Diverse asset and and a focus on efficiency lift results

MEDIA RELEASE

Tuesday 20 August 2013

Diverse asset and fuel position and a focus on efficiency lift results

Overview of results

Contact’s performance for the year has been characterised by the continued reduction in energy procurement costs and a focus on retail operating performance in what remains an oversupplied and highly competitive market. Chief Executive Dennis Barnes says “the result shows the benefits of our five-year multi-billion dollar investment in the flexibility of our generation portfolio to reduce its reliance on large volumes of contracted gas. These assets have meant Contact has been able to perform and respond to a range of market conditions”.

Contact reported profit after tax for the year to 30 June 2013 of $199 million, up $9 million (5 per cent) compared with the prior year (FY12). Earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items (EBITDAF)1 were $541 million, $32 million (6 per cent) higher than FY12. Underlying earnings after tax2 (profit for the period adjusted for significant items that do not reflect the ongoing performance of the Group) were $202 million, $26 million (15 per cent) above FY12.

1 Refer to page 3 and 4 of the Management discussion of financial results for the year ended 30 June 2013 for a definition and reconciliation between Statutory Profit and the non-GAAP profit measure EBITDAF.

2 Refer to page 1 and 2 of the Management discussion of financial results for the year ended 30 June 2013 for a definition and reconciliation between statutory profit and the non-GAAP profit measure underlying earnings.

The Contact Energy Board of Directors resolved that the final distribution to shareholders would be increased by two cents per share to the equivalent of 14 cents per share, resulting in a full year dividend of 25 cents per share. The distribution represents a payout ratio of 91 per cent of Contact’s underlying earnings after tax.

“Our results reflect the progress we are making in all aspects of the business. A 31 per cent reduction in the total recordable injury frequency rate is a result I am proud of and one which makes me believe that we can achieve our aspiration of zero harm.

Our focus on remaining competitive in the retail market has seen sales remain stable as we approach the ‘go-live’ of our retail transformation programme at the end of 2013.

The past two years have demonstrated the value of investments in the generation portfolio which have enabled us to deliver consistent profits during a range of hydrology sequences, transmission constraints and plant outages. We also expect the completion of transmission network upgrades, including the additional HVDC link between the North Island and South Island, and the reduction in gas take-or-pay commitments will further increase flexibility, particularly during wet sequences. The completion of the Te Mihi geothermal power station will provide Contact Energy with additional lower cost generation,” Mr Barnes said

Capital expenditure programme delivery continues

Construction and commissioning of Contact’s Te Mihi power station continues with all non-power station activity to support the Wairakei investment programme completed. Commissioning is well advanced, with first power to the grid expected in the next few months.

The retail transformation programme, which is focused on upgrading Contact’s aging customer billing and service systems, is now in an intensive phase of testing and remains on schedule to ‘go-live’ at the end of 2013.

Following a thorough review of the economic, market and regulatory conditions, Contact has reprioritised its wind power development portfolio. Contact has decided to exit the Hauāuru mā raki wind generation development on the Waikato coast and will not proceed in the foreseeable future with the Waitahora wind generation development project near Dannevirke in the Tararua district. “The development of large projects, such as power stations, is a lengthy and capital intensive process. While it is disappointing that we have not been able to develop these resources, the current supply and demand outlook and the competitiveness of the Tauhara geothermal development means it would be imprudent to continue to hold the full value of these assets,” said Mr Barnes.

Right size and shape for the market

During the year Contact made important steps in restructuring the business to ensure the right organisation structure is in place to remain competitive in the market. We are targeting to absorb increasing cost pressures through sustainable reductions in employee numbers, procurement savings and IT rationalisation.

Looking forward

In the 2014 financial year, Contact will continue its progress in transitioning from a company focused on asset development to delivery of value to customers, utilising its diverse and flexible assets to reduce energy procurement costs, and relentlessly driving towards zero harm.

“The 2014 financial year will see us provide additional lower cost generation with the completion of the Te Mihi power station and the retail transformation programme will enable Contact to engage with customers in new ways and offer products and solutions that meet their needs. As the ‘go-live’ date approaches, our focus is increasingly moving to how we can utilise our world class system to deliver competitive capability.

Contact has a flexible and diverse asset base that provides confidence in the ability to manage market volatility and deliver value to shareholders. The investments in gas storage and flexible generation, coupled with the reduction in gas purchase obligations, have enabled Contact to better manage and respond to the inherent volatility of hydro generation output in New Zealand. This improved capability, along with the recently completed upgrade of the national transmission system, is expected to reduce the hydrology risk in Contact’s earnings in coming years,” said Mr Barnes.

ENDS

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