2018 Annual Shareholder Meeting

1
Chairman’s Address to Contact Energy 2018
Annual Meeting of Shareholders

For immediate release
Wednesday 14 November 2018

Brand refresh
You will have noticed we look a little different.

At our Full Year results announcement in August, we unveiled our new brand look. Contact
has evolved as a business and so has our brand.

The new logo better reflects the type of energy and services company we are. Inspired by
the changing needs of our customers, we are adapting to new technologies, services and
ways of doing things.

As part of the brand refresh we also reviewed the behaviours we expect of our people. You
can see these on the slide behind me. These behaviours form part of our Code of Conduct
and apply to everyone, including the Directors.

Before reviewing our performance in FY18, I would like to make a few comments about our
current operating environment – a very different one from a year ago.
Current operating context
As widely reported, the coalition government wants to accelerate the transition to a low
carbon economy needed to tackle climate change.

Contact supports the vision for a low carbon future and we are taking steps to play a
meaningful role in helping develop cost-effective solutions to some of the difficult global
issues.

We will do this through decisions we take in our generation business, while providing tools to
support our customers to reduce their emissions too.

I’m pleased to say our fleet of generating assets is now more than 80 per cent renewable,
with our most recent developments funded without government subsidies or higher energy
prices for customers. This is a fantastic result.

This has resulted in a 50 per cent reduction in our greenhouse gas emissions from
generation since 2012.

In just the last year, we’ve removed 328,000 tonnes of carbon emissions from our
operations.

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In the past year, we signed up to the Science Based Targets initiative, which commits us to
an emissions target required to keep global warming below 2.0 degrees.

As new scientific evidence is presented, we will continue to revisit our targets. To this end,
we are currently reviewing the latest report of the International Panel on Climate Change
calling for global warming to be kept below 1.5 degrees.

As well as responding to the urgent challenge of climate change, Contact is actively
engaged with the Electricity Price Review panel, the Interim Climate Change Commission
and the broader government agenda.

No doubt, you will have seen various comments about the Price Review with deliberate
positioning by some parties.

For the record, Contact agrees with the panel’s assessment that the electricity system is
working well to produce reliable and sustainable electricity supply.

Where it isn’t working so well is for those customers who are struggling to pay all their
household bills and we believe the government, social agencies, Contact and the industry
can do more for these customers and we are accelerating the design of new products to play
our part. These include weekly/fortnightly billing and PrePay.

In terms of generation, we believe the current market design has ensured the right
investments have been made at the right time and place, and at the least cost to consumers.
Any major changes in direction should only be considered with great caution.

Dennis and his team are actively engaged in the Electricity Price Review process. Dennis
will speak more on this shortly.

I turn now to the year in review.
Delivering financial returns for shareholders
Contact reported a statutory profit for the year ended 30 June 2018 of $132 million, $19
million lower than the prior corresponding period as operating earnings fell by $20 million, or
4 per cent, to $481 million.

In the Customer business, operating earnings were $9 million lower as increased
competition in the Commercial and Industrial electricity segment reduced retail margins and
rising oil prices increased the cost of LPG which were not able to be fully passed through to
customers.

In the Generation business, operating earnings fell by $11 million, primarily as a result of
ASX futures volatility with the sudden hydrological swings.

For the second successive year, we experienced below average inflows in our catchment
area, resulting in higher energy costs as we were forced to produce electricity from our
thermal assets to replace lost hydro flows.

Naturally, we are disappointed and frustrated with this outcome.

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Despite these impacts, our operational efficiencies, the quality of our generation assets and
our strategic access to flexible gas supply, give the Board confidence in the ability to
generate strong free cash flow.

Contact showed strong financial discipline to deliver similar year-on-year operating free cash
flow of $301 million despite lower operating earnings by reducing both operating costs and
stay in business capital expenditure.

In August 2017, the Board revised the distribution policy, targeting distributions between 80
and 90 percent of operating free cash flow, once net debt falls below 2.8 times EBITDAF.

The Board was pleased to declare a full year dividend of 32 cents per share, up 23 per cent
on FY17. In FY19, we are targeting 35 cents per share, up 9 per cent on this year.

