Contact Energy Limited · NZX:CEN
Contact Energy — Shareholder Meeting (November 2016)
45 slides from Contact Energy's shareholder meeting presentation, Nov 23, 2016
Slide 1: Contact Energy investor presentation
For personal use only 23 November 2016 Contact Energy investor presentation Contact Energy Limited (Contact) is hosting an investor session in Auckland today. The presentation will be made by Contact Chief Executive Dennis Barnes and other members of the senior management team. Attached is the prese
Slide 2: Capturing value in a customer-inspired world
Higher Res images pending: branding team Monday For personal use only Capturing value in a customer-inspired world Contact Energy October 2016 Annual meeting of shareholders Auckland 23 November 2016
Slide 3: Disclaimer
Disclaimer For personal use only 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 an
Slide 4: Contact in context
Contact in context For personal use only » 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 ind
Slide 5: Charting our own improvement path
Charting our own improvement path For personal use only 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 Emp
Slide 6: Customer strategy across the value chain
12 months ago we outlined our customer strategy across the value chain For personal use only Understanding, winning and Understand – Build propositions – Promote them – Provide great service – Support the operations keeping customers » Customer intimacy is built through Data + Digital + Innovation +
Slide 7: Since then we have seen our rate of progress accelerate
Since then we have seen our rate of progress accelerate For personal use only 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 clo
Slide 8: What we have done is resonating with our customers
And what we have done is resonating with our customers For personal use only 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 wa
Slide 9: Capturing value in a customer-inspired world
Capturing value in a customer-inspired world For personal use only 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 val
Slide 10: Maintaining financial discipline
For personal use only Maintaining financial discipline Graham Cockroft – Chief Financial Officer Contact Energy October 2016 Annual meeting of shareholders 9
Slide 11: Our financial framework
Our financial framework For personal use only » 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
Slide 12: Current performance supports strong cash flows
Current performance supports strong cash flows For personal use only » 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 » Hydro
Slide 13: Capturing customer inspired value will require innovation and discipline
Capturing customer inspired value will require innovation and discipline For personal use only » 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
Slide 14: Transparency of performance will drive focus
Transparency of performance will drive focus For personal use only » 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 re
Slide 15: The efficient return of free cash flow remains a priority
The efficient return of free cash flow remains a priority For personal use only » 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 Div
Slide 16: Contact remains committed to an investment grade credit rating
Contact remains committed to an investment grade credit rating For personal use only » 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 ri
Slide 17: Summary
Summary For personal use only 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
Slide 18: Competitive markets are key for realising value from new technology
For personal use only 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 19: Technology will give customers more choice and control
Technology will give customers more choice and control For personal use only 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 Wholesale and and supply of management service
Slide 20: Technology can be deployed across the value chain
Technology can be deployed across the value chain For personal use only » 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 - $15bn of forecast investment in generation energy and capacity, transmiss
Slide 21: A customer centric view of regulation is likely to result in the best market outcomes
A customer centric view of regulation is likely to result in the best market outcomes For personal use only Simplicity Transparency Access Competition Profitability Contact has been active in Market complexity costs Customers define There should be a reasonable Promote market design changes It is in
Slide 22: In parallel we are testing and learning what our role might be
In parallel we are testing and learning what our role might be For personal use only and Distributed energy Large-scale generation Storage & demand response Poles, wires and peaker generation Electric vehicles Petrol vehicles Currently trialing combinations of new technologies Customer trials are Tr
Slide 23: Driving value from our generation portfolio
For personal use only Driving value from our generation portfolio James Kilty – Chief Generation and Development Officer Contact Energy October 2016 Annual meeting of shareholders 22
Slide 24: Well run generation and wholesale operations currently drive most value
Well run generation and wholesale operations currently drive most value For personal use only Discretionary Strong internalised thermal generation risk management 01 03 Low cost renewable Balanced wholesale generation portfolio market 02 04 Contact Energy November October 2016 2016 Capturing Annualv
Slide 25: A focus on continuous improvement
A focus on continuous improvement For personal use only » HSE achievements and capability » Record of driving down the cost of energy 450 50 400 45 40 350 Cost of energy ($/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, transmi
Slide 26: Safe to Run is driving operational improvement
Safe to Run is driving operational improvement For personal use only » 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 No
Slide 27: Improving the efficiency of our geothermal business
Improving the efficiency of our geothermal business with our world class capability For personal use only » 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 geotherma
Slide 28: Our market is balanced with no new generation required
Our market is balanced with no new generation required For personal use only » 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
Slide 29: Our thermal plants manage risk
Our thermal plants manage risk For personal use only 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
Slide 30: Our fuel position provides flexibility
Our fuel position provides flexibility For personal use only » 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 /
Slide 31: We're well positioned to manage our short-term wholesale costs
We’re well positioned to manage our short-term wholesale costs For personal use only 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 com
Slide 32: Many factors affect future wholesale energy/capacity balance
Many factors affect future wholesale energy/capacity balance For personal use only 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
Slide 33: We are well positioned for the long term
We are well positioned for the long term For personal use only » 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 p
Slide 34: Well run generation and wholesale operations currently drive most value
Well run generation and wholesale operations currently drive most value For personal use only 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
Slide 35: Technology is creating a world of opportunities for a great ME-tailer
For personal use only 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 36: Our evolution from an Essential Services business to a Living Services business
Our evolution from an Essential Services business to a Living Services business For personal use only 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
Slide 37: Now delivery speed is accelerating as we become truly customer inspired
Now delivery speed is accelerating as we become truly customer inspired For personal use only 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
Slide 38: We updated on the progress on SAP stabilisation
We updated on the progress on SAP stabilisation and mapped the key workstreams For personal use only 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 se
Slide 39: Now delivery speed is accelerating as we become truly customer inspired
Now delivery speed is accelerating as we become truly customer inspired For personal use only 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
Slide 40: Delivering return on investments in systems and capability
Delivering return on investments in systems and capability For personal use only 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
Slide 41: Organisational agility will be vital
Organisational agility will be vital For personal use only » 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 Regula
Slide 42: Strengthening our core while pursuing our customer strategy
Strengthening our core while pursuing our customer strategy For personal use only 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 aofcustom
Slide 43: Customer inspired in action
Customer inspired in action For personal use only 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 Mic
Slide 44: Keys to delivering returns from our customer strategy
Keys to delivering returns from our customer strategy For personal use only » ‘Must Dos’ » ‘Must Haves’ Reinvent Customer operations Competitive / Digital customer Strengthen Architect resilient Commercial strategic interaction technology Mindset partnerships platforms Build an innovation Drive anal
Slide 45: Extracting value from a deep customer relationship
Extracting value from a deep customer relationship For personal use only 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