Adoption of International Accounting Standards by ijk77032


									Adoption of International Accounting Standards

                                          17 August 2005
                              Important Notice

• The figures contained in this presentation are Contacts’ current best estimate of
  the consequences for Contact adopting New Zealand Equivalents to International
  Financial Reporting Standards
• These may be further refined prior to the release of the interim results for the year
  ending 30 June 2006 and remain subject to change
• All amounts are preliminary and are based on NZIFRS standards and
  interpretation as at 16th August, they may change as a result of the audit process,
  the accounts preparation process or guidance issued by the International
  Accounting Standards Board

• Contact will adopt International Financial Reporting Standards from 1 July 2005
• 2005 financial year comparatives will be restated
• Financial Instruments standards (NZ IAS 32 and 39) will be applied from 1 July
  2005 with no restatement of comparatives
• Explanation of the major impacts to the 30 June 2005 balance sheet and income
         IFRS changes financial reporting but not the
           underlying value drivers of our business

• Change in rules by which certain assets and liabilities are recognised on the
  balance sheet
• Consequential change in the timing of profit recognition
• There has been no change to our business strategy
• Cash flows are unchanged
• Rules-based approach needs careful interpretation
                 Estimated Balance Sheet - 30 June 2005

30 June 2005                       Previous NZ
                                         GAAP     NZ IFRS    Change

                                         $000        $000      $000

Current Assets                        294,395     294,395     -

    Non Current Assets
    Property, Plant & Equipment      3,891,603   3,891,603    -
    Goodwill                           169,635     178,778    9,143
    Other                               18,620      18,620    -

Total Non Current Assets             4,079,858   4,089,001    9,143

Total Assets                         4,374,253   4,383,396    9,143
Estimated Balance Sheet - 30 June 2005
Estimated Balance Sheet - 30 June 2005
Estimated Income Statement - 30 June 2005
Estimated Statement of Movements in Equity
               - 30 June 2005
                  Generation Plant and Equipment

• Continue to measure at fair value
    – as determined by an independent valuer at least every three years
• Fair Value continues to be determined on a discounted cash flow basis
• Past individual asset devaluations below cost transferred from revaluation reserve
  to retained earnings on transition
    – previously set off against revaluations of other assets in the same class
                                  Key Changes

• Deferred Taxation
    – New method of calculation
    – Recognition of deferred tax liability on the balance sheet
    – Revaluation of assets now incorporated in the deferred tax liability recognised
• Goodwill
    – Goodwill will no longer be amortised
    – Tested annually for impairment, or whenever there is an indicator of impairment
                               Other Changes

• Long Service Leave
    – Will be recorded through the income statement as it is earned by the employee using
      actuarial measure
    – Previously only record when leave vested with the employee
                            Financial Instruments

• Transition exemption not to restate comparatives
     – NZIAS 32 and NZIAS 39 applicable from 1 July 2005
• All derivative instruments will be recognised on the balance sheet at fair value
     – rules based standard allows some derivatives to qualify for hedge accounting whereby
       movements in the fair value are recorded directly in equity
     – in cases where hedge accounting cannot be achieved changes in the fair value will be
       recorded in the income statement
• Currently $1,025 million of debt denominated in foreign currency
     – Cross Currency Interest Rate Swaps entered into that match the underlying debt and
       bring interest rate exposure back to NZD floating
     – Interest rate derivatives are then used to fix NZD floating exposure on essentially a
       portfolio basis
     – Significant portion of these interest rate derivatives are unlikely to achieve hedge
                        Interest Rate Derivatives

• Current hedging activity is considered economically prudent
• Acknowledgement world wide that the standards are imperfect
• Our situation exaggerated by proportion of foreign denominated debt
• To the extent hedge accounting is unable to be achieved in relation to the interest
  rate derivative book the income statement will be impacted by fair value
    – Based on the current interest rate derivative book a 10% movement in the curve would
      result in an approximate $13 million change in fair value

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