Encouragingly, we have seen a reversion to more normal hydrological conditions in our
catchment area in the current year. This combined with the continued focus on operational
performance and flexible generation assets has resulted in a strong start to the current year.
Our people
In FY18, the company continued to invest in the capability of our staff, resulting in ongoing
improvements in engagement scores.

In May, staff engagement was 77 per cent, up from 72 per cent in October the previous year.

I’m delighted to be able to announce we have been awarded the Rainbow Tick evidencing
our commitment to inclusion and diversity.
Customer business
In our Customer business, we launched our new brand – a key part of our transformation to
a digital retailing business.

Our transformation is about engaging customers via digital channels and surprising them
with products and services they value.

This is enabling us to move closer to our aspiration to be the most advocated for retailer with
the lowest cost to serve.
Generation business
Our generation business delivered record geothermal production and sustainable cost
efficiencies in FY18, which helped offset lower than average hydro generation.

With the current low hydro storage levels and constraints to gas supply, this fuel scarcity is
being reflected in higher short-term wholesale prices.

The current situation underlines the critical importance of having a flexible generation
portfolio and strong risk management systems.

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Leadership
In terms of maintaining our leadership position in the domestic energy sector, the Board has
looked at developments and trends abroad.

Earlier this year, three members of the Board joined some of the executive team to visit the
global technology epicentres of San Francisco, Berlin and London to learn what others are
doing to prepare for a low carbon future.

The Board takes great confidence in the fact that this country has a world-class electricity
system that is trusted by consumers and is the envy of much of the developed world.
Governance
Earlier this year, the Board announced we would engage an external search firm to assist
the Board with succession planning.

We were assisted in this process by the Board skills matrix, to assess the skills of each
director against the areas of competence we are looking to acquire with any new
appointment.

Over the last few months, we have announced the appointment of Dame Therese Walsh
David Smol and Jon Macdonald, to the Board. Shortly they will each speak to you outlining
the skills they bring to the Board and I will invite you to vote on the appointment of the new
board members and the re-election of Whaimutu Dewes.

Before we go to that matter, I would like to acknowledge my predecessor Sir Ralph Norris for
his leadership of the Board since 2015.

Sir Ralph successfully navigated the company through a period of substantial change and
renewal and helped lay the platform for ongoing success today.

I also acknowledge and thank Sue Sheldon for her outstanding contribution to the Board for
almost a decade, again during a period of tremendous change.

Finally, on behalf of the Board and Leadership team, I would like to thank all of you for your
ongoing support of Contact.

I will hand over to Dennis for an overview of the year.

ENDS

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1
CEO’s Address to Contact Energy 2018
Annual Meeting of Shareholders
For immediate release
Wednesday 14 November 2018
Introduction
Tēnā koutou katoa
Ki ā tātou kua huihui mai i tēnei rā
Nau mai, haere mai, ki runga i tēnei kaupapa – te hui-ā-tau.

Greetings to you all
To those who have gathered here today
Welcome to the subject of the day – the annual meeting.

Before commencing my formal notes, I would like to introduce my Leadership Team who are
here today.

Tania Palmer, Vena Crawley and of course on the stage with me Catherine Thompson.
James Kilty cannot be here today as he is overseas meeting some of our suppliers.

Lynette Glover is Acting Chief Financial Officer and has been doing an excellent job,
pending the arrival of our new CFO Dorian Devers in December.
Competition and innovation key to success
As mentioned by the Chair, the Electricity Price Review panel published its first issues paper
last month and Contact is actively engaged in the review.

News media headlines said the panel found residential prices increased by 79 per cent over
the last 28 years.

As is often the case, the headlines belie the complex facts, which show that our electricity
system is providing good outcomes for customers.

In a period when transmission and distribution costs have increased, retail prices have
remained relatively flat since 2013.

This is largely because of increased competition, switching initiatives and transparency
promoted by regulators and our customers.

As shareholders, this has resulted in your earnings from retailing electricity more than
halving since regulation and competition became effective.

