. All exploration and evaluation costs, including directly attributable overheads, general permit activity, resource consents, geological testing, geophysical testing and drilling are initially capitalised as work in progress, pending the determination of the success of the area. Costs are expensed where the area of interest does not result in a successful discovery. Exploration and evaluation expenditure is partially or fully capitalised where either: •
the expenditure is expected to be recovered through the successful development and exploration of the area of interest (or alternatively by its sale); or
•
the exploration and evaluation activities in the area of interest have not, at the end of each reporting period, reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.
Capitalised costs are reviewed at the end of each reporting period to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support the continued carry forward of the capitalised costs. Exploration and evaluation expenditure is impaired in the Statement of Financial Performance under the successful efforts method of accounting in the period that exploration work demonstrates that an area of interest is no longer prospective for economically recoverable reserves or when the decision to abandon an area of interest is made. Land access rights for exploration activities are amortised over the life of the right.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f)
Impairment i.
Financial assets The carrying amount of financial assets are reviewed at balance date to determine whether there is any evidence of impairment. Where assets are deemed to be impaired, the impairment loss is the amount that the carrying amount exceeds its recoverable amount. Impairment losses reduce the carrying amount of assets and are recognised as an expense in the Statement of Financial Performance within administrative expenses. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted using the effective interest method. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. For trade receivables which are not significant on an individual basis, collective impairment is assessed on a portfolio basis based on numbers of days overdue, and taking into account the historical loss experience in portfolios with a similar amount of days overdue. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the Statement of Financial Performance within administrative expenses.
ii.
Non-financial assets An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in the Statement of Financial Performance within administrative expenses. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro-rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Impairment losses are not reversed on goodwill.
g)
Provisions A provision is recognised if, as a result of a past event, Eastland Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
h)
Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to Eastland Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. i.
Regulated electricity distribution and electricity generation sales Revenue from electricity distributed and sold is recognised in the Statement of Financial Performance when the electricity has been distributed or sold to the customers. The revenue is net of returns, trade discounts and volume rebates.
ii.
Logistics revenue Revenue from the sales of logistics services is recognised in the Statement of Financial Performance in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
iii.
Rental income Rental income from investment property is recognised in the Statement of Financial Performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income arising from line rentals is recognised as income in the periods in which it is earned, based on usage rates of the relevant customer.
iv.
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Customer contributions Revenue from customer contributions is recognised in the Statement of Financial Performance as revenue when all obligations to the customer are satisfied.
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
i)
Finance income and expenses Finance income comprises of interest income on funds invested, changes in the fair value of financial assets at fair value through the Statement of Financial Performance and gains on hedging instruments that are recognised in the Statement of Financial Performance. Interest income is recognised as it accrues, using the effective interest method. Foreign exchange gains and losses are further detailed in the foreign currency transactions policy below. Finance expenses comprises of interest expense on borrowings, changes in the fair value of financial assets at fair value through the Statement of Financial Performance and impairment losses recognised on financial assets (except for trade receivables), and losses on hedging investments that are recognised in the Statement of Financial Performance. All borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for use. All other borrowing costs are recognised in the profit or loss section of the Statement of Financial Performance in the period which they are incurred.
j)
Income tax expense Income tax expense is made up of current and deferred tax. Income tax expense is recognised in the Statement of Financial Performance except to the extent that it relates to items recognised directly in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, which provides for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: •
The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit.
•
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
k)
Intangible assets i. Goodwill Goodwill represents the excess of the cost of the acquisition over Eastland Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the purchase. When the excess is negative (negative goodwill), it is recognised immediately in the Statement of Financial Performance. Impairment losses are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The useful lives of goodwill are assessed as indefinite and tested for impairment each year. ii.
Other intangibles Other intangibles are amortised over the defined finite life of the intangible asset.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) l)
Employee benefits i. Short-term benefits Short-term benefits, payable within 12 months, are measured on an undiscounted basis and are expensed as the related service is provided. This includes wages, salaries, retirement benefits, annual leave and sick leave. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if Eastland Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. ii.
m)
Termination benefits Termination benefits are recognised as an expense when Eastland Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if Eastland Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Eastland Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in foreign currency at the beginning of the period, adjusted for effective interest and payments during the period. The amortised cost in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the Statement of Financial Performance.
n)
Leases Finance leases Property, plant and equipment under finance leases, where the Group as lessee assumes substantially all the risks and rewards of ownership, are recognised as non-current assets in the Statement of Financial Position. Leased property, plant and equipment are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment apportioned between the reduction of the outstanding liability and the finance expense. The finance expense is charged to the Statement of Financial Performance in each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Leased property, plant and equipment are depreciated over the shorter of the lease term and the useful life of equivalent owned property, plant and equipment. Operating leases i. as lessee Payments made under operating leases, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased property, plant and equipment are recognised in the Statement of Financial Performance on a straight-line basis over the lease term. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease. Property, plant and equipment used by Eastland Group under operating leases are not recognised in Eastland Group’s Statement of Financial Position. ii.
as lessor Assets leased under operating leases are included in investment property in the Statement of Financial Position. Rental income (net of any incentives given to lessees) is recognised on a straight line basis over the lease term. For more details see the investment property policy.
Leasehold improvements The cost of improvements to leasehold property are capitalised and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.
o)
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Goods and Services Tax (GST) The Statement of Financial Performance has been prepared so that all components are stated exclusive of GST. All items in the Statement of Financial Position are stated net of GST, with the exception of receivables and payables, which include GST.
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
4
p)
Joint ventures Joint ventures are accounted for through inclusion of Eastland Group’s share of the joint venture’s operations in the financial statements, using the equity method of consolidation. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in the Statement of Financial Performance. Where the Group’s share of losses in a joint venture equals or exceeds its interests in the joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint venture), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint venture are consistent with the policies adopted by the Group.
q)
Statement of Cash Flows For the purpose of the Statement of Cash Flows, cash and cash equivalents include cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. The following terms are used in the Statement of Cash Flows; •
Operating activities are the principal revenue producing activities of Eastland Group and other activities that are not investing or financing activities;
•
Investing activities are the acquisition and disposal of long term assets and other investments not including cash equivalents; and
•
Financing activities that result in change in the size and composition of the contributed equity and borrowings of the entity.
r)
Non-current assets held for sale Individual non-current non-financial assets (and disposal groups) are classified as held for sale if they are available for immediate sale in their present condition subject only to the customary sales terms of such assets (and disposal groups) and their sale is considered highly probable. For a sale to be highly probable, management must be committed to a sales plan and actively looking for a buyer. Furthermore, the assets (and disposal groups) must be actively marketed at a reasonable sales price in relation to their current fair value and the sale should be expected to be completed within one year. Non-current non-financial assets (and disposal groups) which meet the criteria for held for sale classification are measured at the lower of their carrying amount and fair value less costs to sell and are presented within assets held for sale in the Statement of Financial Position. The comparatives are not re-presented when non-current assets (and disposal groups) are classified as held for sale. If the disposal group contains financial instruments, no adjustment to their carrying amounts is permitted.
s)
Reclassification On 31 March 2015 the geothermal plant, owned by Geothermal Developments Limited, was revalued to fair value, for the first time since it was acquired in January 2010, therefore aligning with the valuation policy for existing infrastructure assets. All asset components including goodwill have been incorporated into the plant’s value.
t)
Implementation of new reporting standards No new reporting standards were adopted in the current reporting period.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED A number of new standards and amendments to standards and interpretations have come into effect during the period ending 31 March 2017. While these may impact some disclosures, none of these are expected to have a material effect on the consolidated financial statements of the Group. IFRS 16 Leases, was issued in January 2016, and will replace all existing guidance on leases, included IAS 17 Leases. The standard introduces a single, on-balance sheet accounting model for lessees that is similar to current finance lease accounting. The effective date is annual periods beginning on or after 1 January 2019. Eastland has not yet fully evaluated the impact this standard will have on the financial statements of future accounting periods.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
5
SEGMENT REPORTING The Group’s internal reporting to the Group Chief Executive ("GCE") and Board is focused on the following businesses which are the Group’s operating segments reported in accordance with NZ IFRS 8 Operating Segments. Revenue and expenses are reported before intersegment eliminations, which differs from external financial reporting. These operating segments consist of: •
Eastland Network – Ownership and management of electricity line distribution and contracting business, Eastech.
