2016 Interim Results Presentation Six months ended 31 December 2015 Dennis Barnes, Chief Executive Officer Graham Cockroft, Chief Financial Officer 15 February 2016 Disclaimer 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 any forwardlooking statement based on a number of important factors and risks. Although management may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realised. 1H16 Results Presentation 15 February 2016 Contact Energy Limited EBITDAF, underlying profit and free cash flow are non-GAAP (generally accepted accounting practice) measures. Information regarding the usefulness, calculation and reconciliation of these measures is provided in the supporting material. Furthermore, while all reasonable care has been taken in compiling this presentation, Contact accepts no responsibility for any errors or omissions. This presentation does not constitute investment advice. 2 Agenda Strategy » Leverage integrated customer and generation business to deliver strong cash flows for distribution to shareholders • Deliver value to our customers by providing choice, control and certainty • Build customer centric offers in-house and with partners to improve customer life time value • Target lowest cost to serve in the industry by extracting greater efficiency and customer experience from our investment in customer service and billing systems • A low cost, long life and flexible generation portfolio with focus on safety, reliability and resource utilisation • Disciplined approach to capital expenditure Performance » Free cash flow improved 24% to $203m; impairments at Otahuhu and Taheke resulted in loss for the period of $116m » Continued competition in retail business largely offset by lower purchase volume and improved gas costs • Mass market volume reasonably stable and progress made on initiatives to improve capability and performance • Improved geothermal availability and resource flexibility offset reduced hydro generation Capital management » Share buyback purchased $62m shares in 1H16 and expect to complete $100m in FY16 » Interim dividend stable at 11 cents per share; 7 cents per share imputed Focus on structural efficiency » Closure of Otahuhu, contract supporting ongoing Tiwai operation and planned refurbishment of TCC has improved New Zealand’s energy and capacity balance • Confident industry will resolve any capacity requirements from 2019 in a rational manner » Regulatory changes around transmission pricing, network charging and carbon critical to ensure the right incentives are in place for customers and industry participants » Retail competition expected to continue, despite high costs of churn Outlook » Strong cash flow expected to continue » FY16 EBITDAF and underlying profit not to be materially different to FY15 subject to hydrology variability 1H16 Results Presentation 15 February 2016 Contact Energy Limited 3 Statutory loss $116m due to Otahuhu and Taheke impairments Underlying profit per share down 4%; Free cash flow per share up 24% Six months ended 31 December 2015 1 EBITDAF $254m down 1% from $257m ($116m) down 327% from $51m (15.9) cps down 330% from 6.9 cps $73m down 4% from $76m Underlying profit per share (cents) 10.0 cps down 4% from 10.4 cps Interim dividend (cents) 11.0 cps no change from 11.0 cps $203m up 24% from $164m 27.7 cps up 24% from $22.4 cps $71m up 48% from $48m Profit/(loss) Earnings per share (cents) Underlying profit1 Free cash flow 2 Free cash flow per share (cents) Capital expenditure 1 Refer to slides 34-37 for a definition and reconciliation of EBITDAF and underlying profit 2 Refer to slide 24 for a definition and reconciliation of free cash flow 1H16 Results Presentation 15 February 2016 Contact Energy Limited 4 Progress continues across the business FY16 outlook statement at FY15 results presentation Progress Continued strong free cash flow Up 24% with distributions to shareholders via share buyback and stable dividends Lower cost to serve offset continued intense retail competition Retail competition higher than expected and ‘cost out’ slower but gaining momentum C&I load reduced following the non-renewal of the Fonterra electricity contract Additional contracts lost at start of year, however recent improvement in re-sign rates and CfD/ASX sales in place for 2H16 Customer business begins to move beyond system stabilisation to optimisation New ‘fixed term’ and ‘Home and Bach’ products in market. Customer service metrics continue to improve. New Customer management structure in place No repeat of 1H15 one-off network costs or retail stabilisation costs Network costs reduced by $3/MWh with the non-recurrence of one-off costs in FY15 more than offsetting notified network price increases LPG costs reflective of lower oil prices Cost of sales per tonne reduced 7% Increased geothermal production offsets return to mean hydrology Geothermal generation up 10% despite unplanned outage at Te Mihi New gas contracts and Te Rapa agreement commence Increased steam revenue and lower contracted gas price Reduced operating expenses following the closure of Otahuhu Gas transmission and operating cost reductions achieved post closure 1H16 Results Presentation 15 February 2016 Contact Energy Limited 5 Market dynamics and strategy Dennis Barnes 1H16 