In this intensely competitive market, we are doing a good job and I will come to that later.

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We agree with the panel that there is a group of customers who struggle to pay all their bills
and this isn't right.

We believe the answer to this challenge is a combination of social policy intervention and
more innovative products.

As owners of the company, you can be assured that Contact is actively helping all our
customers to maintain access to energy and to avoid incurring burdensome debt with us.

Today, we offer more product options and more payment options than ever before, giving
our customers more choice, certainty and control over their energy costs and new ways to
engage with the company so that we hear their views.

We are also working through the Electricity Retailers Association on Access to Energy
projects to support vulnerable customers and will work with the Government, social agencies
and others in the sector to find solutions for the most vulnerable.

Our key message to the Electricity Price Review panel is to look at the positive outcomes the
current market settings have delivered and beware of changes that would undermine them,
or have unintended consequences.

Competitive pressures in the retail market are intense and we see this continuing.

Independent retailers account for 11 percent – or 200,000 customers – in the retail market.
We support 45,000 of those customers through the electricity we sell to independent
retailers. The growth of these retailers is evidence of a healthy, competitive market, and we
welcome that.

There will be a lot more commentary and positioning through the next phase of the
Electricity Price Review.

Our focus will remain firmly on delivering our strategy through product innovation and
reducing our cost to serve.
Meeting stakeholder expectations
Turning now to the year in review, I’m pleased to note FY18 was another good year for the
business, underpinned by strong relationships with our key stakeholders in the financial,
social and environmental sectors.
Financial
We have over $2.7 billion in net assets, more than 64,000 shareholders and 3,500
bondholders who rely on us to deliver sustainable financial returns.

Over the past year, we have reduced costs, capital expenditure and debt levels and
maintained our triple-B credit rating from Standard & Poor’s, which we’ve held since 2002.

This is a solid foundation for managing operational and financial risk and ensures we can
access diverse and cost-effective funding and continue to grow dividends for shareholders.

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As Rob mentioned, the weather gods have not been kind to Contact over the last two
financial years, but we remain focussed on controlling the controllables on your behalf.
There is reason to be optimistic given recent increased inflows into our hydro catchments.
Social
In terms of community engagement, we were ranked among the top five New Zealand
companies for community investment activities, according to the Business and Community
Shares social index – a corporate social responsibility ranking of 100 New Zealand
businesses.

Our staff continued to invest work time in local communities, volunteering with organisations
like the Porirua Homework Club, Octacan, Zealandia, Foodbank, and Lake Taupo Cycle
Challenge. Our community partners regularly tell us this volunteering makes a huge impact
for them.

We also continued to work closely with tangata whenua across a range of initiatives and
projects such as our Māori internship programme, our Geo40 and Ngati Tahu partnership
and relationships with local iwi groups in Wairakei and Tauhara.
Environmental
We rely on natural resources to generate electricity, which is why sustainability and respect
for the environment is integrated into how we do things.

At our hydro operations, we worked with farmers, irrigators, environmental groups, iwi and
regulators to resolve appeals on the Otago Regional Policy Statement without resorting to
an Environment Court hearing. This collaboration is a real success story.

We have continued to provide water to a third party for irrigation through a pipeline from
Lake Dunstan into the Fraser River. And we also worked closely with bore users in the
Hawea area to manage historically low water levels on the dam.

In biodiversity, we have management plans for half of our operational sites and expect to
have plans in place for all our sites by September 2019.

The Government is committed to improving biodiversity and we will continue to use our
expertise to manage and improve biodiversity outcomes in areas under our control.

We have also planted 66,000 native trees and established fencing and pest control on 78
hectares of land in partnership with community groups in Otago, Taupo and Stratford.

To ensure we take the actions that will result in a low emissions future for New Zealand, we
have set emissions reduction targets. We have set these using the Science Based Targets
initiative.

Earlier this year, we joined the Climate Leaders Coalition to show our commitment to help
New Zealand transition to a low emissions economy.

