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ADDRESS: CEN: CEO''s Address to Contact 2016 AGM

12 Oct 2016 09:43NZX
CEO''s Address to Contact Energy 2016 Annual Meeting of Shareholders

For immediate release

Wednesday 12 October 2016

T?n? koutou katoa,
Ki nga iwi o Tamaki Makaurau - anei te mihi.
Ki a tatou katoa kua hui mai nei - nau mai haere mai ki runga i te kaupapa -
te hui-?-tau.
Nau mai, nau mai, aa tena koutou katoa

Greetings,
To the tribes of Auckland - I acknowledge you.
To all of us who have gathered here today, welcome to what has brought us
together - the AGM.
Welcome, and greetings.

I am Dennis Barnes, your CEO. I''d like to join Sir Ralph in welcoming you
here to Auckland. Our purpose is to help New Zealanders live more comfortably
with energy. I am proud to be a part of a company that is living our purpose
every day and building a shared culture that is aligned to our Tikanga. Our
Tikanga is our "compass" and provides guidance on our principles, commitments
and behaviours.

The last year has been significant as we smoothly managed the transition to a
refreshed Board who are supporting our transformation to a customer-inspired
business. At the same time we have maintained the safety of our operations,
improved employee engagement, continued to return cash to shareholders and
reduce debt. It has been a year that I would summarise as many small steps
that have strengthened our business.

At the end of the meeting I hope you will be able to spend time with me and
my leadership team. We''d love to hear your thoughts on the company and its
direction and answer any questions you may have.

Catherine, Graham, Vena and Annika are here today but unfortunately James and
Tania are not able to make it. Both of them are away supplementing their
education, an important activity to ensure we have current and best practice
thinking being applied to your company.

Mark Corbitt our General Manager Information, Communication and Technology
will be leaving Contact in December. I would like to take this opportunity to
acknowledge the work he has done in firstly overseeing the simplification of
our systems and more recently the massive job in separating all of our IT
infrastructure from Origin. I believe Contact is leading the pack in our
capability to compete in the digital world we now operate in.

We''ve looked at how our activities impact and influence New Zealand and we''ve
identified seven themes that we believe tackle the key issues. I would now
like to talk through how we are helping New Zealanders live more comfortably
with energy by tracking our performance for the year against these seven
themes, as laid out in the Annual Report.

Making every dollar count
We are focused on providing financial returns that reward investors and
ensure our long-term sustainability, it is therefore fitting that our first
material theme is making every dollar count.

Our EBITDAF for FY16 was $523 million, $2 million lower than the previous
year. Our energy procurement costs improved by $57 million primarily due to
lower gas costs and an increase in geothermal generation. This was offset by
lower electricity sales as some lower-priced contracts were not renewed and
on average we had less mass market customers than the year before. This was
compounded by a continuation of price discounting to maintain market share
while we launched new products and improved our customer experience. In this
context, it is pleasing to see tangible signs that the investment in customer
systems and capability are starting to deliver operational efficiencies,
greater flexibility and increased digital interaction that is essential to
reducing operating costs and developing products our customers want. In the
2016 financial year we reduced our operating costs by $16 million and I am
expecting a further reduction in the current year.

A disciplined approach to capital expenditure means we are set up to generate
strong cash flow and in FY16 free cash flow increased 17 per cent to $403
million.

Inspired by our customers
In line with our second material theme, being inspired by our customers, we
are developing a customer experience that offers customers increasing choice,
certainty and control in both the products we offer and how we interact with
them. We have done this by listening to our customers and delivering what
they want, we have improved how we operate and we have organised our business
for a digital future. There have been many examples of the progress we have
made but there are a few I would like to point out today.

o Our new customer-inspired strategy has seen us organise our team
differently, refreshing our leadership and investing in new capability. Our
new specialist teams have a strong focus on digital and sophisticated
analytics, helping us to better understand our customers.
o Our measure of customer advocacy is net promoter score which is used
extensively globally and measures how likely a customer is to promote Contact
in a positive light to others. Customers giving you a nine or ten are
considered promoters and are offset by detractors, or customers who give a
score between zero and six. So a pretty high bar. Our net promoter score is
increasing and currently sits at 8.

