IFRS 15 early adopted, IAS 8 para 28 disclosures, contract assets, revenue policy

Trustpower Limited – Annual report – 31 March 2017

Industry: utilities

NOTE 1: BASIS OF PREPARATION (extract 1)

Reporting Entity

The reporting entity is the consolidated group comprising Trustpower Limited (previously known as Bay Energy Limited as changed on 31 October 2016) and its subsidiaries together referred to as Trustpower. Trustpower Limited is a limited liability company incorporated and domiciled in New Zealand. The principal activities of Trustpower are the ownership and operation of electricity generation facilities from renewable energy sources and the retail sale of energy and telecommunications services to its customers.

Trustpower Limited is registered under the Companies Act 1993, and is listed on the New Zealand Stock Exchange (NZX). It is an FMC Reporting Entity under the Financial Markets Conducts Act 2013.

The financial statements are presented for the year ended 31 March 2017.

On 31 October 2016, the demerger of Scarlett Limited (previously known as Trustpower Limited, “Old Trustpower”) became effective. At this date, all of the assets and liabilities directly related to the development and operation of wind and solar generation assets were transferred to Tilt Renewables Limited (Tilt Renewables) which was a member of the Old Trustpower group. The remaining assets and liabilities, related to the ownership and operation of hydro generation assets and the retail sale of energy and telecommunications services, were transferred to Trustpower Limited (previously known as Bay Energy Limited).

The financial information presented in these consolidated financial statements is based on actual figures as an independent group after the demerger and carve-out figures from Old Trustpower prior to the demerger. The carve-out financial information presented in these consolidated financial statements reflects the financial performance of the business units responsible for the ownership and operation of hydro generation assets and the retail sale of energy and telecommunications services (Trustpower Business) prior to the demerger. Accordingly, the consolidated statement of financial position as at 31 March 2017, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period November 2016 –March 2017 and the related key figures are based on actual figures as an independent group. The financial information for the periods before 31 October 2016 is based on carve-out financial information of Trustpower Business information from Old Trustpower. See the ‘Basis of accounting for the carve-out financial information’ below for more detail.

NOTE 1: BASIS OF PREPARATION (extract 2)

Adoption of new accounting policy

Trustpower has elected to early adopt NZ IFRS 15 Revenue from Contracts with Customers and clarifications to NZ IFRS 15 Revenue from Contracts with Customers. One effect of the early adoption of this standard is a change to Trustpower’s accounting policy relating to the treatment of incremental costs directly incurred acquiring new customers and retaining existing customers including sales commissions and customer incentives such as discounted services for an initial period.

Trustpower’s previous policy was to expense these costs immediately in the period in which they occurred. The new policy will see those costs capitalised and amortised over the expected life of the customer relationship. The amortisation of direct customer incentives will now be shown as a discount to revenue rather than other operating expenses. Where Trustpower bundles more than one service to a customer any discount is spread across the revenue from all services in that bundle. The early adoption of NZ IFRS 15 was made due to the additional clarity it provides to accounting for these customer acquisition costs combined with the increase in Trustpower’s customer acquisition activity over recent years. No practical expedients on transition have been applied and the standard has been applied retrospectively.

The effect of this change in accounting policy is shown below:

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The adjustments to the 31 March 2015 statement of Financial Position were increases in ‘Contract assets’ of $14,494,000, ‘Invested capital’ of $10,436,000 and ‘Deferred tax liability’ of $4,058,000.

RETAIL (extract)

This section details the retail operations of Trustpower.

Trustpower is a multiproduct utility retailer. Trustpower supplies homes and businesses around the country with electricity, gas, broadband and telephone services. Trustpower provides electricity to 276,000 homes and businesses (2016: 277,000), supplies 33,000 customers with gas (2016: 31,000) and connects 76,000 (2016: 62,000) customers with telephone and broadband connections.

A retail profitability analysis is included in Note 3. This disclosure provides a detailed breakdown of the performance of Trustpower’s retail operations.

This section includes the following notes:

Note 3: Retail Profitability Analysis

Note 4: Contract Assets

Note 5: Intangible Assets

Note 6: Retail Assumptions and Judgements

Note 7: Retail Financial Risk Management

Note 8: Retail Commitments

NOTE 3: RETAIL PROFITABILITY ANALYSIS (extract)

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*Other operating expenses includes an allocation of computing and corporate costs.

Revenue Recognition

Revenue comprises the fair value of consideration received or receivable for the sale of electricity, gas, telecommunications and related services in the ordinary course of the Group’s activities.

Customer consumption of electricity and gas is measured and billed by calendar month for half hourly metered customers and in line with meter reading schedules for non-half hourly metered customers. Accordingly revenues from electricity and gas sales include an estimated accrual for units sold but not billed at the end of the reporting period for non-half hourly metered customers.

Customer consumption of telecommunications services is measured and billed according to monthly billing cycles. Accordingly revenues from telecommunications services provided include an estimated accrual for services provided but not billed at the end of the reporting period.

Where a bundle of services is provided to a customer and a discount is provided for one of those services, the discount is allocated to each distinct performance obligation based on the relative stand alone selling price of those services.

Where a discount is offered for prompt payment revenue is initially recognised net of estimated discount based on accumulated experience used to estimate the amount of discounts taken by customers.

There are no significant timing differences between the payment terms and this policy.

Meter rental revenue is charged and recognised on a per day basis.

Other customer fees and charges are recognised when the service is provided.

NOTE 4: CONTRACT ASSETS

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Contract Assets

Trustpower capitalises all incremental costs directly attributable to the acquisition of a new mass market customer, such as customer incentives, upfront discounts and sales agent commissions, and amortises them over the expected average customer tenure of four years. Costs that directly benefited the customer are amortised as a discount to revenue, all other costs are amortised on a straight line basis as an operating expense. Incremental costs directly attributable to the retention of an existing customer over a fixed term are amortised over the period of the fixed term contract.

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