Contact Energy Limited · NZX:CEN
Contact Energy — Shareholder Meeting (November 2016)
44 slides from Contact Energy's shareholder meeting presentation, Nov 23, 2016
Slide 1: Capturing value in a customer-inspired world
Higher Res images pending: branding team Monday Capturing value in a customer-inspired world Contact Energy October 2016 Annual meeting of shareholders Auckland 23 November 2016
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking stat
Slide 3: Contact in context
Contact in context » Tailwinds » Headwinds Strong cash generation, Temporarily higher debt levels distinctive investments than peers operationally embedded Electricity Industry The wholesale market is High churn, mixed demand balanced and retail margin outlook and potential industrial compression ha
Slide 4: Charting our own improvement path
Charting our own improvement path Net promoter score Improved financial -8% -3% performance +10 Q1 FY17 FY15 FY16 CUSTOMER EXPERIENCE Promoters have higher customer lifetime value Aon Hewit – Employee engagement through less churn and lower sensitivity to price Target “Best Employer” ENGAGED EMPLOYE
Slide 5: 12 months ago we outlined our customer strategy across the value chain
12 months ago we outlined our customer strategy across the value chain Understanding, winning and Understand – Build propositions – Promote them – Provide great service – Support the operations keeping customers » Customer intimacy is built through Data + Digital + Innovation + Agility being embedde
Slide 6: Since then we have seen our rate of progress accelerate
Since then we have seen our rate of progress accelerate Pre November 2015 Progress since November 2015 Shaping customer Chief Customer Customer strategic SAP driven cost Infrastructure moved Complete exit from organisation for Officer appointed review completed reduction to cloud services Origin inf
Slide 7: And what we have done is resonating with our customers
And what we have done is resonating with our customers Service is fast and I We are happy with the Contact set me up for felt that Contact service and all what my new heard my dilemma dealings we have had requirements are. and were very with Contact. We like What a wonderful way Customer experience
Slide 8: Capturing value in a customer-inspired world
Capturing value in a customer-inspired world 1 Graham Cockroft Chief Financial Officer Maintaining financial discipline 2 Dennis Barnes Chief Executive Officer Competitive markets are key for realising value from new technology 3 James Kilty Chief Generation Officer Driving value from our generation
Slide 9: Maintaining financial discipline
Maintaining financial discipline Graham Cockroft – Chief Financial Officer Contact Energy October 2016 Annual meeting of shareholders 9
Slide 10: Our financial framework
Our financial framework » Our focus is on free cash flow generation and ensuring a robust balance sheet Distributions » Ordinary dividend equal to Free cash flow Balance Sheet 100% underlying profit » Special dividend where » Operating cash » Investment grade imputation credits available flow credit
Slide 11: Current performance supports strong cash flows
Current performance supports strong cash flows » New products and prices aligned to value, for the customer and Contact 300 » Lower mass market usage per customer 250 » Small decrease in customer numbers following the repricing of a below market fixed price product 200 $m » Hydro generation strong,
Slide 12: Capturing customer inspired value will require innovation and discipline
Capturing customer inspired value will require innovation and discipline » Understand the opportunity » Decision framework New New New 01 Value defined by customers products services technology 02 Scalable 03 and cost structures Leverages existing capabilities 04 Complementary partnerships 05 Impact
Slide 13: Transparency of performance will drive focus
Transparency of performance will drive focus » Indicative EBITDAF Cash flow statement 600 Generation Customer 500 Balance sheet Generation Customer 400 EBITDAF ($m) Profit and loss 300 Generation Customer 200 Cost of energy Netback 100 + Electricity and - Electricity and gas revenue gas cost - FY12
Slide 14: The efficient return of free cash flow remains a priority
The efficient return of free cash flow remains a priority » Prudent financial management » Annual average sources and uses of cash 500 450 Growth Between FY10 and FY14 our growth Increase in 01 investments in generation assets and systems exceeded our free cash flow 400 350 Dividend re- investment p
Slide 15: Contact remains committed to an investment grade credit rating
Contact remains committed to an investment grade credit rating » Contact has had a BBB rating since » Debt levels and interest costs falling, with 2002 : Why BBB? key S&P metric forecast to return to target 3.5 Solid foundation for the management of operational and financial risks 3.0 2.5 Efficient
Slide 16: Summary