o Over the past year we launched more than 10 exciting new products that
provide individual customers flexibility and options they personally value.
One example was our home and Bach product that was designed to resolve a
common customer pain point around paying for fixed daily charges when their
Bach isn''t being used.

o We''ve made real progress addressing the issue of customer debt by
significantly improving our debt management processes. A reduction in late
bills and vacant properties has led to a 35% reduction in the total amount
owed due to non-payment of bills (the lowest in the past seven years) and a
$3 million reduction in the amount of customer debt written off in FY16.

o We''ve also made it easier for customers to interact with us via digital
channels, launching two mobile apps and improving what we offer via our
website. We now have over 267,000 customers on e-billing and online payment
options.

o Ultimately the value of these improvements is judged by our customers so it
is very pleasing to have gained more than 4,000 customers since January and
to see our customer switching rates fall.

I am very encouraged by the progress we are making in our customer business,
and in time I believe our large customer base and systems investment will
provide an attractive opportunity for partners to join us in providing value
for our customers beyond energy.

Part of our transformation to being customer inspired has seen us taking an
increasing role in customer advocacy. The uptake of new technologies in New
Zealand remains in the early stages; electric vehicles, batteries and solar,
amongst other technologies, will provide our customers with opportunities to
change how they buy and use electricity. We were a key supporter in the
establishment of the Electricity Retailers Association which has a purpose of
delivering value to customers and supporting an open, competitive and
effective electricity market. More recently we have been strongly advocating
on behalf of customers to promote a level playing field for all sector
participants where competitive markets, rather than regulation, drive value
for consumers. We believe we are making progress in ensuring that customers
can obtain the maximum benefit from new technologies.

As the competitive landscape becomes clearer we are increasing our
understanding of new technologies with a range of battery and solar trials
and I believe these will form part of our product set.

Competitive, reliable supply, responsibly delivered
Our customers deserve a competitive, reliable supply of energy and they
expect it to be responsibly delivered. This is the essence of our third
material theme and the basis for our generation strategy. With 82% of our
generation coming from renewable resources in FY16, including a record
geothermal output, we are clearly focused on optimising the value of our
renewable assets. That said our thermal generation and gas storage facility
remain critical in ensuring the lights stay on when renewable fuel sources
are not available.

In the past year we''ve made key decisions that maintain shareholders value,
including the closure and sale of the Otahuhu power station and supporting
the electricity supply agreement with the Tiwai Aluminium Smelter. The
closure of the Otahuhu power station was a positive step for Contact and the
market as we reduced costs and improved the balance of the country''s capacity
and with the benefit of hindsight absolutely the right decision.

Although becoming increasingly manageable with an improved understanding of
the possible transmission upgrades, we have recognised that the future of the
Tiwai Aluminium Smelter remains a risk for the industry. We are very
conscious of the smelter''s first potential closure date of 1 January 2018 and
therefore we will not make any commitments to fuel or maintenance that would
increase our exposure if it were to close.

The Electricity Authority''s Transmission Pricing Methodology review, that
looks at how approximately $900 million of electricity transmission charges
are allocated, has continued throughout the year. The current proposal,
planned for implementation in 2019, is neutral to slightly positive for
Contact and is supported by Contact and many in the industry.

Empowering safety
Health and safety remains a priority at Contact and is our fourth material
theme. For the past three years we have been working to change our safety
culture from the enforcement of rules and complicated procedures to one where
our people are empowered and we are constantly learning and improving.

While it is disappointing our Total Recordable Injury Frequency Rate (TRIFR)
has increased in 2016, the severity of our incidents continues to decline.
The leadership position we are taking on safety has been widely recognised
with Contact winning the top award for safety at the annual Deloitte Energy
Excellence Awards in August.