•
Eastland Generation – Ownership and management of electricity generation; including Waihi hydrogeneration and geothermal generation at Kawerau.
•
Eastland Port – Ownership and/or management of port, airport, cool store and debarker operations.
•
All Other Segments – Corporate activities, business development and investment property.
All other revenues and costs (including corporate costs) are included in All Other Segments. Intersegment transactions included in the operating revenues and expenditures for each segment are on an arm’s length basis. All segment information presented is prepared in accordance with Eastland Group’s accounting policies. Monthly internal reporting to the GCE and Board is also prepared on this basis. Segment profit reported to the GCE and Board is profit before interest and income tax. All financing costs and finance income are incorporated within Corporate activities and are not allocated to the segments. 2017 Network
Generation
Port
All other segments
Intersegment
Total
$’000
$’000
$’000
$’000
$’000
$’000
36,300
4,977
31,192
1,363
-
73,832
-
2,371
Statement of Financial Performance External revenue: Operating revenue Other income
(28)
1,519
102
778
2,262
2,093
65
13,644
(18,064)
-
38,534
8,589
31,359
15,785
(18,064)
76,203
Operating expenditure
(9,000)
(2,124)
(3,388)
Personnel expenditure
(3,142)
(507)
(3,825)
(749)
(1,785)
(2,582)
(6,427)
(636)
(2,257)
(714)
10,034
(8,170)
10,034
(34,558)
Intersegment revenue Segment revenue External operating expenditure:
Administrative expenditure Intersegment expenditure Operating expenditure
-
-
(14,512)
(2,893)
-
(10,367)
(4,563)
-
(9,679) -
(19,318)
(5,052)
(12,052)
Earnings before interest, income tax, depreciation and amortisation (EBITDA)
19,216
3,537
19,307
7,615
(8,030)
41,645
Depreciation and amortisation
(6,102)
(2,792)
(5,721)
(454)
-
(15,069)
Segment profit before interest and income tax (EBIT)
13,114
745
13,586
7,161
(8,030)
26,576
Share of profit from joint venture
-
-
1,241
-
119
1,360
Loss from discontinued operations
-
-
-
-
-
-
(7,815)
7,815
Dividend paid
(3,560)
(1,000)
(3,255)
(7,815)
Statement of Financial Position Assets
153,287
122,684
174,129
30,905
-
Liabilities
25,201
13,573
23,763
203,120
-
265,657
Borrowings
43,530
95,089
13,134
14,247
-
166,000
8,385
55,720
6,347
1,747
-
72,199
Segment capital expenditure
20
F
Eastland Group Annual Report 2017
481,005
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
5
SEGMENT REPORTING (continued) 2016 Network
Generation
Port
All other segments
Intersegment
Total
$’000
$’000
$’000
$’000
$’000
$’000
34,230
6,135
29,879
1,388
-
71,632
-
2,242
Statement of Financial Performance External revenue: Operating revenue Other income
83
1,200
494
465
2,159
2,172
70
11,537
(15,938)
-
36,472
9,507
30,443
13,390
(15,938)
73,874
Operating expenditure
(8,538)
(2,428)
Personnel expenditure
(2,933)
(340)
(3,016)
(2,812)
-
(9,101)
(760)
(1,516)
(2,547)
(3,599)
-
(8,422)
(6,635)
(631)
(2,201)
(698)
10,165
Intersegment revenue Segment revenue External operating expenditure:
Administrative expenditure Intersegment expenditure Operating expenditure
(3,180)
-
-
(14,146)
-
(18,866)
(4,915)
(10,944)
(7,109)
10,165
(31,669)
Earnings before interest, income tax, depreciation and amortisation (EBITDA)
17,606
4,592
19,499
6,281
(5,773)
42,205
Depreciation and amortisation
(5,902)
(2,671)
(5,738)
(534)
Segment profit before interest and income tax (EBIT)
11,704
1,921
13,761
Share of profit from joint venture
-
-
1,306
Loss from discontinued operations
-
-
-
Dividend paid
(2,300)
(1,000)
(2,315)
5,747 -
(5,773)
(14,845) 27,360
136
1,442
(45)
-
(45)
(5,615)
5,615
(5,615)
Statement of Financial Position Assets
144,120
68,771
174,765
34,547
-
422,203
Liabilities
24,493
12,779
23,727
156,304
-
217,303
Borrowings
38,523
38,926
21,269
15,281
-
114,000
6,740
6,573
18,419
796
-
32,528
Segment capital expenditure
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
F
21
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
6
TOTAL INCOME 2017 $’000
2016 $’000
Electricity distribution revenue
34,503
32,826
Logistics revenue
30,040
27,632
Energy sales
4,297
5,906
Property rentals
2,576
3,538
69
81
Revenue
Management fees received from related parties Customer contributions
454
143
Other revenue
1,893
1,506
Total revenue
73,832
71,632
Other Income Other income Insurance proceeds Impairment losses recovered Increase in fair value of investment property Total other income Total income
22
F
Eastland Group Annual Report 2017
60
1,452
2,126
375
4
7
181
408
2,371
2,242
76,203
73,874
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
7
ADMINISTRATIVE AND OTHER EXPENSES
Administrative expenses Impairment losses and bad debt write-offs on trade receivables Direct operating expenditure arising on investment properties that generated rental income
2017 $’000
2016 $’000
7,889
7,136
19
28
362
433
243
243
51
55
Auditor’s remuneration to Deloitte comprises: audit of financial statements audit of commerce commission reporting other services
-
4
8,564
7,899
-
230
Loss on sale or disposal of property, plant and equipment
620
293
Loss on sale or disposal of investment property
495
-
1,115
523
9,679
8,422
Notes
2017 $’000
2016 $’000
Depreciation of property, plant and equipment
12
15,013
14,790
Amortisation
16
56
55
15,069
14,845
Other expenses Loss on revaluation of property, plant and equipment
Total administrative and other expenses Donations of $400 were made during the financial year (2016: $285).
