Contact Energy Limited · NZX:CEN
Contact Energy — UBS conference (November 2015)
49 slides from Contact Energy's conference presentation, Nov 9, 2015
Slide 1: Towards customer 3.0
Towards customer 3.0 Contact’s retail business 9 November 2015
Slide 2: Disclaimer
Disclaimer 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 practice) profit measur
Slide 3: Key themes for today
Key themes for today 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 growth and i
Slide 4: Current market topics of interest
Current market topics of interest » Te Mihi outage • 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 • Buyback commenced 2
Slide 5: New technologies and changes in customer behaviours require us to adapt
New technologies and changes in customer behaviours require us to adapt Increased focus on renewable generation Improving economics and competitiveness of new technology Customer expectations around choice, control, certainty and value are requiring deeper relationships Decreasing energy intensity i
Slide 6: Our Purpose – To help New Zealanders live more comfortably with energy
Our Purpose – To help New Zealanders live more comfortably with energy 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 7: 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 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 industry and Contact have res
Slide 8: Our customer strategy is developing across three horizons
Our customer strategy is developing across three horizons 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 Using Enablers infrastru
Slide 9: We are positioned well to compete
We are positioned well to compete 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 % electricity sales to mass mar
Slide 10: To be customer-centric you must be customer-inspired
To be customer-centric you must be customer-inspired 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 embedded in every step o
Slide 11: Data, analytics and insight
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 12: Targeted, meaningful and insightful analysis identifies customer lifetime value
Targeted, meaningful and insightful analysis identifies customer lifetime value for us to pursue UNDERSTANDING WHAT CUSTOMERS WANT We use two key frameworks to understand customers » Leverage digital and data opportunities to make connections that produce targeted, meaningful and valuable insights,
Slide 13: Demand growth has returned over the past five quarters
Demand growth has returned over the past five quarters 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 Forestry/ Fishing 1974 1
Slide 14: The outlook for demand is improving although industrial closures offset growth
The outlook for demand is improving although industrial closures quickly offset any growth AGRICULTURE AND COMMERCIAL DEMAND OUTLOOK GDP Electricity Intensity Overall Electricity Demand Source: MBIE, Statistics NZ RESIDENTIAL DEMAND OUTLOOK Households Electricity Intensity Overall Electricity Demand
Slide 15: Churn rates remain high – impacting CLV and sales volumes
Churn rates remain high – impacting CLV and sales volumes in our mass market business » 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 offering them some of the m
Slide 16: Customer Lifetime Value is a holistic metric for customer value
Customer Lifetime Value is a holistic metric for customer value 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 customers to focus on, how m
Slide 17: Attitudinal segmentation helps drive customer centricity
Attitudinal segmentation helps drive customer centricity and how we connect with them 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 environment Retain & Nu
Slide 18: Designing tomorrow
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 19: Creating and making the products and services that customers value and want
Creating and making the products and services that customers value and want 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 activating product and servic
Slide 20: A series of paradoxes and seismic shifts within New Zealand culture
A series of paradoxes and seismic shifts within New Zealand culture* 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 investment in brand assets BR
Slide 21: Sea-change in customer businesses is profound
Sea-change in customer businesses is profound 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 media owners to From broa
Slide 22: Partnerships are critical in designing and developing new offers
Partnerships are critical in designing and developing new offers that leverage our system of record 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 as 53 other Fly Buys B
Slide 23: Partnerships and ventures will be key to developing non-core value propositions
Partnerships and ventures will be key to developing non- core value propositions 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 ‘service-based’ Home
Slide 24: Digital ubiquity
Digital ubiquity Digital experiences and customer behaviour is continually re-setting customer expectations – 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 implications investme
Slide 25: Regulation may struggle to keep pace with changing technology
Regulation may struggle to keep pace with changing technology and customer preferences 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 Competition Profitabi
Slide 26: Contact's historical pricing construct is changing
Contact’s historical pricing construct is changing, improving competitiveness and customer value 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. » Contact’s customer mix has
Slide 27: Customer experience – sales
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 28: Selling to the right customers, the right products at the right time
Selling to the right customers, the right products at the right time 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 the Customer and Contact
Slide 29: 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 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 ‘compete’ » Scalable p
Slide 30: Customer value differs across the country depending on the region
Customer value differs across the country depending on the region 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 30
Slide 31: Customer experience – service
To be updated – don’t worry about creating Customer experience – service Proactive, predictive and practical service for our customers Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 31
Slide 32: Proactive, predictive and practical service for our customers
Proactive, predictive and practical service for our customers 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 lifecycle » We provide a sea
Slide 33: Running a retail energy business is not without complexity
Running a retail energy business is not without complexity 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 means we 160+ Switches c
Slide 34: 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 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 - Detractors Energy companies -1
Slide 35: Build customer loyalty and trust by reducing customer effort
Build customer loyalty and trust by reducing customer effort and increasing their perceived value 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 time (secs) Average speed
Slide 36: Predictive data model now operationalised
Predictive data model now operationalised 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 movers • Unique call scrip
Slide 37: Our digital channels
Our digital channels 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 • Rated 8.26 out of 10
Slide 38: Seamless operations
To be updated – don’t worry about creating Seamless operations Best-in-class operations that support value Customer 3.0 Presentation 9 November 2015 Contact Energy Limited 38
Slide 39: Best-in-class operations that support value
Best-in-class operations that support value 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 quo and find ways to re
Slide 40: The customer business has spent four years on SAP implementation and stabilisation
The customer business has spent much of the past four years focused on the implementation 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 of customer (not plur
Slide 41: Where can SAP be used for customers?
Where can SAP be used for customers? 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-Mails Enquiries Complai
Slide 42: 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 > 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 2013 2014 2015 Gross
Slide 43: 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 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 • Cost to serve electri
Slide 44: Three phases of the new Customer Business
Three phases of the new Customer Business 44
Slide 45: Customer strategy will develop across three horizons
Customer strategy will develop across three horizons 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 transformation experience Ena
Slide 46: We are actioning the need to change our capabilities and culture
We are actioning the need to change our capabilities and culture 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 Engagement – Connecting
Slide 47: We are making progress across the customer business
We are making progress across the customer business 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-live resolves billing ad
Slide 48: A new set of measures will be used to track progress
A new set of measures will be used to track progress 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 by experience - Sell N
Slide 49: Summary
Summary 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 growth and improvement BE