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Delivering on our core business
In terms of maintaining strong cash flows, and simplifying our business, we have executed
two major transactions during the year:

1. the sale of the Ahuroa Gas Storage facility, and
2. the sale of the Rockgas LPG business.

Both transactions provide significant flexibility for our business.

With Ahuroa, we retain access to long-term gas storage services to meet our flexible thermal
generation requirements without needing to own and operate the asset. This transaction
was completed in early October.

Similarly, the sale of Rockgas frees us from the fulfilment aspects of the LPG business while
still being able to sell the product to our mass market customers. We continue to own
Rockgas as the pre-conditions to completion are worked through.

We have been pleased to partner with FirstGas on both these transactions.
Our Customer business
Our Customer business continued to compete hard against an ever-growing number of start-
up retailers and reinvigorated incumbents.

Contact’s total customer numbers across electricity, natural gas and LPG were 570,700 – up
3,700 on the previous year.

Our customers continue to advocate for us in greater numbers, with our Net Promoter Score
averaging +18 during the period, up from an average of +14, last year.

Our success in this area has been enabled by our transformation programme, resulting in a
reduction of $13 million in electricity and gas cost to serve and streamlining of customer
channels.

However, operating earnings in our Customer business was $109 million in FY18, down $9
million on FY17, as LPG product costs increased and intense competition for Commercial
and Industrial customers saw margins decline.

The launch of our new brand provides an exciting platform to surprise and delight our
customers and move closer to our aspirational target of being New Zealand’s most
advocated for energy retailer with the lowest cost to serve.
Our wholesale business
As Rob mentioned, dry conditions impacted earnings in our Generation business as low
South Island inflows extended into the start of FY18.

Hydro generation volumes were below average for the second consecutive financial year.

The scheduled five-yearly refurbishment of the Taranaki Combined Cycle plant in November
and December also impacted earnings.

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As a result, operating earnings from the Generation business was $372 million in the period,
$11 million lower than FY17.

The full effect of the dry conditions on our financial performance was mitigated by our
continuous improvement programme, which is delivering sustainable reductions in ongoing
operating costs and improving the resource utilisation of our renewable assets.

A key focus for the business is to position itself to support further decarbonisation of New
Zealand’s energy sector.

We see the development of our consented geothermal resources playing a key role in the
transition. And reducing the cost of renewable generation developments will give us options
to close thermal plant, if gas and carbon costs continue to rise.

As we mark the 60
th
anniversary of the Wairakei geothermal power station this week, I am
reminded of why we are a clear leader in renewable generation, which will play an
increasingly important role in New Zealand’s move to a low carbon economy.
People
All our leaders and people work to create a culture where inclusion is the norm and diversity
flourishes.

As Rob mentioned, our staff engagement was up five percentage points to 77 per cent from
October 2017 to May this year. While we are pleased with the improvement, as a dynamic,
progressive organisation, we will continue to adapt and improve to make Contact a “best-in-
class” employer.
Health and safety
At Contact, our safety systems and culture empower frontline staff to take ownership of
health and safety outcomes with the backing of our world-class safety systems.

Even with this focus, disappointingly 14 of our people got injured during the year, most of
them strains or sprains. This is a clear sign we need to remain vigilant around the clock and
to apply the lessons gathered from all injuries and near misses.
Future outlook
As mentioned earlier, Contact supports the goal of a low carbon future and we will be taking
a leadership role in achieving that future.

We are also firmly focused on the present, with a strategy that delivers innovative products
at lower cost for customers, while decarbonising our generation business.

We will continue to compete vigorously in both the retail and generation markets and to
advocate for a stable regulatory environment that delivers benefits for consumers both now
and the long-term.

Contact is well placed to deliver sustainable financial returns to shareholders while
positioning ourselves to take advantage of opportunities in the market, as New Zealand
transitions to a low carbon future.

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Closing
As I do every year, I would like to thank all of my colleagues for their energy, commitment
and discipline and to you our shareholders for your financial support.

I would also like to thank the Board members for their contribution. The guidance and
support they provide me remains invaluable.

Thank you.
Tēnā koutou, tēnā koutou, tēnā koutou katoa.
ENDS