Depreciation and amortisation
Total depreciation and amortisation
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
23
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
8
FINANCE INCOME AND EXPENSES 2017 $’000 Interest income on cash and cash equivalents
22
13
Total finance income
22
13
7,814
8,331
Interest expense Net foreign exchange losses
9
2016 $’000
-
43
Total finance expense
7,814
8,374
Net finance expense
7,792
8,361
2017 $’000
2016 $’000
5,324
5,882
(242)
1
5,082
5,883
Temporary differences for the year
30
(462)
Adjustment for prior periods
195
(207)
INCOME TAX
Income tax expense Current tax expense Current period Adjustment for prior periods Total current tax expense Deferred tax expense
Total deferred tax (income) Total income tax expense
225
(669)
5,307
5,214
A reconciliation of income tax expense to the statutory income tax rate, is as follows: 2017 $’000 Accounting profit before income tax
20,144
At the statutory income tax rate of 28%
(5,640)
Adjustments in respect of current income tax of previous years Subvention payment Non-deductible expenses Tax exempt income
24
Eastland Group Annual Report 2017
2016 $’000
%
20,441 (28.0%)
(5,724)
(28.0%)
47
0.2%
206
1.0%
471
2.3%
-
-
(185)
(0.9%)
(5,307)
F
%
(26.3%)
(32) 336 (5,214)
(0.1%) 1.6% (24.1%)
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
DEFERRED TAX ASSETS AND LIABILITIES 2017
Balance at beginning of the period
Property plant and equipment
Provisions and accruals
Investment property
Hedge reserve
Other
Total
$’000
$’000
$’000
$’000
$’000
$’000
(51,907)
344
78
4,240
(72)
(14)
55
2
-
(29)
-
-
-
(197)
(75)
(47,320)
Amounts recognised in the statement of comprehensive income: relating to the current period prior period adjustments recognised in the current period Amounts recognised directly in other comprehensive income Net deferred tax liabilities
(238) 34
41 -
-
(1,321)
(52,183)
371
133
2,921
-
Property plant and equipment
Provisions and accruals
Investment property
Hedge reserve
Other
Total
$’000
$’000
$’000
$’000
$’000
$’000
325
190
1,502
540
34
(112)
221
(15)
(75)
(1,287) (48,833)
2016
Balance at beginning of the period
(47,765)
(75)
(45,823)
Amounts recognised in the statement of comprehensive income: relating to the current period prior period adjustments recognised in the current period Amounts recognised directly in other comprehensive income Net deferred tax liabilities
-
-
-
462
-
-
206
(4,903)
-
-
2,738
(51,907)
344
78
4,240
(75)
(2,165) (47,320)
Group deferred tax net liability The $48.8 million (2016: $47.3 million) net deferred tax liability includes $52.2 million (2016: $52.0 million) that relates to accounting depreciation on property, plant and equipment that has been revalued, with the remaining relating to differences between accounting and tax depreciation rates. As the network and port assets are held for the long term, this liability is unlikely to be realised.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
25
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
10
CASH AND CASH EQUIVALENTS 2017 $’000
Current accounts Call deposits Total cash and cash equivalents
2016 $’000
3,185
160
66
2,093
3,251
2,253
Bank balances earn interest at floating rates based on daily bank deposit rates. Refer to Note 23 for further discussion on Eastland Group’s funding facilities. Eastland Group is party to funding and banking facilities which are made available to related companies. Related companies cash receipts and payments are made through the bank accounts of Eastland Group Limited, which provides treasury services to Eastland Group. The effective interest rate on call deposits is NZD denominated 2.01% (2016: 2.25%). A guarantee of $800,000 is in place for potential claims of subsidence relating to the site used for our geothermal plant at Kawerau. The likelihood of such a claim is viewed as remote.
11
TRADE AND OTHER RECEIVABLES
Trade receivables GST receivable
2017 $’000
2016 $’000
7,186
7,317
94
-
Other receivables
1,089
988
Total trade and other receivables
8,369
8,305
Trade receivables are stated net of impairment loss allowances of $45,463 (2016:$19,979). Trade receivables that are less than three months past due are not considered impaired, unless there is evidence to the contrary. For an aging analysis of trade receivables see Note 24. No impairment losses have been recognised on related party receivables.
26
F
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
12
PROPERTY, PLANT AND EQUIPMENT 2017 Land and Electricity buildings distribution
As at 1 April 2016, Cost or fair value
Electricity generation equipment
Wharves, walls and surfaces
Floating plant
Other plant and equipment
Work in progress
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
56,950
148,839
57,372
106,002
17,434
19,317
13,765
419,679
960
7,476
10,284
2,230
924
2,701
46,369
70,944
(5)
-
(130)
(482)
-
(2,364)
-
2,545
Additions Disposals
(1,358)
(389)
Transfers
2,560
23
7
459
-
(504)
As at 31 March 2017, Cost or fair value
59,112
155,949
67,658
108,691
18,228
21,032
Accumulated depreciation as at 1 April 2016
60,134 490,804
1,721
15,528
4,423
1,054
3,223
7,904
-
33,853
Depreciation charge for the year
992
5,408
2,724
3,124
1,036
1,729
-
15,013
(87)
(359)
-
(536)
Disposals
(4)
(85)
(1)
-
Transfers
(3)
23
6
19
-
(58)
-
(13)
2,706
20,874
7,152
4,197
4,172
9,216
-
48,317
56,406
135,075
60,506
104,494
14,056
11,816
60,134
442,487
Land and Electricity buildings distribution
Electricity generation equipment
Wharves, walls and surfaces
Floating plant
Other plant and equipment
Work in progress
Total
As at 31 March 2017, accumulated depreciation As at 31 March 2017, net of accumulated depreciation
2016
As at 1 April 2015, Cost or fair value
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
54,557
142,856
56,861
89,929
17,431
17,789
8,578
388,001
2,866
6,338
511
14,935
3
2,444
5,187
32,284
(18)
(355)
Additions Disposals
-
(272)
-
(408)
-
(455)
-
-
1,410
-
(508)
-
447
56,950
148,839
57,372
106,002
17,434
19,317
13,765
419,679
1,029
10,186
1,807
13,787
2,175
7,240
-
36,224
Depreciation charge for the year
837
5,386
2,616
3,284
1,048
1,619
-
14,790
Disposals
(10)
(44)
-
-
-
(335)
-
(389)
-
(620)
-
(16,772)
Revaluation/reclassification As at 31 March 2016, Cost or fair value Accumulated depreciation as at 1 April 2015
Revaluation/reclassification
(135)
-
-
As at 31 March 2016, accumulated depreciation
1,721
15,528
4,423
1,054
3,223
7,904
-
33,853
55,229
133,311
52,949
104,948
14,211
11,413
13,765
385,826
As at 31 March 2016, net of accumulated depreciation
(16,017)
(1,053)
There are no restrictions on title, and property, plant and equipment pledged as security for liabilities. There is no restriction on the distribution of this balance to our shareholder. There has been no impairment of property, plant and equipment during the current year. Under NZIFRS-13, property, plant and equipment that has been revalued is categorised as level 3 in the fair value hierarchy. There have been no transfers between levels. In the year to 31 March 2017 $1,736,837 (2016: $687,710) of interest has been capitalised.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
F
27
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
12
PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Network operational land and buildings were valued on 31 March 2016 (total fair value of $4.3 million) by an independent valuer; AON New Zealand Limited. The method of valuation was the market approach. The methods used were direct comparison, income based, capitalisation and the capitalisation rate or yield. Port land and buildings were revalued on 31 March 2015 (total fair value of $38.7 million) by an independent valuer; Crighton Anderson. The method of valuation was market-based value for non-specialised assets. The approaches used were direct comparison, income based, capitalisation and the capitalisation rate or yield. Electricity distribution Electricity distribution assets and related land and buildings were last revalued on 1 April 2013 (fair value $127.5 million) by PricewaterhouseCoopers ("PwC") using the discounted cash flow method. The key assumptions of the valuation for the discounted cash flows over the period FY14-FY25 were: •
CPI ranging from 1.62% - 2.03%
•
Revenue growth of 0.50%
•
Default Price Quality Path WACC assumptions 7.12% - 8.77%
•
Closing 2025 Regulatory Asset Base used as the terminal value and discounted back to valuation date
•
Net working capital $1.1 million
Electricity generation equipment Electricity generation equipment were revalued at 31 March 2015 (total fair value of $2.2 million) by an independent valuer; Jacobs New Zealand Limited. The valuation method used was a discounted cash flow basis, using the following assumptions: •
A nominal post tax discount rate of 8.59%
•
Forecast operating costs were based on current operating costs adjusted for inflation of 2%
•
A corporate tax rate of 28%
•
Revenue forecasts were based on the terms of the Contact Energy agreement together with assumptions on electricity spot price at time of generation
The Waihi Hydroelectric Scheme was revalued as at 31 March 2017 (total fair value of $15.4 million) by an independent valuer; Jacobs. The valuation used was a discounted cash flow basis, using the following assumptions: •
Outputs were based on an average plant availability of 25.5% of capacity resulting in an average production of 11.19 GWh.