Summary Financial framework prioritises a 01 robust balance sheet, with strong cash flow generation directed to debt repayment Disciplined approach to the 02 assessment and funding of new opportunities Cost control and performance 03 management the current focus Contact Energy October 2016 November
Slide 17: Competitive markets are key for realising value from new technology
Competitive markets are key for realising value from new technology Dennis Barnes – Chief Executive Officer Contact Energy October 2016 Annual meeting of shareholders 17
Slide 18: Technology will give customers more choice and control
Technology will give customers more choice and control An integrated energy retailer is well App’s / user interface positioned to Self service aggregate and portal provide services to Smart appliances Aggregation the Retail, Energy and supply of management services Wholesale and Smart devices Whol
Slide 19: Technology can be deployed across the value chain
Technology can be deployed across the value chain » As an example, a battery can provide up to 13 services to three stakeholder groups New technology should play a significant role in minimising the $10 - $15bn of forecast investment in generation energy and capacity, transmission and distribution o
Slide 20: A customer centric view of regulation is likely to result in the best market outcomes
A customer centric view of regulation is likely to result in the best market outcomes Simplicity Transparency Access Competition Profitability Contact has been active in Market complexity costs Customers define There should be a reasonable Promote market design changes It is in New Zealand’s long- p
Slide 21: In parallel we are testing and learning what our role might be
In parallel we are testing and learning what our role might be Distributed energy Large-scale generation Storage & demand response Electric vehicles and Poles, wires and peaker generation Petrol vehicles Currently trialing combinations of new technologies Customer trials are Trial 1: Trial 2: Trial
Slide 22: Driving value from our generation portfolio
Driving value from our generation portfolio James Kilty – Chief Generation and Development Officer Contact Energy October 2016 Annual meeting of shareholders 22
Slide 23: Well run generation and wholesale operations currently drive most value
Well run generation and wholesale operations currently drive most value Discretionary Strong internalised thermal generation risk management 01 03 Low cost renewable Balanced wholesale generation portfolio market 02 04 Contact Energy October November2016 2016 Capturing Annualvalue in aofcustomer mee
Slide 24: A focus on continuous improvement
A focus on continuous improvement » HSE achievements and capability » Record of driving down the cost of energy 450 50 400 45 40 350 Cost of energy ($/MWh) 35 Cost of energy ($m) 300 30 250 25 200 20 150 15 100 10 50 5 0 0 FY12 FY13 FY14 FY15 FY16 Gas purchases, carbon, transmission and levies Other
Slide 25: Safe to Run is driving operational improvement
Safe to Run is driving operational improvement » Our world class process safety improvement programme, Safe to Run, is driving core improvements to our generation business with some unexpected upsides FY15 FY16 FY17 Integrated HSE Management System 51% 60% 68% Contact Energy October November2016 201
Slide 26: Improving the efficiency of our geothermal business
Improving the efficiency of our geothermal business with our world class capability » Geothermal has become an increasingly » We will continue to improve the efficiency of our geothermal important contributor to Contact’s earnings assets 32.0 GWh per million tonnes of geothermal fluid 31.5 31.0 ~25%
Slide 27: Our market is balanced with no new generation required
Our market is balanced with no new generation required » Further thermal asset closures possible if » There’s a clear role for thermal assets to costs not recovered under some scenarios generate between... 45 40 35 43 30 24 Generation (TWh) 25 20 15 7 5TWh & 10TWh 2 0.4 10 2 5 7 5 10 per annum 0 Win
Slide 28: Our thermal plants manage risk
Our thermal plants manage risk Thermal Strategy Te Rapa » Base load role Taranaki Combined Cycle (TCC) » Peaking option during dairy off-season » Supported by long term gas » Discretionary support for C&I sales agreement » Gas tolling / winter firming role » Must recover margin on costs Stratford Pe
Slide 29: Our fuel position provides flexibility
Our fuel position provides flexibility » Intention only to purchase portfolio gas (to Fuel Strategy complement AGS) on year ahead basis Long term gas supply Agreements Ahuroa Gas Storage (AGS) » Current stored volume = 10 PJ » Option of selling to third (max of 17PJ) parties / mid stream role » Enab
Slide 30: We’re well positioned to manage our short-term wholesale costs
We’re well positioned to manage our short-term wholesale costs 4.2 TWh 3.2 TWh -- - -- Loss Wet Year MARKET 27 TWh 22 TWh Dry Year (hydro generation) GAS SUPPLY » Take or Pay commitments meet contracted sales » AGS extractions and contracted gas one year ahead meet seasonal commitments with remainde
