HY17 Shareholder letter

Tena koe (Greetings),
The first half of the 2017 financial year (1H17) saw Contact earnings
grow modestly with continued improvements in retail operating
performance and an increase in the proportion of renewable generation.
In a competitive market, delivering strong operational performance and
providing value for customers and shareholders remain our focus.
17 March 2017
Dear
Shareholder
Contact
reported a statutory profit for the six
months ended 31 December 2016 of $96 million;
$212 million higher than the prior corresponding
period due to improved operating earnings and
no repeat of the prior period impairments.
EBITDAF increased by $7 million, or 3%, to $261
million while underlying profit after tax increased
by $9 million or 12% to $82 million. Free cash flow
for the period remained strong at $141 million, a
$62 million reduction over 1H16, which included a
tax credit driven by the closure of the Otahuhu
power station together with increased extractions
from gas storage and the late collection of FY15
debtors favourably impacting working capital
movements.
Your Board has resolved to maintain the interim
dividend at 11 cents per share (1H16 11 cents per
share), imputed to 8 cents per share. This
represents a pay-out ratio of 96% of underlying
profit. We remain committed to maintaining an
investment grade credit rating and continued to
reduce gearing levels with a $21 million reduction
in debt during the period. Continued strong cash
flow has us on target to return the net debt to
EBITDA ratio to the preferred 2.6 to 3 times range.
Transforming the Customer business
Our focus has been on delivering products which
provide customers with greater choice, certainty
and control as well as utilising data, real-time
analytics and
customer feedback to drive
improvements in customer experience. Pleasingly,
this progress has been reflected in an improvement
in our key customer advocacy measure, Net
Promoter Score which is up to +12 from -3 in 1H16.
The Customer
business recorded a $6 million
improvement in EBITDAF on the back of our
operational focus.
Mass market electricity sales volumes were down
by 110 GWh as average electricity usage decreased
due to above average temperatures and newly
acquired business customers who are lower users
of energy than those replaced. Average customer
numbers were down by 1,100 on 1H16 due to the
continued elevated level of competition, including
price discounting by large competitors and benign
wholesale conditions that supported offerings by
new entrants. The reduction in mass market sales
was largely offset by increased commercial and
industrial sales.
We have recently completed the simplification
and migration of our core IT systems to the Cloud
which, amongst other things, will make it easier for
us to deliver services through lower cost mobile
and online channels. We have also embedded
data and analytics capability to better understand
our customers’ needs, with real-time customer
insight improving the customer experience as well
as lowering future operating costs.
Our systems and large customer base provide us
with many opportunities to offer more than just
our current service. We are continuing to explore
opportunities for battery and solar products with
customer trials in progress and continue to be a
strong voice for the customer in a range of
regulatory consultations. Our support of the
adoption of electric vehicles in New Zealand
continues through the conversion of our own fleet
and as a partner of the Electric Highway. However,
we operate in a competitive market and it remains
our challenge to find products and services which
allow us to leverage our investments and scale to
offer a unique service.
EBITDAF, up 3% from $254m on
improved operational performance
$261m
Profit for the period,
$212 million higher than 1H16 due
to prior period impairments
$96m
$4m
Or 3% reduction in other operating
expenses over 1H16

an essential services business to a broader ‘living
services’ business.
We will continue to focus on the structural
efficiency of the electricity supply market. This
includes the commencement of the 80MW
financial agreement with Meridian Energy to
support the continued operation of the Tiwai
aluminium smelter. Our portfolio of long life
generation assets will continue to lower the cost
of energy through fuel substitution, electricity
trading and gains realised through the execution
of our continuous improvement programme.
Thank you for your continued support.
Dennis Barnes
Chief Executive Officer
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Competitive and reliable energy,
delivered at a reduced cost
National electricity demand declined by 2% in
1H17 primarily driven by lower consumption in the
residential sector and lower irrigation demand.
Warmer temperatures and above average rainfall
both contributed to the reduced electricity
demand and also resulted in higher hydro
generation, lower wholesale electricity prices and
limited price volatility.
The flexibility of our portfolio and low levels of
contracted gas were a real asset over the past six
months. With high levels of renewable generation
available in the market, we were able to reduce
generation from our thermal plants and purchase
lower cost energy from wholesale market
participants. This trading strategy, combined with
reduced electricity purchases and careful
management of costs resulted in a $1 million
improvement in EBITDAF from our Generation
business.
We take safety seriously
Safety is top of mind in everything we do at
Contact and is critical to the ongoing sustainable
operation of our business. Done well, it creates
value. It helps us perform reliably, is a reflection of
business quality, makes us a strong employer
brand, enables an engaged workforce, and has a
positive effect on the bottom line. Our process
safety programme, Safe to Run, helps us monitor
and measure how well our systems are
performing at keeping hazards away from our
people, assets and the environment. At its heart
THE LAST FIVE YEARS IN REVIEWUnit1H131H141H151H161H17
Revenue and other income$m 1,213 1,14 8 1,24 0 1,120 1,039
Expenses$m 960 884 983 866 778
EBITDAF$m 253 264 257 254 261
Profit$m 88 112 51 (116) 96
Underlying profit$m 92 97 76 73 82
Underlying profit per sharecps 1 2 .7 13.2 10.4 10.0 11.5
Free cash flow$m12812316 4 203 141
Free cash flow per sharecps17. 616.822.2 2 7.7 1 9 .7
Dividends declaredcps 11.0 11.0 11.0 11.0 11.0
Total assets$m 6,097 6,271 6,139 5,72 6 5,561
Total liabilities$m 2,60 0 2 ,73 2 2 ,6 17 2,848 2 ,742
Total equity$m 3,497 3,539 3,522 2,878 2,819
Gearing ratio%2928283736
process safety is about engagement and creating
a culture that empowers people to play a
meaningful role in identifying safety risks and
coming up with ways to manage them.
The advance of our journey towards a generative
safety culture is a priority, and the results of our
latest people survey showing positive movement
across the majority of measures that we track
which is pleasing. This improvement is also being
seen through our lag performance measure, Total
Recordable Injury Frequency Rate (TRIFR) which
indicates we are on the right track with a strong
1H17 TRIFR result of 1.2 with over 1.6 million hours
worked and 2 people unfortunately sustaining low
severity injuries, an improvement from 3.1 that
was recorded in 1H16.
Looking forward
Our strategy remains centred on optimising the
Customer and Generation businesses to deliver
strong cash flows which are ultimately for
distribution to shareholders.
In the last six months we have moved to report
the performance of our Customer and
Generation businesses seperately. The focus this
brings will be used to monitor and drive improved
performance in both businesses and ultimately
deliver value for shareholders.
We expect our operational improvement
initiatives to continue to reduce our costs. In time
our large customer base and world class systems
will provide an attractive opportunity for partners
to join us in providing value for our customers
beyond energy as we continue our evolution from
There’s something for everyone with
Contact’s range of new energy plans.

Not already a customer? Call us today to make the switch
on 0800 266 857 or go online at contact.co.nz