•
Wholesale electricity prices were based on the Gisborne reference nodal price path estimates prepared by an independent consultant; Energylink April 2016
•
Forecast operating costs were based on current operating costs adjusted for inflation of 2%
•
A major half-life overhaul of the generator and turbine equipment was assumed in the forecast of capital expenditure
•
A corporate tax rate of 28%
•
A nominal post tax discount rate of 8.47% which was reflective of the expectation an investor would expect to receive on private generation projects
The geothermal plant, owned by Geothermal Developments Limited, was revalued at $38.6 million as at 31 March 2015 by an independent valuer, Jacobs New Zealand Limited. The valuation used was a discounted cash flow basis using the following assumptions: •
Net generation capacity of 8.37 MW
•
Wholesale electricity prices were based on the existing Power Purchase Agreement that was in place and the Kawerau reference nodal price estimates prepared by management taking into consideration independent price path forecasts and prices obtained for long term power purchase agreements
•
Operating costs were derived from historical data adjusted for inflation of 2%
•
Capital expenditure was derived from the plant’s asset management plan, with a new production well expected to be drilled in 2020, control and instrument replacement and refurbishment in 2024, 2029 and 2034
•
A corporate tax rate of 28%
•
A nominal post tax discount rate of 8.59% which is reflective of the return an investor in this asset would expect to receive on private generation projects
All components from the acquisition of the plant, including goodwill, have now been incorporated into the plant value.
28
F
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Wharves, walls and surfaces The port wharves, walls and surfaces and some other plant and equipment were revalued on 31 March 2016 (total fair value $105.9 million) by independent valuers, Opus International Consultants Ltd. The method of valuation was depreciated replacement cost which was supported by a discounted cash flow valuation prepared, using the following assumptions: •
Revenues were based on management’s best estimate of cargo volumes (predominantly logs) over the years to 2030 with these estimates supported in the case of log exports by external reports and customer forecasts of likely log volumes
•
Port charges for all log cargos increase from 1 April 2017 following a customer consultation period
•
Operating costs were based on current operating cost to volume ratios plus inflation of 2% per annum
•
Capital expenditures include both maintenance and growth capital expenditure to support the estimated volumes
•
A corporate tax rate of 28%
•
The post-tax discount rate of 8.5% was the weighted average cost of capital (WACC)
•
The terminal value was based on free cash flow at 2030 with the valuation tested at terminal value growth rates of 1.5 - 3.5%
The carrying values of revalued items of property, plant and equipment that would have been recognised had the assets been recognised on the historic cost model is as follows:
2017 $’000
2016 $’000
Land and buildings
22,471
23,503
Electricity distribution
83,838
79,794
Wharves, walls and surfaces
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
46,010
45,372
152,319
148,669
Annual Report 2016 Eastland Group
29
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
13
INVESTMENT PROPERTIES
Opening balance at 1 April
2017 $’000
2016 $’000
16,350
15,698
Additions
1,255
244
Disposals
(1,164)
-
Transfers out to operational property
(2,557)
-
181
408
14,065
16,350
Fair value adjustment Closing balance at 31 March
Investment properties include parcels of land and buildings strategically located at Eastland Port, Inner Harbour, Gisborne Airport and various other locations in Gisborne. They are measured at fair value, based on an annual valuation by an independent valuer; Aon New Zealand. The fair value is based on a discounted cashflow model using expected market rentals for the highest and best use of the property. An analysis of current property sales is also assessed in determining the value. The investment property that has been revalued is categorised as level 3 in the fair value hierarchy. There have been no transfers between levels.
14
INVESTMENT IN SUBSIDIARIES Subsidiary
Parent
Principal activity
Country of incorporation
Geothermal Developments Limited
Eastland Generation Limited
Geothermal generation
New Zealand
Ownership Interest (%) 2017
2016
100%
100%
Te Ahi O Maui Limited Partnership
Eastland Generation Limited
Geothermal generation
New Zealand
94%
94%
Te Ahi O Maui General Partnership Limited
Eastland Generation Limited
Geothermal generation
New Zealand
94%
94%
Eastland Port Limited
Eastland Group Limited
Port services
New Zealand
100%
100%
Eastland Network Limited
Eastland Group Limited
Electrical distribution
New Zealand
100%
100%
Eastech Limited
Eastland Group Limited
Contracting
New Zealand
100%
100%
Eastland Generation Limited
Eastland Group Limited
Electrical generation
New Zealand
100%
100%
Eastland Investment Properties Limited
Eastland Group Limited
Investment property
New Zealand
100%
100%
Gisborne Airport Limited
Eastland Group Limited
Airport services
New Zealand
100%
100%
Inner Harbour Marina Limited
Eastland Investment Properties Limited
Harbour services
New Zealand
100%
100%
Northland Debarking Limited
Eastland Port Debarking Limited
Debarker services
New Zealand
100%
100%
Eastland Port Debarking Limited
Eastland Port Limited
Debarker services
New Zealand
100%
100%
Eastland Energy Solutions Limited
Eastland Group Limited
Energy solutions
New Zealand
100%
100%
There are no restrictions in place on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances. Eastland Group provides funding and treasury services to these subsidiaries.
F
30
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
15
INVESTMENT IN JOINT VENTURE Details of the Group’s material joint venture at the end of the reporting period is as follows: Proportion of ownership interest and voting rights held by the Group Name of Joint Venture
Principal activity
Place of Incorporation
2017
2016
Eastland Debarking
Debarking and anti-sap treatment of export logs stored at the port in Gisborne
New Zealand
50%
50%
This joint venture is accounted for using the equity method. Summarised financial information in respect of the Group’s material joint venture is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with IFRS (adjusted by the Group for equity accounting purposes).
