HY18 Shareholder letter

The first half of the 2018 financial year (1H18) has seen encouraging progress in delivering improved
operational performance despite poor hydrology and a highly competitive electricity market.
6
April 2018
D
ea
r
Sh
areholder
Financial result
Delivering on our strategy, to optimise the
Cu
stomer and Generation businesses to
in crease cash distributions to shareholders,
has seen a range of continuous improvement
initiatives executed which have improved the
c
ustomer experience, increased customer
advocacy and delivered strong operational
performance in Generation.
This focus on cash flow has resulted in a
sustainable reduction in operating costs of
$11 million, a 9% reduction on the prior
comparative period and a reduction in cash
capital expenditure of $26 million, a 40%
reduction.
Despite this progress on the controllable
aspects of the business, Contact’s short term
earnings have been impacted by the weather.
Low rainfall into our South Island hydro
catchments meant we were more reliant on
higher cost generation from our thermal power
s
tations and other generation companies.
As a result, Contact reported a statutory profit
for the six months ended 31 December 2017 of
$58 million; $38 million lower than the prior
corresponding period. EBITDAF fell by
$28 million, or 11%, to $236 million, while
underlying profit after tax decreased by
$23 million, or 28%, to $59 million.
Contact’s portfolio of long life generation assets
and the progress of our cost efficiency
programme has
given the Board confidence in
the strength of Contact’s sustainable cash flow
generation. The interim dividend increased 18%
to 13 cents per share, compared to 11 cents per
share for 1H17, and is fully imputed.

Generation business
Wholesale market conditions in the first half of
th
e financial year were book-ended by record low
inflows into our Clutha catchment. Contact’s
Clutha hydro generation in the six months was
438 GWh, 21% below the prior comparative
pe
riod with the impact most acutely felt during
high wholesale electricity pric ing periods in July,
August and December.
While Contact’s flexible thermal fuel supply
and assets have ensured a reliable supply to
customers through these dry periods, the
additional fuel and carbon costs incurred
adversely affected our financial performance.
Wholesale electricity prices responded to
the
national hydrological conditions with the
average price received for our generation
nearly twice that of the prior period, but this
was insufficient to fully offset the additional
costs to operate our thermal plant and
purchase risk management contracts from the
wholesale market.
Our
continuous improvement programme is
delivering results with str
ong plant availability
across the portfolio, lower operating costs and
record generation from our geothermal power
stations which was 11% higher than the prior
comparative period.
These conditions resulted in the Generation
business recording EBITDAF for the six months
of $173 million, $25 million lower than 1H17.
As part of our strategy we
are always looking to
optimise our portfolio of assets. In December
2017, Contact entered into an agreement to sell
the Ahuroa Gas Storage Facility to Gas Services
New Zealand for $200 million. The sale is
subject to a number of conditions being satisfied
and is expected to be completed by June 2018.
Contact will retain its rights to use the facility and
will support the facility’s expansion for other
users, allowing us to focus on our core
ge
neration business.
EBITDAF, down 11% as record low hydro
inflows into our Clutha catchment
impacted Contact’s first half earnings
$236m
Operating free cash flow up 5% against
1H17, with cash spent on capital projects
down by $26m (40%)
19.7cps
Or 9% reduction in other operating
expenses against 1H17
$11m
Interim dividend up 18% to 13 cents per
share (1H17 11 cents per share), which will
be fully imputed for New Zealand based
shareholders
13cps
Shareholder Letter 2018_v1.01 (003).pdf 116/03/18 1:23 PM

Dennis Barnes
Chief Executive Officer
Customer business
The New Zealand energy market remains
highly competitive and is currently delivering
good outcomes for
increasingly satisfied
customers, who now have a choice of providers
offering competitive pricing
and new and
innovative products.
Contact is competing well in this environment
by providing customers with choice, certainty and
control while systems-enabled operati
onal
improvements continue to improve the
customer experie
nce.
More customers are choosing to stay with
Contact and we again recorded a level of
switching below that of the overall market, with
customer churn reducing to 19.1% over the last
12 months, 1.8 percentage points below the
m
arket average.
The ongoing migration of systems into the
cloud continues to deliver benefits by lowering
operating costs, improving performance,
bolstering security and enhancing the flexibility
of our information technology platform.
As a result of our ongoing work in the Customer
business, the cost to serve our customers is
down 11% on the prior comparative period.
We are also seeing customers advocate for
Contact in greater numbers with a Net
Promoter Score of +15 for the period, up from
+12 in the same period last year and +14 for the
2017 financial year.
Despite this strong operational performance,
the Customer business EBITDAF fell by
$3 million to $63 million in the six months to
31 December 2017 compared to the same
period a year ago. This was mainly due to rising
LPG product costs, which are linked to
international oil prices and foreign exchange
rates.
People
Contact continues to empower frontline
workers to play a meaningful role in identifying
risks and coming up with ways to manage them.
The strength of our process safety systems
and progress in fostering a generative safety
culture has led to consulting opportunities,
which not only provide a small revenue stream
but also confirm we are on the right track.
Disappointingly, Contact recorded four low
severity injuries in the first six months with a
T
otal Recordable Injury Frequency Rate per
million hours worked (TRIFR) of 2.9. Although
these injuries were relatively minor, we continue
to work on identifying critical risks and key
controls through rigorous planning. A good
example of this was the recently completed
major outage at the Taranaki Combined Cycle
plant where 125,000 hours were worked with no
recordable
injuries.
In line with advancing our safety culture,
Contact introduced a new Health Safety and
Environmental Management System, a simpler
and more engaging framework focused on
learning and
improving.
Alongside these improvements to safety
systems, the wellbeing of our people has been
emphasised in the period with focus on mental
health, workload and stress. Contact is
implementing more creative and flexible ways
of working through a new employee programme
named ContactFlex to further foster
a more inclusive and diverse workplace.
Loo
king forward
Contact’s focus for the next six months remains
on delivering operating free cash
flow growth by
focusing on the aspects of the business we can
control and maintaining a disciplined and
transparent approach to operating and capital
expenditure.
The extent of the current dry period, its impact
on hydro inflows, and the government’s
Electricity Pricing Review all present potential
operational challenges for the remainder of the
year. However, there are also a number of
exciting opportunities for Contact to pursue.
Chief amongst these is the opportunity to

help New Zealand businesses transition to
low-emissions
operating platforms as the
government’s policy focus shifts towards
decarbonising the economy and establishing
100% renewable energy targets.
Our generation assets, deep relationship with
customers, ongoing cost efficiency
p
rogramme, and lean operations gives us
confidence in our ability to execute on our
strategy, manage the challenges, and develop
the opportunities ahead of us.
THE LAST FIVE YEARS IN REVIEWUnit1H141H151H161H171H18
Revenue and other income$m 1,14 8 1,24 0 1,120 1,0371,194
Expenses$m 884 983 866 773 958
EBITDAF$m 264 257 254 264236
Profit (loss)$m 112 51 (116) 9658
Underlying profit$m 97 76 73 8259
Underlying profit per sharecps 13.2 10.4 10.0 11.58.2
Operating free cash flow$m55163200134141
Operating free cash flow per sharecps7. 622.227.31 8 .71 9 .7
Dividends declaredcps 11.0 11.0 11.0 11.0 13.0
Total assets$m 6,271 6,139 5,72 6 5,587 5,390
Total liabilities$m 2 ,73 2 2 ,6 17 2,848 2 ,76 6 2,663
Total equity$m 3,539 3,522 2,878 2,821 2 ,72 7
Gearing ratio%2828373635