Results Presentation 15 February 2016 Contact Energy Limited Demand growth, particularly in agriculture, has continued Year on year demand growth continued in 1H16 with a 1% increase 12 month change in electricity consumption Source: MBIE; 12 months ended 30 September Residential Source: Transpower/ Contact 2% Commercial 0% Industrial 1% 0% 4% (3%) 4% 2% Agriculture/ Forestry/ Fishing -5% 0% 5% 10% 15% 20% Year on year quarterly change in electricity consumption 1% Source: Transpower 2% 11% 2% 4% 3% 3% 2% 1% 1% Annual regional demand 1% Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 -1% Jun-12 2% Mar-12 0% -2% -3% -4% 1H16 Results Presentation 15 February 2016 Contact Energy Limited 7 Recent market trends Year on year quarterly change in electricity prices Mass market Source: MBIE Quarterly Survey of Domestic Electricity Prices 8% Year on year quarterly change » Retail competition remains intense with new retailers and service offerings entering the market • 27 retail brands today, 9 new retail brands over the last 2 years • 1H16 churn increased to 21% with discounting remaining the universal currency • Residential prices fell in the September quarter by 2.8% (0.7% line costs, 4.2% energy costs) • Industry focus on improving customer experience and engagement • Initial signs of retail consolidation 6% 4% 2% 0% (2%) (4%) Lines component (6%) Jun-14 » Recent regulatory drive to improve access to consumption and tariff information needs balance to avoid impacts on innovation Energy and other component Sep-14 Dec-14 Mar-15 Quarter ended Jun-15 Sep-15 Customer switching activity continues to increase 25% » Solar and EVs growing but remain small. Batteries uneconomic for mass market customers Commercial and industrial » ASX forward curve has risen » Increased competition for C&I as netback similar to marginally competed mass market customers » Initial signs of spot customers returning to contract as ASX and spot prices converge 1H16 Results Presentation 15 February 2016 Contact Energy Limited Annualised churn 20% 15% 10% 5% 0% 1H15 2H15 1H16 8 Contact’s response – becoming truly customer inspired Deliver value to our customers by providing choice, control and certainty Customer strategy continues to develop across three horizons » Contact’s historical pricing construct is changing, improving competitiveness and customer life time value • Fixed 16/17 product means no price increases when you sign up for a 1 or 2 year term • ‘Home and Bach’ product means you don’t pay fixed charges at your bach when you aren’t using it • Progressing development of a product pipeline that will allow customers to have more choice • 76% of customers on non-standard discounts » Increasing digital presence supported by mobile app launch » On-shore of back office functions completed » Advocating regulation keeps pace with technology change and captures the voice of the customer Channel selection for commercial and industrial volumes » 2H16 sales of C&I expected to be similar to 2H15 • Improving re-sign rates on existing customers • Increasing associated benefits to C&I customers beyond price 1H16 Results Presentation 15 February 2016 Contact Energy Limited 9 Contact is leveraging its SAP benefits and simplifying its IT systems to reduce cost and improve customer capability Current systems simplification programme on track to deliver $9m reduction in FY17 operating expenses from the peak in FY15 » Decisions made in past 6 months to reduce cost and enhance customer, product, digital and data capability accelerated by Origin exit • Exit shared agreements with Origin in 2016 • Move from four vendors in FY15 to two vendors in FY17 saving $5m • Move infrastructure to cloud services • Insource application management (non-SAP) to increase business flexibility and add digital capability » Rapid development of systems of engagement such as mobile apps and digital Milestones March May September » Hybrid mobile » Foundation digital » Infrastructure app in Apple to cloud and data capability & Google services May 2016 stores early » Extended product, March billing and pricing capability 1H16 Results Presentation 15 February 2016 Contact Energy Limited October » Complete Origin exit 10 Contact has switched to lower cost fuel and has improved New Zealand’s energy and capacity balance Contact’s actions have contributed to a competitive, reliable and sustainable electricity supply » Energy balance achieved with a reduction in gas contracting volumes by Contact Thermal plant closures have restored balance following a period of reduced risk as new renewable generation was added Hydro risk curve 2010 - 20161 Generation by source 2,500 5,000 $50 2,000 4,000 $40 1,500 3,000 $30 2,000 $20 1,000 $10 GWh » Increased geothermal output 1,000 » System support provided through Ahuroa gas storage, Stratford peakers and the Whirinaki peaking plant 500 » Contact’s 14 year contract with Meridian supports the continued operation of Tiwai 0 0 $1H12 1H13 1H14 Geothermal generation Hydro generation Peaker Cost of energy 1H15 1H16 CCGTs (incl Te Rapa) Source: Transpower. The chart shows the required level of hydro storage to avoid an energy shortage in a dry year. The 1% curve represents the level required for there to be a less than 1% chance of