Announcement

HALFYR: CEN: Contact Energy - 2019 Interim Results 08:30a.m. 
CEN  
11/02/2019 08:30  
HALFYR  
PRICE SENSITIVE  
REL: 0830 HRS Contact Energy Limited  
 
HALFYR: CEN: Contact Energy - 2019 Interim Results  
 
Monday, 11 February 2019  
 
New products and services send customer advocacy sharply higher. Flexible  
generation portfolio performed well in a volatile market. Distributions to  
shareholders rise following the completion of two significant transactions  
 
Highlights  
 
[see table in attached pdf]  
 
o Introduction of differentiated products and digital service investments  
improve customer advocacy by 20%  
o Flexible generation portfolio and access to stored gas saw Contact increase  
wholesale spot market sales during the higher priced October period as the  
market responded to major gas field outages and lower national hydro storage  
levels  
o Working with customers, partners and suppliers to decarbonise New Zealand's  
energy sector, renewable generation up 10% on 1H18  
o Cost efficiency programme delivering, with cash spent on stay in business  
(SIB) capital projects down by $6 million (17%) and other operating costs  
down $4 million (4%)  
o Completed the sale of Ahuroa gas storage (AGS) and the sale of the Rockgas  
LPG business, receiving net cash proceeds of $438m in the period  
o Strong balance sheet, high quality renewable generation assets and lean,  
low cost operations enable increasing dividends to shareholders with the  
target FY19 ordinary dividend increasing to 39 cents per share, 7 cents per  
share higher than FY18. The interim declared dividend is up by 23% to 16  
cents per share  
 
Putting our energy where it matters  
 
"Despite a testing operating environment that included extended unplanned  
outages at some of New Zealand's largest gas fields, low hydro storage levels  
and a continuation of intense retail competition, Contact's flexible and  
resilient portfolio performed well. This was underpinned by strong financial  
discipline, deepening the relationship with our customers and a robust risk  
management framework", Chief Executive Dennis Barnes said.  
 
Contact reported a statutory profit for the six months ended 31 December 2018  
of $276 million, $218 million higher than the prior corresponding period  
after realising a gain on the sale of Rockgas and AGS of $172m. EBITDAF from  
continuing operations increased by $61 million, or 28%, to $278 million led  
by strong operational performance in the Wholesale business. Operational  
improvements resulted in a further reduction in other operating costs of $4  
million, 4% down on the prior comparative period. Operating free cash flow  
increased to $203 million, up 44% on 1H18 on a combination of higher  
operating earnings, lower stay in business capital expenditure and interest  
costs that were partially offset by higher cash tax.  
 
"During the half we completed the sale of the AGS facility and the sale of  
the Rockgas LPG business. These transactions simplify and focus the  
organisation and strengthen our balance sheet", Mr Barnes said.  
 
Contact's portfolio of long-life renewable generation assets supported by a  
robust balance sheet provides the Board confidence to change the distribution  
policy to distribute ordinary dividends targeting a pay-out ratio of 100% of  
Operating Free Cash Flow. This will see the FY19 full year dividend target  
increased to 39 cents per share, compared to the 32 cents per share declared  
for FY18. In line with the new policy, the Board has approved an interim  
dividend of 16 cents per share which will be imputed up to 10 cents per share  
for qualifying shareholders.  
 
Connecting with our customers  
 
Contact's Customer business continues to reduce the cost to serve while  
improving the customer experience.  
 
Customer experience improvements saw a final quarter Net Promoter Score of  
+24, up 20% on the prior comparative period while operational efficiencies  
led to a 2% reduction in the cost to serve customers while also investing in  
a refreshed brand and new digital capability. This has contributed to  
customer churn being 0.9 percentage points below the market average and  
improved mass market electricity and gas earnings, with Customer EBITDAF up  
by $3 million to $48 million for the six months ended 31 December 2018 when  
compared to the same period a year ago.  
"Even with volatile wholesale prices, the retail electricity market remains  
highly competitive, with heavy discounting and large sign on credits the  
predominant tools for acquiring customers. It's important that we distinguish  
our products and services from our competitors and we have accelerated the  
delivery of several smart customer solutions in the period, including our new  
payment methods - PrePay and weekly/fortnightly billing - that help customers  
manage their bills, and launched new products to deliver customer choice and  
innovative rewards such as 'free-bill', 'promise plan' and our broadband and  
electricity bundle. Empowering more customers to interact with us on their  
preferred digital channels gives me confidence that our transformation into a  
customer-centric digital energy company is progressing well" said Mr Barnes.  
 
Generating for the future  
 
Contact's Wholesale business is working with business customers, partners and  
suppliers to decarbonise New Zealand's energy sector.  
 
"The conversion of business customers with a high carbon footprint to  
renewable energy will enable demand-backed development of our consented  
geothermal resources. To accelerate delivery of our strategy, we moved the  
Commercial and Industrial team into the Wholesale business and are looking  
for opportunities to expand our offering to customers beyond commoditised  
electricity", Mr Barnes said.  
 
Generation EBITDAF increased by $58 million to $243 million in the six months  
to 31 December 2018 compared to the same period a year ago, as production  
from hydro generation increased by 25%, or 410GWh in line with historic  
averages after a dry 1H18 in Contact's Clutha catchment. In addition, as gas  
supply reduced, Contact supported the market by accessing gas stored in AGS  
and offering additional thermal generation above our contracted sales to meet  
wholesale spot demand.  
 
"While the current lack of demand growth doesn't support new renewable  
investment, we are working hard to reduce the cost of our consented renewable  
development options to meet the anticipated increasing demand from customers  
or execute on the economic substitution of thermal generation with new  
renewables", Mr Barnes said.  
 
Outlook  
 
"Contact has developed customer-centred processes, products and propositions  
that means all customers can reliably access our best deals. This will  
continue with the imminent release of our "basic plan", a competitive  
no-frills, no prompt payment discount proposition. With regards to the  
initial findings of the Electricity Price Review, customer-centred specific  
action is necessary and a "one size fits all" approach will not work, as it  
is ultimately our customers who will define the value of product features,  
discounts or rewards.  
 
Recent gas production hasn't been as reliable as we would have expected and  
we continue to operate cautiously as we manage short-term supply constraints.  
Contact is engaging with suppliers to contract gas for calendar year 2019 and  
beyond. In addition to the gas we expect to contract, we have access to  
stored gas in AGS and other contractual options that will give us appropriate  
access to energy for our customers.  
 
In addition some of the nearer term priorities outlined, we will focus on  
delivering on our transformation programme to reduce controllable costs, and  
seek opportunities to capture value from scale efficiencies through  
brownfield geothermal development and by leveraging our customer systems and  
lean operating model to improve returns", Mr Barnes said.  
 
ENDS  
 
Investor enquiries: Matthew Forbes +64 21 072 8578  
Media enquiries: Andrew Austin +64 21 644 167  
End CA:00330371 For:CEN Type:HALFYR Time:2019-02-11 08:30:50