Slide 31: Many factors affect future wholesale energy/capacity balance
Many factors affect future wholesale energy/capacity balance Demand Industrial demand Grid generation Fuel New Technology » Little winter growth year on » NZAS’s - early » Market conditions do » ~ 12 years of gas » PV currently ~61GWh year (temp adjusted) termination option not support new supply pa
Slide 32: We are well positioned for the long term
We are well positioned for the long term » 400 MW of peaking generation consented at Stratford – potential replacement of TCC/Huntly THERMAL Expansion options at AGS for mid stream role – dependent on third party demand » Option of shifting Whirinaki » Option to close thermal plant if not rewarded »
Slide 33: Well run generation and wholesale operations currently drive most value
Well run generation and wholesale operations currently drive most value Summary Targeting the basics » Strong earnings performance from core » Safety and operational reliability 01 renewable business, firmed by Ahuroa Gas storage and Stratford Peakers 01 improvement – with our Safe to Run programme
Slide 34: Technology is creating a world of opportunities for a great ME-tailer
Technology is creating a world of opportunities for a great ME-tailer Vena Crawley – Chief Customer Officer Contact Energy October 2016 Annual meeting of shareholders 34
Slide 35: Our evolution from an Essential Services business to a Living Services business
Our evolution from an Essential Services business to a Living Services business Core Activities Insight Products Sales Service Energy as a Service Sustain Customer 3.0 Lowest Cost to Serve Cloud and partner based transformation Customer Experience Me-tailer Expand beyond energy. Seek scale efficienc
Slide 36: Now delivery speed is accelerating as we become truly customer inspired
Now delivery speed is accelerating as we become truly customer inspired Pre November 2015 Progress since November 2015 Shaping customer Chief Customer Customer strategic SAP driven cost Infrastructure moved Complete exit from organisation for Officer appointed review completed reduction to cloud ser
Slide 37: We updated on the progress on SAP stabilisation and mapped the key workstreams
We updated on the progress on SAP stabilisation and mapped the key workstreams Earlier Next steps Shaping customer Chief Customer Customer strategic SAP driven cost Infrastructure moved Complete exit from organisation for Officer appointed review completed reduction to cloud services Origin infrastr
Slide 38: Now delivery speed is accelerating as we become truly customer inspired
Now delivery speed is accelerating as we become truly customer inspired Pre November 2015 Progress since November 2015 Shaping customer Chief Customer Customer strategic SAP driven cost Infrastructure moved Complete exit from organisation for Officer appointed review completed reduction to cloud ser
Slide 39: Delivering return on investments in systems and capability
Delivering return on investments in systems and capability 1H15 2H15 1H16 2H16 YTD17 Change in customer numbers -7,300 -1,600 -9,800 +5,380 -1,450 We’ve listened to • New products Average time to answer our customers • Battery and solar trials (seconds) 220 268 222 141 138 and delivered Churn (varia
Slide 40: Organisational agility will be vital
Organisational agility will be vital » The digitisation of everything and liquid expectations of customers will fundamentally change the market forces, reinventing all product and service constructs and fueling new competitive dynamics. New Entrants Consumers Substitutes Regulation Competition Digit
Slide 41: Strengthening our core while pursuing our customer strategy
Strengthening our core while pursuing our customer strategy SUSTAIN WHAT WE HAVE MOVE AWAY FROM PURE OPERATIONAL RETAILING Positioning for a new world OPEN UP THE DIALOGUE FOCUS ON UNIQUE VALUE Contact Energy October 2016 November 2016 Capturing Annualvalue meeting in aofcustomer shareholders inspir
Slide 42: Customer inspired in action
Customer inspired in action Strengthening our core Damian Woolfall Head of Seamless Operations Data and analytics innovation and performance Stephen Hastings Head of Data Analytics Flexing with our customers Matt Bolton Head of Customer Engagement - Win A view to the future Michael Pryor Head of Des
Slide 43: Keys to delivering returns from our customer strategy
Keys to delivering returns from our customer strategy » ‘Must Dos’ » ‘Must Haves’ Reinvent Customer operations Competitive / Digital customer Strengthen Architect resilient Commercial strategic interaction technology Mindset partnerships platforms Build an innovation Drive analytics- Nimble Product
Slide 44: Extracting value from a deep customer relationship
Extracting value from a deep customer relationship ADVICE PROVIDER Provide specific solution and lifestyle suggestions based on deep customer knowledge, insights and purchasing algorithms and data. ACCESS FACILITATOR Support the customer everyday/anywhere in accessing solutions that enable them to l