EASTLAND DEBARKING JOINT VENTURE
Current assets
2017 $’000
2016 $’000
1,338
1,489
Current liabilities
(221)
(250)
Non-current assets
1,185
483
2,302
1,722
925
1,040
4,437
5,025
Net assets The above amounts of assets and liabilities include the following: Cash and cash equivalents Revenue Profit from continuing operations
2,481
2,612
Profit for the year
2,481
2,612
Total comprehensive income for the year
2,481
2,612
Profit share at 50%
1,241
1,306
Group eliminations
119
136
Share of profit of joint venture
1,360
1,442
Distributions made to joint venture partners
1,902
3,980
102
77
7
14
2,302
1,722
50%
50%
1,150
861
The above profit/loss for the year included the following: Depreciation and amortisation Interest income Reconciliation of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated financial statements: Net assets of the joint venture Proportion of the Group’s ownership interest in the joint venture Carrying amount of the Group’s interest in the joint venture
Significant restrictions There are no significant restrictions on the ability of the joint venture to transfer funds to the Group in the form of profit sharing. Commitments As at 31 March, total capital expenditure committed but not yet incurred was $Nil (2016: $Nil). Contingent liabilities As at 31 March, total contingent liabilities were $Nil (2016: $Nil). Impairment No assets employed in the jointly controlled operations were impaired during the year.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
31
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
16
INTANGIBLE ASSETS 2017 Development rights
Vended assets
Resource consent
Goodwill
Access rights
Other
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Balance at beginning of period
1,774
1,861
567
1,000
1,398
114
6,714
Balance at end of the period
1,774
1,861
567
1,000
1,398
114
6,714
-
-
35
290
28
20
373
Accumulated amortisation and impairment losses Balance at beginning of period Amortisation for the period
-
-
16
-
28
12
56
Balance at end of the period
-
-
51
290
56
32
429
1,774
1,861
516
710
1,342
82
6,285
Development rights
Vended assets
Resource consent
Goodwill
Access rights
Other
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
1,774
1,791
567
1,000
1,398
117
6,647
-
70
-
-
-
19
89
As at 31 March 2017
2016
Balance at beginning of period Acquisitions Disposals Balance at end of the period
-
-
-
-
-
(22)
(22)
1,774
1,861
567
1,000
1,398
114
6,714
Accumulated amortisation and impairment losses Balance at beginning of period
-
-
19
290
-
31
340
Amortisation for the period
-
-
16
-
28
11
55
Disposals
-
-
-
-
-
(22)
(22)
Balance at end of the period
-
-
35
290
28
20
373
1,774
1,861
532
710
1,370
94
6,341
As at 31 March 2016
The board has reviewed the intangible asset costs above for the Te Ahi o Maui project and concluded that the development rights and vended assets, are reasonable. Amortisation of the development right will commence on the commissioning of the plant over a period of up to forty years. Amortisation and impairment charge The amortisation of the airport obstruction survey is over a five year period. The berth licences are amortised over the period up until 2026. These are included in other intangible assets. Impairment testing for cash-generating units containing goodwill Goodwill is allocated to Eastland Group’s operating divisions, which represent cash generating units, the lowest level within Eastland Group at which the goodwill is monitored for internal management purposes.
F
32
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
The aggregate carrying amounts of goodwill allocated to each division are as follows:
Port Weighbridge (owned by Eastland Port Limited)
2017 $’000
2016 $’000
500
500
Inner Harbour Marina Limited
210
210
Total goodwill
710
710
The recoverable amounts attributable to impairment testing of goodwill is calculated on the basis of value in use using discounted cash flow models. Key assumptions used are as follows: Port Weighbridge Future cash flows are projected based on expected cash flows using estimates of log volume over the next five years. Costs increase at an assumed inflation rate of 2.0%. Discount rates used ranged from 6.6% to 8.6%. Inner Harbour Marina Limited Future cash flows are projected based on expected cash flows based on budget forecasts for this business unit over the next five years. Costs are expected to increase at an assumed inflation rate of 2.0%. Discount rates used ranged from 6.46% to 8.46%. The recoverable amount of each division exceeds the net assets plus goodwill allocated. Therefore Eastland Group has determined that no impairment to goodwill has occurred during the period.
17
INVESTMENTS 2017 $’000
2016 $’000
Investment in unlisted equity securities (Flick Electric Co.)
5,051
2,229
Total Investments
5,051
2,229
The value of unlisted securities are based on the historic cost of the investment which is the estimated fair value.
18
PAYABLES AND ACCRUALS 2017 $’000
2016 $’000
Trade payables
5,370
4,975
Non-trade payables and accrued expenses
1,306
1,628
439
420
-
44
7,115
7,067
Interest payable GST payable Total trade and other payables
All cash receipts and payments are made through the bank accounts of Eastland Group Limited which provides treasury services to the Eastland Group. Trade and other payables generally have terms of 30 days and are interest free. The directors consider the carrying amount of trade and other payables approximates fair value because the amounts due will be settled within 12 months and are interest free.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
33
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
19
EMPLOYEE ENTITLEMENTS 2017 $’000
2016 $’000
Annual leave
779
689
Short-term benefits
356
998
92
80
1,227
1,767
9,844
8,674
523
427
10,367
9,101
Provisions for:
Post-employment benefits Total employee benefit liability Expenses recognised in profit or loss: Wages and salaries Contributions to defined contribution plans Total employee entitlement expenses
During the year the following number of employees received remuneration of at least $100,000.
20
2017
2016
100,000 - 109,999
6
4
110,000 - 119,999
5
3
120,000 - 129,999
1
4
130,000 - 139,999
6
5
140,000 - 149,999
4
1
150,000 - 159,999
2
-
160,000 - 169,999
1
1
170,000 - 179,999
1
1
180,000 - 189,999
-
-
190,000 - 199,999
-
1
200,000 - 209,999
-
1
210,000 - 219,999
-
-
220,000 - 229,999
1
-
230,000 - 239,999
-
1
240,000 - 249,999
1
-
250,000 - 259,999
-
2
270,000 - 279,999
2
-
280,000 - 289,999
1
-
320,000 - 329,999
1
1
330,000 - 339,999
1
-
540,000 - 550,000
-
1
590,000 - 599,999
1
-
COMMITMENTS As at 31 March 2017, Eastland Group had total capital commitments payable within the next 12 months of $19.3 million (2016: $2.1 million).
34
F
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
21
TRANSACTIONS WITH OWNER a)
Issued capital Total number of shares on issue is 1,000. There was no movement in the total number of shares during the year. All shares are classed as ordinary, have no par value and are subject to the same rights and privileges and are subject to the same restrictions. There are no restrictions on the distribution of dividends and the repayment of capital.
b)
Dividends paid Dividends of $7.8 million were paid during the year (2016: $5.6 million). This included a subvention payment of $1.7 million. The dividend per share is $7,815 (2016: $5,615).
c)
Imputation credits As at 31 March 2017, the imputation credits available to the shareholders of the parent and the Eastland Group total $15.0 million (2016: $15.1 million).
d)
Capital notes Eastland Group issued capital notes on 1 April 2010 of $30 million to the Eastland Community Trust. The notes have a perpetual term and are subject to repayment, after 31 March 2020, on receipt of 15 months notice. Eastland Community Trust elected to renew the capital notes on 1 April 2015. Eastland Group may elect at any time to redeem all or part of the notes for equity or cash. The capital notes incur interest at 7.10% (2016: 7.10%), which is fixed until 31 March 2020. Interest paid for the year ended 31 March 2017 was $2.1 million (2016: $2.1 million).
e)
22
Other transactions During the year a sale and purchase agreement was signed regarding the purchase of the commerce place properties for $295,000. A deposit has been paid as at 31 March 2017 and settlement will occur during the 2018 financial year. There was also a building sold from the Port for $150,000 in July 2016.
OPERATING LEASES a)
Operating leases receivable Eastland Group has leased certain investment properties (refer to Note 13) and some other land and buildings, under operating leases. The future minimum lease payments receivable under non-cancellable leases are as follows: 2017 $’000
2016 $’000
Less than one year
2,303
2,025
Between one and five years
4,852
3,611
More than five years Total operating leases receivable
b)
269
345
7,424
5,981
Operating leases payable Eastland Group leases land and/or buildings in Gisborne, Kawerau, Whakatane and Northland, as well as some other office equipment and vehicles. Eastland Group leases land sites throughout the East Coast for the right to lay and maintain power cables and radio transmissions on these sites. 2017 $’000
2016 $’000
869
866
Less than one year Between one and five years
3,330
3,328
More than five years
11,310
12,701
15,509
16,895
Total operating leases payable
Operating lease payments of $892,471 were made during this financial year (2016: $767,087).
