Announcement

HALFYR: CEN: Contact Energy - 2019 Interim Results 08:30am 
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

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