Keeping our generation assets and LPG business safe and reliable is critical
to our ongoing operations, so we constantly look at ways to make our
processes and systems as robust as possible. Over the year we made
significant progress in embedding systems that seek to enhance process
safety, including launching a near real-time dashboard to increase visibility
of our process safety barriers. This is a positive step in ensuring we have
the right controls in place to protect our people, our assets and our
environment.

Powered by our people
As Sir Ralph mentioned, the new independent Contact, has resulted in a
stronger sense of ownership and increased engagement amongst our employees.
The energy, commitment and discipline of our people at Contact is something
to be proud of and I can unreservedly say is our greatest asset. We rely on a
team of approximately 1,000 people to keep our business running so it was
important to me that employee engagement improved by 12 percentage points in
FY16. However, this is a long way from being great, and we are now refreshing
and making consistent all our touchpoints with our people and developing
engagement plans for all levels of the business. We continue to recognise the
value of diversity, training, development and engagement to our people as
part of creating a positive and supportive workplace.

Positively part of our neighbourhoods
The nature of our business means our operations can sometimes impact on the
environment and the people who live within it, so we continue to work hard to
be a good neighbour. Our sixth theme drives us to be positively part of our
neighbourhoods. In 2016 we were the proud recipient of a Good Business Egg
Award for Community Empowerment. This is recognition for our increasing focus
on the issues that are important to our customers and communities which has
seen us reorient our community investments toward social and environmental
issues. We''ve developed some great partnerships with organisations such as
Swimwell Taupo, Greening Taupo, and relationships with Iwi such as Ngati
Tahu. We sponsor local events such as the Alexandra Blossom festival and the
Contact Epic bike race and in the last year we have provided opportunities
for school leavers to join our Contact team in Levin and we provided support
for Te Puea Memorial Marae Manaaki Tangata programme. We also believe it is
important for our employees to be involved in their communities and we
support this by allowing our people to gift paid time each year to a cause of
their choice.

Caring for our ecosystems
We use our Tikanga to provide guidance for positioning on key issues that our
stakeholders care about and which impact on our business. This is the
foundation for the final material theme, caring for our ecosystems.

There has been an increased focus on the issue of climate change and reducing
greenhouse gas emissions, both internationally and within New Zealand.
Contact''s investment into renewable energy and flexible thermal assets has
allowed us to reduce our gas purchases and carbon emissions, resulting in a
50% reduction of greenhouse gas emissions from generating electricity over
the past five years.

Water quality, access and biodiversity continue to be high priorities for all
New Zealanders. Water is a precious resource we all share and need to
maintain it for current and future generations. The growing range of
competing demands on water means everyone needs to do their bit to look after
this shared resource. We have now developed a positioning statement on water
that we believe supports our near-term profitability and longer term
sustainability.

In the coming year we will do more to understand the complex issue of energy
access for all which includes the drivers of energy affordability,
socio-economic disparity and energy efficiency of available housing.

Summary
In summary, we will continue our strategy to connect customers and markets to
renewable resources. The start to the new Financial Year has been positive
with great production and availability from our renewable generation and
newly launched products exciting our customers.

For the coming year I expect we will be able to evidence further progress
across all seven material themes. We will continue giving customers choice,
certainty and control at the same time reducing our costs as we focus on
digital transformation by leveraging our systems and capability investments.

We are in the unique position with our open share register and no majority
shareholder and while our focus remains on improving the performance of our
core business I look forward to working with the Board and my team to
identify opportunities that create value for you our supportive shareholders.

I''d like to thank all of my colleagues for their energy, commitment and
discipline and to you our shareholders for your financial support.

I would also like to thank the Board members for their contribution. The
guidance and support they provide me remains invaluable

Thank you.

T?n? koutou, t?n? koutou, t?n? koutou katoa.

ENDS
End CA:00290679 For:CEN    Type:ADDRESS    Time:2016-10-12 09:43:26
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