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
35
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
23
LOANS AND BORROWINGS This note provides information about the contractual terms of Eastland Group’s interest-bearing loans and borrowings. For more information about Eastland Group’s exposure to interest rate and foreign currency risk, see Note 24. 2017 $’000
2016 $’000
The borrowings are repayable as follows: Within two to five years
166,000
114,000
Total bank borrowings
166,000
114,000
Classified as follows: Non-current liabilities
166,000
114,000
Total bank borrowings
166,000
114,000
Drawn $’000
Undrawn $’000
166,000
44,000
As at 31 March 2017 Facility A maturing 1 April 2021 Facility B maturing 30 June 2018
-
15,000
166,000
59,000
114,000
36,000
As at 31 March 2016 Facility A maturing 1 April 2021 Facility B maturing 30 June 2017
-
15,000
114,000
51,000
Eastland Group Limited has arranged bank funding from the ANZ Bank, ASB and BNZ on behalf of Eastland Group. As at 31 March 2017 there were total bank facilities of NZD $225 million (2016 :$165 million) which are unsecured and subject to a Deed of Negative Pledge. The borrowings are in the name of Eastland Group Limited. The guaranteeing subsidiaries of the Group debt held by the Parent entity are as follows: Gisborne Airport Limited
Geothermal Developments Limited
Eastland Port Limited
Inner Harbour Marina Limited
Eastland Port Debarking Limited
Eastland Network Limited
Eastland Investment Properties Limited
Eastech Limited
Eastland Generation Limited
Northland Debarking Limited
Te Ahi o Maui Limited Partnership
Te Ahi o Maui GP Limited
These borrowings are rolled over at 90 day intervals spread throughout the year. The interest rate on these borrowings is the BKBM rate at the rollover date plus a margin of 0.87% (2016: 0.87%). As at 31 March 2017, the rates on borrowings range from 2.77% to 2.94% (2016: 3.14% to 3.58%). Facilities with the ANZ Bank have expiry dates of 1 April 2021 Tranche A ($210 million) and a perpetual facility of $15 million which expires 18 months from drawdown (2016: $150 million and $15 million). There have been no defaults during the period of principal, interest, sinking fund, covenants or redemption terms of those loans payable during the period.
36
F
Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS Eastland Group has a comprehensive treasury policy approved by the directors to manage the risks of financial instruments. The policy outlines the objectives and approach Eastland Group applies in its financial risk management processes. The policy covers, among other things, management of credit risk, interest rate risk, funding risk, liquidity risk, currency risk and operational risk. Non-derivative financial liabilities are categorised as ‘amortised cost’. Derivative financial instruments are categorised as ‘fair value through profit and loss’ unless hedge accounting is applied. Hedge accounting is applied for all derivative financial instruments. (a)
Financial assets and liabilities 2017
Loans and receivables
Other liabilities at amortised cost
Total carrying amount
Fair value
$’000
$’000
$’000
$’000
Cash and cash equivalents
Cash-flow hedges
$’000
$’000
10
3,251
-
-
-
3,251
3,251
11
-
-
8,369
-
8,369
8,369
24
-
291
-
-
291
291
Notes
Financial assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Investments
17
-
-
5,051
-
5,051
5,051
3,251
291
13,420
-
16,962
16,962
18
-
-
-
(7,115)
(7,115)
(7,115)
Employee entitlements
19
-
-
-
(1,227)
Derivative financial instruments
24
-
Loans and borrowings
23
-
Capital notes
21
-
Total financial assets Financial liabilities Payables and accruals
Total financial liabilities
-
Total net financial assets/(liabilities)
3,251
(11,135)
-
-
-
-
-
(11,135) (10,844)
-
(1,227)
(1,227)
(11,135)
(11,135)
(166,000) (166,000) (166,000) (30,000)
(30,000)
(30,000)
- (204,342) (215,477) (215,477) 13,420 (204,342)
(198,515)
(198,515)
Total carrying amount
Fair value
$’000
$’000
2016
Notes
Cash and cash equivalents
Cash-flow hedges
Loans and receivables
Other liabilities at amortised cost
$’000
$’000
$’000
$’000
Financial assets Cash and cash equivalents
10
2,253
-
-
-
2,253
2,253
Trade and other receivables
11
-
-
8,305
-
8,305
8,305
Investments
17
-
-
2,229
-
2,229
2,229
2,253
-
10,534
-
10,558
10,558
Total financial assets Financial liabilities Payables and accruals
18
-
-
-
(7,067)
(7,067)
(7,067)
Employee entitlements
19
-
-
-
(1,767)
(1,767)
(1,767)
Derivative financial instruments
24
-
(15,564)
(15,564)
Loans and borrowings
23
-
-
-
(114,000)
(114,000) (114,000)
Capital notes
21
-
-
-
(30,000)
(30,000)
-
(152,834) (168,398) (168,398)
Total financial liabilities Total net financial assets/(liabilities)
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
(15,564)
-
(15,564)
2,253
(15,564)
-
-
(30,000)
10,534 (152,834) (157,840) (157,840)
Annual Report 2017 Eastland Group
37
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) b)
Fair value measurements recognised in the Statement of Financial Position The following methods and assumptions were used to estimate the carrying amount and fair value of each asset class of financial instrument carried at fair value. Where financial instruments are measured at fair value they have been classified at the following levels. Level 1:
Quoted prices (unadjusted) in active markets for assets or liabilities; or
Level 2:
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices): or
Level 3:
Inputs for the asset and liability that are not based on observable market data (unobservable inputs).
The valuation of derivative financial instruments are based on Level 2 fair value hierarchy, and were calculated using valuation models applying observable market data. Some of the key observable market data is presented as below. Derivative instruments The total carrying amount of derivative instruments is the same as the fair value and includes interest accrued. The calculation of fair value for each financial instrument for either measurement or disclosure purposes are explained below. In each case, interest accrued is included separately in the statement of financial position either in receivables or prepayments for interest payable. Loans and receivables, trade payables and other creditors, cash and cash equivalents and short term deposits The total carrying amounts of these items is equivalents to their fair value. Loans include the principal and interest accrued. Bank overdrafts are set-off against cash balances pursuant to any right of set-off. Receivables are net of doubtful debts provided. Bank loans, working capital loans and floating rate notes The total carrying amount includes the principal, interest accrued and unamortised costs. Capital notes The total carrying amount includes the principal, interest accrued and unamortised costs.
c)
Interest rate risk Eastland Group actively manages interest rate exposures in accordance with treasury policy. In this respect, at least fifty percent of all current debt must be at fixed interest rates or effectively fixed using interest rate swaps, forward rate agreements, options and other derivative instruments. The main objectives are to minimise the cost of total debt, control variations in the interest expense of the debt portfolio from year to year and to match where practicable the interest rate risk profile of debt with the risk profile of Eastland Group’s assets. The treasury policy sets parameters for managing the interest rate risk profile. Eastland Group enters into interest rate swaps, collars and caps to hedge its exposures to changes in the floating interest rates on loans. Eastland Group has elected to apply cash-flow hedging to all of its interest rate swaps, collars and caps with a notional value totalling $170 million (2016: $175 million) these include forward starting swaps of $75 million with start dates effective from 30 July 2017 to 30 July 2020. Interest rate swaps, collars and caps have terms or maturity dates which are between 24 and 84 months and swap interest on a floating rate for fixed interest of between 2.85% to 5.94% (2016: 2.87% to 5.94%). The last cash-flow hedge swap matures on 30 July 2025. The interest rate swaps, collars and caps that have been designated as cash-flow hedges affect profit and loss at the same time as the underlying interest expense is recognised on the retrospective borrowings (see Note 23). Any ineffective portion of cash-flow hedges is removed from equity and recognised immediately in the Statement of Financial Performance 2017: $Nil (2016: $Nil). The hedge relationships are expected to be highly effective over the life of the swaps. 2017
2016
Notional Amount $’000
Notional Amount $’000
Interest rate swaps (floating to fixed) Maturing in less than 1 year
25,000
15,000
Maturing between 1 and 2 years
-
25,000
Maturing between 2 and 5 years
60,000
60,000
Maturing after 5 years
38
F
Eastland Group Annual Report 2017
85,000
75,000
170,000
175,000
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
d)
Foreign currency risk Eastland Group is exposed to exchange risk through the Te Ahi o Maui construction project. Foreign exchange exposure is primarily managed through entering into derivative forward contracts. The board of directors require that all foreign currency borrowings are hedged into NZD at the time of commitment.
