Contact Energy Limited · NZX:CEN
Contact Energy — Investor Presentation (November 2015)
50 slides from Contact Energy's investor presentation, Nov 9, 2015
Slide 1: Contact Energy investor presentation
9 November 2015 For personal use only Contact Energy investor presentation Contact Energy Limited (Contact) is hosting an investor session in Auckland today focussed on the current operations and strategy of the customer business. The presentation will be made by Contact Chief Executive Dennis Barne
Slide 2: Towards customer 3.0: Contact's retail business
For personal use only Towards customer 3.0 Contact’s retail business 9 November 2015
Slide 3: Disclaimer
Disclaimer For personal use only This presentation may contain projections or forward- EBITDAF, underlying earnings after tax, OCAT and free looking statements regarding a variety of items. Such cash flow are non-GAAP (generally accepted accounting forward-looking statements are based upon current p
Slide 4: Key themes for today
Key themes for today For personal use only BUSINESS MODEL » Energy market continues to evolve EVOLUTION » Contact’s business model continues to generate strong cash flows » Limited outlook for growth investment and changing customer expectations increases focus on retail business to provide opportun
Slide 5: Current market topics of interest
Current market topics of interest » Te Mihi outage For personal use only • First unit returned to service with the second unit taken out last week for ~30 days. Operational flexibility evidenced » Otahuhu land sale • Marketing campaign in progress with deadline for offers 18 November » Share buyback
Slide 6: New technologies and changes in customer behaviours require us to adapt
New technologies and changes in customer behaviours require us to adapt For personal use only Increased focus on renewable generation Improving economics and competitiveness of new technology Customer expectations around choice, control, certainty and value are requiring deeper relationships Decreas
Slide 7: Our Purpose – To help New Zealanders live more comfortably with energy
Our Purpose – To help New Zealanders live more comfortably with energy For personal use only Finding, developing and generating Understanding, winning the energy the market requires and keeping customers Supporting our business Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 6
Slide 8: Contact has the scale, experience and capability to succeed in a changing retail market
Contact has the scale, experience and capability to succeed in a changing retail market 557,000 For personal use only Contact is accelerating the evolution of its retail business following a Customers across period focused on large capital development and integration three products 21% » The industr
Slide 9: Our customer strategy is developing across three horizons
Our customer strategy is developing across three horizons For personal use only Technology and customer expectations accelerate plans to move beyond lowest cost Core activities Insight Products Sales Service Customer 3.0 Cloud and Customer partner based experience transformation Customer 2.0 Data Us
Slide 10: We are positioned well to compete
We are positioned well to compete For personal use only Average main Contact analysis Contact competitors* Electricity netback ($/MWh) 93 94 Net price ($/MWh) 106 113 Mass market electricity customers (000) 438 360 12 month churn rate 20% 19% 12 month change in customer numbers (000) (8) 4 % electri
Slide 11: To be customer-centric you must be customer-inspired
To be customer-centric you must be customer-inspired For personal use only That requires a customer-view of the business Understand – Build propositions – Promote them – Provide great service – Support the operations » Customer intimacy is built through Data + Digital + Innovation + Agility being em
Slide 12: Data, analytics and insight
For personal use only Data, analytics and insight Targeted, meaningful and insightful analysis identifies customer lifetime value for us to pursue Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 11
Slide 13: Targeted, meaningful and insightful analysis identifies customer lifetime value
Targeted, meaningful and insightful analysis identifies customer lifetime value for us to pursue For personal use only UNDERSTANDING WHAT CUSTOMERS WANT We use two key frameworks to understand customers » Leverage digital and data opportunities to make connections that produce targeted, meaningful a
Slide 14: Demand growth has returned over the past five quarters
Demand growth has returned over the past five quarters For personal use only 18,000 16,000 Numbers represents Industrial demand growth over 14,000 the past 15 months NZ electricity demand (GWh) 12,000 Residential 10,000 Source: Transpower/ Commercial Contact 8,000 6,000 4,000 2,000 Agriculture/ 0 Fo
Slide 15: The outlook for demand is improving
The outlook for demand is improving although industrial closures quickly offset any growth For personal use only AGRICULTURE AND COMMERCIAL DEMAND OUTLOOK GDP Electricity Intensity Overall Electricity Demand Source: MBIE, Statistics NZ RESIDENTIAL DEMAND OUTLOOK Households Electricity Intensity Over
Slide 16: Churn rates remain high
Churn rates remain high – impacting CLV and sales volumes in our mass market business For personal use only » Approximately 60% of churn is driven by house movers rather than active switches » Over 70% of mass market electricity customers are now on products with higher than standard discounts offer
Slide 17: Customer Lifetime Value is a holistic metric for customer value
