Investor briefing

INVESTOR BRIEFING
Wednesday, 22 November 2017

Contact hosted invited institutional investors and research analysts in Queenstown on Tuesday
evening in advance of a tour of the company’s hydro generation assets on the Clutha. Dennis Barnes,
Contact Chief Executive, presented a brief update current performance and outlook for distributions to
shareholders.

Delivering strong operational performance and providing value for customers
and shareholders

Progress on our strategy
“Contact’s strategy is to optimise the Customer and Generation businesses to deliver strong cash
flows which are ultimately for distribution to our shareholders” said Dennis Barnes, Contact Chief
Executive.
“The transparency and visibility of performance in our Customer and Generation businesses is driving
a relentless focus on growing cash flow by delivering cost efficiency and growing retail margins. In
August, we announced our ambitious target to reduce operating costs and capital spend in the
financial year by between $46m and $66m against FY17.
Pleasingly, four and a half months into the financial year, we are achieving truly sustainable cost
reduction. Operating costs are tracking toward the lower end of our target with capital expenditure for
the year expected to sit comfortably within the guided range. The cost reduction is in the context of an
improving customer experience, increasing customer advocacy and strong generation operational
performance.
This transformation is being enabled by the efforts of our dedicated employees including the
operationalisation of customer lifetime value, the implementation of long-term asset management
plans and through the ideation and execution of a myriad of individual continuous improvement
initiatives. I have observed a clear acceleration in performance and accountability since we
embedded key commercial capability directly into the two stand-alone businesses after realigning our
corporate functions in June. After this period of significant change, we ran a comprehensive
companywide engagement and business performance survey which saw another jump in employee
engagement to 71% on a stronger connection to our purpose.
This has led to encouraging progress in delivering our strategy” said Mr Barnes.
Strategy Focus areas
revealed in
August
Progress
Customer
Will deliver
value by
providing
customers with
choice, certainty
and control
while reducing
cost to serve
and improving
the customer
experience
through
» Sustainable
cost reduction
» Digitalisation /
streamline
highest-
priority
customer
journeys
» Optimise and
automate
processes
» Customers are advocating for Contact in
greater numbers, with a 30% improvement
in Net Promoter Score since June 2017.
» Improving the experience we provide
customers has also supported growth, with
our overall customer numbers for the year
across electricity, natural gas and LPG
rising from 567,000 in June to 569,500, in
an extremely competitive market.
» Price changes for electricity, natural gas
and LPG customers, the addition of
convenience fees and the greater use of

Contact Energy Limited / 2
systems-
enabled
operational
improvements
» Adapt IT
operating
model to
better serve
customer
needs

smart meter technology in the first quarter
of FY18 have been seamlessly executed to
support FY18 year to date gross margin
improvement.
» More customers are choosing to stay with
Contact, as we again recorded a level of
customer switching below that of the overall
market. Contact customer churn for the year
to date has reduced to 19.2%, 2.3% below
the market average of 21.5%
» Cost to serve is down 18% in the first four
months of the year on the simplification of
our IT services and move to the cloud,
reduced churn costs, an increase in digital
self-service, reduced bad debt write-offs
and lower corporate costs.
» Contact Broadband continues to build
momentum with around 550 customers after
only limited promotional spend. A review of
the success of Broadband as a customer
retention tool will be made once we have
2,000 customers. While there is clear
appetite for the product from customers,
Contact will maintain economic discipline.
» Contact is not integrated into upstream LPG
supply and is exposed to the fluctuations in
oil commodity prices. With LPG product
costs up by 10% on the prior period,
discipline is needed to pass through product
cost changes over time.

Generation
Low cost, long
life and flexible
generation
portfolio with a
continuous
improvement
programme
focusing on
safety, spend,
reliability and
resource
utilisation to
improve the
efficiency of our
generation
assets
» Sustainable
cost reduction
» Innovating to
lead the world
in lowering
the cost of
geothermal
energy
» Initiatives to
support
further
decarbonisati
on of our
energy sector

» Contact operates in weather dependent
commodity markets. This hydrological
variability is managed by using portfolio
flexibility and a strong risk management
framework.
» Hydro generation for the year to date is
currently 233GWh below the prior
comparative period. Timing of hydro inflows
is important to earnings - with the month of
July 210GWh down on the prior
comparative period. Pricing effects of the
dry 2017 winter were short lived and
reflected the high lake storage levels in
February.
» Cannot predict exactly when a reversion to
mean hydrology will occur so will continue
to focus on the controllable aspects of the
business.
» Record geothermal production, up 13% on
the prior comparative period as Contact
obtained a variation to the Wairakei mass
take consent in September 2017. This
allows for the extraction of 245,000 tonnes
of geothermal fluid per day on average over
a year.
» Contact is hosting Geo40, who will be
building two plants at Ohaaki to remove
silica from waste geothermal fluids,

Contact Energy Limited / 3
potentially reducing costs associated with
silica scaling.
» Thermal availability and reliability has been
good.
» External recognition of the strength of our
process safety systems and progress in
fostering a generative safety culture have
led to consulting opportunities which are
providing a small revenue stream.
» The new government has outlined an
ambitious decarbonisation agenda which
aligns strongly with our strategy..

Underpinned by a disciplined
and transparent approach to
operating and capital
expenditure while continuing to
investigate ways to optimise our
portfolio of assets

» Leaner
corporate
centre with
aligned
support
functions and
IT programme
in line with
business
requirements

» Corporate costs are $2m lower in the first
four months of the year, against the prior
comparative period as capability
requirements are resourced by the
business.
» Refurbishment of the Taranaki Combined
Cycle plant (TCC) underway, potentially
critical if low inflows into South Island
catchments persist or a second dry
sequence eventuates.
» Limited gas purchases for FY18 to augment
gas available in storage, this includes
competitively priced winter-only gas.
» Increasingly convinced that gas, and in
particular our Ahuroa gas storage facility,
will have an important transitional role in the
decarbonisation of New Zealand.

Outlook
“The retail market is currently delivering good outcomes for increasingly satisfied customers who now
have a choice of providers offering competitive pricing and developing new and innovative products.

While Contact’s earnings for the financial year to date have been impacted by lower hydro generation
and to a lesser extent LPG product costs. Contact will continue to focus on delivering operating free
cash flow growth over time by capturing gross margin and driving cost efficiency” said Mr Barnes.
Strong cash flows to deliver increasing capital returns
Contact remains committed to maintaining a BBB credit rating, as assessed by S&P. This
commitment includes reducing gearing to return the net debt to EBITDAF ratio to 2.8x by June 2018.
Our portfolio of long life generation assets and the progress on delivering on our cost efficiency
programme gives confidence in the strength of Contact’s sustainable cash flow generation which
allows Contact to target an FY18 ordinary dividend of 32 cents per share, an increase of 23% on
FY17.
Once the S&P net debt / EBITDAF ratio is below 2.8x, distributions will then increase to between 80 –
90% of operating free cash flow.
ENDS
Investor enquiries: Matthew Forbes +64 21 072 8578