e)
Liquidity risk Liquidity risk is the risk that Eastland Group will not be able to meet its financial obligations as they fall due. Eastland Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Eastland Group’s reputation. Eastland Group’s cash management function is managed at Group level with all cash transactions and funding taking place as part of Eastland Group’s treasury function. Eastland Group Limited has sufficient funding and banking facilities available to meet the liquidity requirements of Eastland Group. For details of the funding and banking facilities arranged by Eastland Group Limited, please refer to Note 23. Eastland Group has entered into interest rate swaps, caps and collars to hedge its exposure to variability in interest rate payments on these borrowings. This is discussed further below.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
39
F
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) 2017 <6 months
6-12 months
1-3 years
3-5 years
>5 years
Total
$’000
$’000
$’000
$’000
$’000
$’000
10
3,251
-
-
-
-
3,251 8,369
Notes
Financial assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Investments
11
8,369
-
-
-
-
24
288
-
3
-
-
291
17
-
-
-
-
5,051
5,051
11,908
-
3
-
5,051
16,962
Total financial assets Financial liabilities Payables and accruals
18
(7,115)
-
-
-
-
(7,115)
Employee entitlements
19
(1,227)
-
-
-
-
(1,227)
Derivative financial instruments
24
(2,737)
(676)
(411)
(2,710)
(4,601)
(11,135)
Loans and borrowings
23
-
-
- (166,000)
Capital notes
21
-
-
-
-
(11,079)
(676)
(411)
(168,710)
(34,601) (215,477)
829
(676)
(408)
(168,710)
(29,550)
Total financial liabilities Liquidity gap
- (166,000) (30,000)
(30,000)
(198,515)
2016 Notes
<6 months
6-12 months
1-3 years
3-5 years
>5 years
Total
$’000
$’000
$’000
$’000
$’000
$’000
Financial assets Cash and cash equivalents
10
2,253
-
-
-
-
2,253
Trade and other receivables
11
8,305
-
-
-
-
8,305
Investments
17
-
-
-
-
2,229
2,229
10,558
-
-
-
2,229
12,787
(7,067)
Total financial assets Financial liabilities Payables and accruals
18
(7,067)
-
-
-
-
Employee entitlements
19
(1,767)
-
-
-
-
Derivative financial instruments
24
(1,666)
Loans and borrowings
23
-
-
-
-
(114,000) (114,000)
Capital notes
21
-
-
-
-
(30,000)
Total financial liabilities Liquidity gap
40
F
Eastland Group Annual Report 2017
(1,553)
(2,048)
(3,983)
(6,314)
(1,767) (15,564) (30,000)
(10,500)
(1,553)
(2,048)
(3,983) (150,314) (168,398)
58
(1,553)
(2,048)
(3,983) (148,085)
(155,611)
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
f)
Credit risk Credit risk is the risk of financial loss to Eastland Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the cash and cash equivalents, trade receivables and related party balances. The treasury function of Eastland Group is provided to all the subsidiary companies. Credit risk exposure in relation to the subsidiaries is not considered to be significant, and no specific risk management policies have been put in place in relation to inter-group balances. Credit risk in relation to customers is spread across Eastland Group with the largest customers by dollar value being in the energy and logistics sectors. The retailers are of good credit standing and management believes that Eastland Group is not exposed to any undue risk, which is supported by past history of payment by these customers. The credit risk in relation to the remaining trade receivables is not considered to be significant. There are no financial assets that have been pledged as collateral for liabilities or contingent liabilities. Eastland Group recognises impairment losses on trade and other receivables that are believed to be irrecoverable. Specific impairment losses are made for individually significant exposures that are known at year end. The impairment loss allowance at 31 March 2017 was $45,463 (2016: $19,979). Actual bad debts written off in the Statement of Financial Performance were $19,186 (2016: $28,505) and there was no adjustment to the specific allowance. A collective impairment loss component is established for groups of similar receivables in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
MATURITY PROFILE 2017 Current
1-60 days
61-90 days
91-180 days
Over 180 days
Total
$’000
$’000
$’000
$’000
$’000
$’000
Trade receivables
6,560
458
65
45
106
7,234
Total due
6,560
458
65
45
106
7,234
Trade receivables
-
-
-
-
48
48
Total impaired financial assets
-
-
-
-
48
48
As at 31 March 2017
Impaired
The above receivables are determined to be impaired due to the nature of the debtor and the lack of payment to date.
2016 Current
1-60 days
61-90 days
91-180 days
Over 180 days
Total
$’000
$’000
$’000
$’000
$’000
$’000
As at 31 March 2016 Trade receivables
6,404
795
43
9
86
7,337
Total due
6,404
795
43
9
86
7,337
Impaired Trade receivables
-
-
-
-
20
20
Total impaired financial assets
-
-
-
-
20
20
The above receivables are determined to be impaired due to the nature of the debtor and the lack of payment to date.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
F
41
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
24
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) g)
Market risk Market risk is the risk that changes in market prices, such as interest rates, will affect Eastland Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage market risk exposures within acceptable parameters, while optimising the return. Those risks include: i.
Cash flow interest rate risk Eastland Group’s main interest rate risk exposure arises on external borrowings (see Note 23). All borrowings are at variable interest rates, which expose Eastland Group to cash flow interest rate risk. Eastland Group adopts a policy of ensuring that a portion of its exposure to changes in interest rates on borrowings is on a fixed rate basis. This is achieved by entering into interest rate swaps, caps and collars. For further details on interest rate swaps, caps and collars refer to Note 24 (c). Eastland Group is exposed to interest rate risks on that portion of external loans not swapped to fixed rates, gains or losses arising from the differences between variable rates and fixed rates on the swap instruments in place, and interest payable on the loans and capital notes. At balance date, an increase of 100 basis points on borrowings would result in a decrease in profit before tax of $710,000 (2016: $290,000). A decrease of 100 basis points on borrowings would result in an increase in profit before tax of $710,000 (2016: $290,000).
ii.
h)
Price risk Eastland Group is exposed to price risk on bank facilities when they mature and capital notes on their election date if the capital notes are not redeemed for cash or converted to ordinary shares. The price for new bank facilities and capital notes is determined when they are refinanced or reissued and reflects market pricing at that time. At balance date, an increase of 25 basis points on bank lending costs would result in a decrease in profit before tax of $562,500 (2016: $412,500). A decrease of 25 basis points on bank lending costs would result in an increase in profit before tax of $562,500 (2016: $412,500).