Customer Lifetime Value is a holistic metric for customer value For personal use only Not all customers provide the same value Historical price settings drive higher number » A shift in focus to understanding customer of customers with a poor CLV lifetime value provides a better view of which custom
Slide 18: Attitudinal segmentation helps drive customer centricity
Attitudinal segmentation helps drive customer centricity and how we connect with them For personal use only For Social Drivers For Strivers For Thrivers Life is good, but concerned Life is hard, but they’re Life is good, but they feel we for communities and the trying to get ahead don’t value them e
Slide 19: Designing tomorrow
For personal use only Designing tomorrow Creating and making the products and services that customers value and want Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 18
Slide 20: Creating and making the products and services that customers value and want
Creating and making the products and services that customers value and want For personal use only DELIVERING WHAT THE CUSTOMER WANTS Average weekly household expenditure » We are digital futurists and innovators focused on a continuous process of designing, building, adapting, optimising and activat
Slide 21: A series of paradoxes and seismic shifts within New Zealand culture
A series of paradoxes and seismic shifts within New Zealand culture* For personal use only NEW WAYS OF CONTESTING WHAT IT MEANS TO ‘LIVE, BREATHE AND DO NEW ZEALAND’, THAT INFORMS HOW WE SERVICE THE MARKET OUR RESPONSE AND ACTIONS TO DATE WE WANT TO LIVE WITH » Continued focus on Purpose and investm
Slide 22: Sea-change in customer businesses is profound
Sea-change in customer businesses is profound For personal use only Marketing is at the front edge of leveraging changing technology and expectations A SHIFT IN A NEW A METEORIC AN ERA OF MORE POWER MODEL OF RISE IN MISTRUST INFORMATION From brands and ENGAGEMENT CUSTOMER A growing focus THAN WE med
Slide 23: Partnerships are critical in designing and developing new offers
Partnerships are critical in designing and developing new offers that leverage our system of record For personal use only Contact’s scale makes it an attractive partner for third-parties » Contact’s own data combined with spend and redemption data from 1.8 million active Fly Buys households as well
Slide 24: Partnerships and ventures will be key to developing non-core value propositions
Partnerships and ventures will be key to developing non- core value propositions For personal use only Our system of record enables us to unlock growth opportunities from non-core products Now: » Core products Basic services & services » Strong cash generation Dual fuel Shift from ‘product-based’ to
Slide 25: Digital ubiquity
Digital ubiquity Digital experiences and customer behaviour is continually re-setting customer expectations – For personal use only services from Amazon, Air BnB, Air NZ and many others lead the way What New Zealanders do and see in Energy sector For Contact that means accelerating the digital space
Slide 26: Regulation may struggle to keep pace with changing technology
Regulation may struggle to keep pace with changing technology and customer preferences For personal use only Contact’s regulatory manifesto provides a framework for pursuing a competitive retail electricity market in New Zealand Five pillars of our regulatory manifesto Simplicity Transparency Access
Slide 27: Contact's historical pricing construct is changing
Contact’s historical pricing construct is changing, improving competitiveness and customer value For personal use only DISCOUNTING IS THE UNIVERSAL CURRENCY FOR CONTACT AND MOST OTHER ENERGY Moving customer consideration from ‘price’ to RETAILERS TO ACQUIRE AND RETAIN ‘value’ is a key driver. » Cont
Slide 28: Customer experience – sales
For personal use only Customer experience – sales Selling to the right customers, the right products at the right time Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 27
Slide 29: Selling to the right customers, the right products at the right time
Selling to the right customers, the right products at the right time For personal use only TRANSITIONING TO CUSTOMER LIFE TIME Market share changes over time VALUE » We leverage data insight and digital enablers to identify and acquire the right customers at the right value proposition – for both th
Slide 30: Contact's size, reach and footprint requires a retail mass market lens
Contact’s size, reach and footprint requires us to address the market through a retail mass market lens For personal use only RETAIL MEANS BEING: Location of Contact’s current electricity customers » Responsive to large number of customers and different segments nationwide » Agile in our ability to
Slide 31: Customer value differs across the country depending on the region
Customer value differs across the country depending on the region For personal use only Due to the network structure, competing in New Zealand’s 29 different network regions adds complexity and cost to operations and confuses customers Customer 3.0 Presentation 9 November 2015 Contact Energy Limited
Slide 32: Customer experience – service
To be updated – don’t worry about creating For personal use only Customer experience – service Proactive, predictive and practical service for our customers Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 31
Slide 33: Proactive, predictive and practical service for our customers
Proactive, predictive and practical service for our customers For personal use only DELIVERING AN ‘OMNI’ EXPERIENCE Delivering benefits for Customers and Contact » A strong sales-through-service culture focused on giving the choice, certainty and control customers Lower churn value across the lifecy
Slide 34: Running a retail energy business is not without complexity
Running a retail energy business is not without complexity For personal use only In the past 12 months we have managed: 29 5.3m Bills sent 953,000 Website visitors 600,000 LPG cylinders delivered 15b Network companies, 211, 000 each with there own tariff structures and billing cycles Rows of data me
Slide 35: Net Promotor Score is a key metric in customer-inspired businesses
Net Promotor Score is a key metric in customer-inspired businesses for advocacy/loyalty For personal use only Detractors Passives Promoters Industry NPS* 0-6 7-8 9-10 Banking 12 FMCG 5 Freight/logistics -2 Contact -8 Insurance -10 Phone companies -10 Internet companies -13 NPS = Promoters - Detracto
Slide 36: Build customer loyalty and trust by reducing customer effort
Build customer loyalty and trust by reducing customer effort and increasing their perceived value For personal use only We have made progress with further improvements as we drive online May–Oct May–Oct May–Oct 2013 2014 2015 Calls per customer 2.6 3.9 2.4 (annualised) Average handle 374 624 485 tim
Slide 37: Predictive data model now operationalised
Predictive data model now operationalised For personal use only Using data insight to direct our customer service effort What have we done? Which customers? How does it work? • Customer service trial in 2014 • New customers • Dedicated outbound team of 10 • Mainstreamed into our contact • House move
Slide 38: Our digital channels
Our digital channels For personal use only We have already deployed multiple digital channels Retail website LPG self-service app My account web app • Redesigned • ~25% of users each • Integrated into core customer journey to month are new users SAP system improve completion • In the past 12 months
Slide 39: Seamless operations
To be updated – don’t worry about creating For personal use only Seamless operations Best-in-class operations that support value Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 38
Slide 40: Best-in-class operations that support value
Best-in-class operations that support value For personal use only LEVERAGING SAP FOR GREATER Investment in technology capability - 3 system EFFICIENCY IN OPERATIONS levels » An excellent customer experience at every touchpoint through streamlined data and digital enablers » We challenge the status q
Slide 41: The customer business has spent much of the past four years on SAP
The customer business has spent much of the past four years focused on the implementation For personal use only and stabilisation of SAP » 161 non-SAP applications » Our system of record now provides a » 18 SAP modules simplified architecture with 4 key parts » ~60 linking technologies • Single view
Slide 42: Where can SAP be used for customers?
Where can SAP be used for customers? For personal use only Meter Core Sign up Moves Billing Payment Financials Reads Website / Telephone E-mail Livechat Social Channels SMS Mobile / IVR Media Offers / Loyalty / Market Campaigns Products Pricing Sales Promotions Commission Customer Faults, Online E-M
Slide 43: Post-stabilisation, SAP is supporting improvement across back office functions
Post-stabilisation, SAP is supporting 400% improvement across core back office Reduction in late bills > For personal use only functions 30 days in last year Billing and collections will continue to be a significant focus 11% Smoothpay and prepay customers managing bill May–Oct May–Oct May–Oct shock
Slide 44: Cost-to-serve improvements are required to realise the value of SAP investment
Cost-to-serve improvements are required to realise the value of SAP investment For personal use only While current cost-to-serve is competitive, Contact is targeting the lowest cost-to-serve in the industry » Contact’s cost-to-serve represents the fully loaded cost of operating the retail business •
Slide 45: Three phases of the new Customer Business
For personal use only Three phases of the new Customer Business 44
Slide 46: Customer strategy will develop across three horizons
Customer strategy will develop across three horizons For personal use only Technology and customer expectations require acceleration of our plans and transformation Core activities Insight Products Sales Service Cloud and Customer 3.0 Energy as a partner based Service (EaaS) Customer emerges transfo
Slide 47: We are actioning the need to change our capabilities and culture
We are actioning the need to change our capabilities and culture For personal use only Realigning the customer structure to the customer value chain is the first priority Chief Customer Officer Head of Data Head of Customer Head of Head of Designing Head of Customer Head of Seamless Innovation and E
Slide 48: We are making progress across the customer business
We are making progress across the customer business For personal use only Earlier Next steps Shaping customer Chief Customer Customer strategic SAP driven cost organisation for Officer appointed review completed reduction success SAP release 2 SAP release 3 SAP release 1 adds SAP release 4 SAP go-li
Slide 49: A new set of measures will be used to track progress
A new set of measures will be used to track progress For personal use only Current measure Future measure Data analytics Customer lifetime value and insight Netback % of HLV customers Designing Share of wallet Share of wallet tomorrow % of dual fuel customers Multiple products Customer Sales volume
Slide 50: Summary
Summary For personal use only BUSINESS MODEL » Energy market continues to evolve EVOLUTION » Contact’s business model continues to generate strong cash flows » Limited outlook for growth investment and changing customer expectations increases focus on retail business to provide opportunities for gro
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