Capital management The directors’ policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The directors monitor the return on capital on a regular basis. This involves the management of reserves and issued capital. The directors also monitor the level of dividends to ordinary shareholders. The directors seek to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in Eastland Group’s approach to capital management during the current or prior year. Eastland Group is not subject to externally imposed capital requirements.
i)
Hedge accounting and sensitivity analysis The sensitivity analysis has been determined based on the exposure to interest rates and foreign exchange rates for both derivatives and non-derivative instruments at balance date. It is assumed that the amount of the liability at balance date was outstanding for the whole year. A one percent increase or decrease is used for interest rates and these changes represent management’s current assessment of the reasonably possible change over a year. Interest rate swaps and collars hedging the floating rate debt are hedge accounted and treated as cash flow hedges and hence any changes in interest rates would have no material impact on profits as changes in the fair value of these swaps and collars are taken through other comprehensive income where the hedge is an effective hedge. The fair value of these interest rate swaps is a $7.8 million loss (2016: $5.7 million loss). A fall of 1% in interest rates would result in a loss in other comprehensive income of $3.4 million (2016: $1.8 million) whereas an increase of 1% in interest rates would result in a gain in other comprehensive income of $3.2 million (2016: $1.7 million). Forward starting interest rate swaps and collars hedging the forecasted floating rate debt are also hedge accounted and treated as cash flow hedges and hence any changes in interest rates would have no material impact on profits as changes in the fair value of these swaps are taken through comprehensive income where the hedge is an effective hedge. The fair value of these interest rate swaps and collars is a $2.0 million loss (2016: $5.0 million loss). A fall of 1% in interest rates would result in a loss in other comprehensive income of $2.7 million loss (2016: $4.8 million loss) whereas an increase of 1% in interest rates would result in a gain in other comprehensive income of $2.5 million (2016: $4.3 million).
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
25
RELATED PARTIES a)
Parent and ultimate controlling party Eastland Group Limited is fully owned by Eastland Community Trust (ECT). Payments were made during the year of $2.1 million (2016: $2.1 million) of interest on capital notes of $30 million, and paid dividends of $7.8 million (2016: $5.6 million).
b)
Key management personnel compensation Key management personnel compensation comprises of:
Short term employee benefits KiwiSaver and other contributions Total key management personnel compensation
c)
2017 $’000
2016 $’000
2,190
1,903
135
128
2,326
2,032
Directors’ fees Directors’ fees are paid by Eastland Group Limited to the directors, as the directors of the Group. Total fees paid were $324,811 (2016: $308,069). There are no separate fees paid in respect of the subsidiaries. APPROVED DIRECTOR REMUNERATION FOR 2017/2018 $’000 Board Chairman
92
Board member
46
Chairman of audit and finance committee
10
Audit and finance committee
5
Chairman of performance and remuneration committee
3
Performance and remuneration committee
Director
1.5
Board Fees
Performance Audit and and Finance Remuneration Committee Committee
2016
Notes
-
14,333
42,365
Retired June 2016. Former Chairman of Performance and Remuneration Committee
J Clarke
14,333
N Cull
89,715
4,011
-
93,726
85,240
Board Chairman
M Glover
44,858
-
1,884
46,742
42,365
Chairman of Performance and Remuneration Committee
T Gray
44,858
8,358
-
53,215
47,343
Chairman of Audit and Finance Committee
J Rae
44,858
3,997
-
48,855
45,154
K Devine
44,858
-
949
45,806
26,379
21,173
-
962
22,134
-
-
-
-
-
19,223
304,651
16,366
3,795
324,811
308,067
M Mahuika A Blackburn Total Total Fee Pool Approved with effect from 18 August 2016
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
-
Total
Appointed October 2016
324,811 348,000
Annual Report 2017 Eastland Group
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Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
25
RELATED PARTIES (continued) Directors are appointed by our shareholder, the Eastland Community Trust. They are appointed as Directors of Eastland Group Limited, Eastland Network Limited, Gisborne Airport Limited and Eastland Port Limited. In addition, they may be appointed to boards of various organisations, which may transact on a commercial basis, with Eastland Group and its subsidiaries. The following entries were on record in the interests register as at 31 March 2017: Mr N J P Cull gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. MSC Consulting Group Limited Mr M Mahuika gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. NPWF Holdings Limited Ngati Porou Wind Farms Limited Kahui Legal Tuku Kerero (2006) Limited New Zealand Geographic Board The NZ Merino Company Limited Pakihiroa Farms Limited Ngati Porou Holding Company Limited Paraumu A1 St Maryâ&#x20AC;&#x2122;s Church & Cemetery Trust J P Ferguson Trustee Company Limited Ngati Porou Berries Limited Te Runanganui O Ngati Porou Trustee Limited Mr J M Rae gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Gobble Limited and associated companies F J Hawkes & Co Limited and associated companies Smart Environmental Limited National Infrastructure Advisory Board The Lines Company Limited and subsidiary companies Activate Tairawhiti and associated Trusts Ngapuhi Asset Holding Company Limited and subsidiary companies Cavalier Corporation and associated companies Thos. Corson Holdings Limited and subsidiary companies Abodo Wood Limited Mr M J Glover gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Goldpine Properties Limited FSL Foods Limited Simla Holdings Limited Kihilla Properties Limited Richmond Glass (2014) Limited Rio Dolores (2006) Limited Goldpine Industries Limited Cold Storage Nelson Limited Goldpine Group Limited Mr K J Devine gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Natural Hazards Research Platform Strategic Advisory Group
44
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Eastland Group Annual Report 2017
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Notes to the Financial Statements (continued) FOR THE YEAR ENDED 31 MARCH 2017
Mr A T Gray gave general notice that he is a director and/or officer of the following companies and will therefore be interested in all transactions between any of them and Eastland Group. Ngati Apa Developments Limited Civic Financial Services Limited Maungaharuru-Tangitu Limited Local Government Mutual Fund Trustees Limited Civic Assurance Property Pool Ngati Pukenga Investments Limited Artemis Nominees Limited Quality Roading and Services (Wairoa) Limited Origin Earth Limited Advisory Board Member Hastings District Council d)
Chief Executive Mr M Todd, Group Chief Executive Officer, leases an aircraft hangar and uses the landing services at Gisborne Airport. Landing charges and the terms of Mr Todd’s lease are on a commercial arm’s length basis. The annual rental paid for the hangar and landing charges is $7,817 (2016: $5,650). Mr Todd also uses his own aircraft for Eastland Group business charging the equivalent to the ruling aero club hire charge for a similar aircraft. Payments made during the year totalled $11,610 (2016: $8,235).
e)
Other related party transactions There are no guarantees held regarding subsidiary balances. The management of all Eastland Group debtors and creditors is carried out by Eastland Group Limited. 2017 $’000
2016 $’000
820
821
Transactions with associates and joint ventures Oncharge of costs to Debarking Joint Venture
26
SUBSEQUENT EVENTS Eastland Group is unaware of any significant events between the preparation and authorisation of these financial statements as at 24 May 2017.
These financial statements should be read in conjunction with notes and accounting policies on pages F4-F45
Annual Report 2017 Eastland Group
45
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Eastland Group Limited Company Information For the year ended 31 March 2017
Board of Directors Nelson Cull (CHAIRMAN) Kieran Devine Matanuku Mahuika John Rae Michael Glover Tony Gray Chief Executive Matt Todd Chief Financial Officer Aaron Snodgrass Senior Leadership Team Andrew Gaddum Ben Gibson Brent Stewart Jarred Moroney Gavin Murphy Suzanne Winterflood Auditors Deloitte Limited Lawyers Chapman Tripp Bankers ANZ ASB Bank of New Zealand Westpac Banking Corporation
Registered Office 37 Gladstone Rd, PO Box 1048 Gisborne, 4040, New Zealand T:
06 986 4800
E:
info@eastland.nz
W:
www.eastland.nz
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eastland.nz/AR2017