shortage 1 1H16 Results Presentation 15 February 2016 Contact Energy Limited Cost of energy ($/MWh) » Capacity balanced with the closure of Otahuhu Generation (GWh) 1% Hydro Risk 11 Contact is confident that the industry will resolve North Island capacity uncertainty If Huntly closes, North Island capacity is required irrespective of Tiwai plans North Island supply and demand currently balanced with additional capacity required Source: Transpower 5,500 » North Island capacity assessments show a shortfall from 2019 if Huntly closes. These assessments assume the HVDC is flowing North at maximum capacity and so Tiwai’s ongoing operation is irrelevant 5,000 Excess capacity Buffer required Reserve requirement Huntly Rankines Buffer required Capacity shortage Demand growth Thermal Peakers Reserve requirement Thermal Peakers 4,500 4,000 » North Island capacity can be delivered through the retention of Huntly, the construction of new capacity, and/or the expansion of transmission capacity • Ahuroa is important in a market where gas supply is getting less flexible • Contact has consented thermal options should these prove the best solution TCC Huntly 5 Huntly 5 Hydro Hydro 3,500 MW 3,000 » Flexible generation is required long term in all scenarios TCC 2,500 2,000 1,500 Forecast 2016 H100 demand peak Cogen Forecast 2016 H100 demand peak Cogen Geothermal Geothermal HVDC HVDC Wind Wind 1,000 500 0 1H16 Results Presentation 15 February 2016 Contact Energy Limited 12 Regulatory momentum continues to focus on ensuring the correct incentives are in place » Transmission pricing appears to be approaching a sensible “beneficiary” pays outcome » Distribution charging consultation commenced • Current pricing principles approach to distribution pricing is not working • Support a pricing structure that better reflects the cost of utilising the network • The large number of distributors with differing pricing structures adds significant cost and complexity for retailers and customers » Commerce Commission input methodologies review underway • Amendments required due to the emergence of new technologies such as batteries and solar blurring the boundaries between distribution and retail » COP21 agreement on carbon reduction a positive outcome • The ETS needs to motivate change which will be difficult to achieve through stationary energy alone given the high level of renewable generation • The price of carbon needs to reflect the least cost abatement options on a global level, not just domestically The voice of the customer is often absent in the regulatory process » We have been active in helping establish the Electricity Retailers Association of New Zealand » We will continue to promote transparency, simplicity and fairness with regulators and politicians 1H16 Results Presentation 15 February 2016 Contact Energy Limited 13 Safety, agility and efficiency will define Contact’s culture and competitive advantage Increasing our capacity to fail safely Building capability for a changing market » We continue to advance our cultural journey towards “generative”, through an integrated safety improvement programme and on going visible and active leadership » New Customer structure reflecting our customer value chain complete » Geothermal skills being maintained by providing consultancy services » TRIFR improvement continues down 0.2 to 3.1 • over 1.6 million hours worked and 5 people hurt during our first half of the year, with 4 injuries being of low severity Total permanent and fixed term employees 1,200 Full time equivalents 1,000 800 600 400 200 0 Dec-10 Dec-11 Corporate 1H16 Results Presentation 15 February 2016 Contact Energy Limited Dec-12 Dec-13 Dec-14 Generation and development Dec-15 Customer 14 1H16 performance Graham Cockroft 1H16 Results Presentation 15 February 2016 Contact Energy Limited 1H16 performance highlights ($116m) Loss for the period down from $51m profit predominantly due to impairments at Otahuhu and Taheke $254m EBITDAF, down 1% from $257m 1H16 Results Presentation 15 February 2016 Contact Energy Limited 24% $62m Improvement in free cash flow Share buyback completed $82/MWh Netback down $2/MWh with lower C&I sales and continued discounting in mass market $33/MWh Cost of energy improved $4/MWh with lower purchase volumes and improved gas costs 16 Statutory loss $116m due to Otahuhu and Taheke impairments Underlying profit down 4% from $76m to $73m Contact’s statutory profit 80 (3) (3) (1) 25 60 40 20 4 76 73 51 - $m (189) (20) (40) (116) (60) (80) (100) (120) 1H15 statutory profit Net items excluded from underlying profit 1H15 underlying profit EBITDAF Depreciation & amortisation Net financing costs » Depreciation and amortisation down $4m primarily driven by the Otahuhu closure. Total depreciation and amortisation for FY16 is expected to be between $195m and $200m » Net financing costs up $3m due to increased debt following the special dividend in June 15 1H16 Results Presentation 15 February 2016 Contact Energy Limited Tax 1H16 underlying profit Net items excluded from underlying profit 1H16 statutory loss » Net items excluded from underlying profit primarily relate to Otahuhu closure ($223m), Taheke asset impairment ($35m), change in fair value of financial instruments ($9m) and transition costs of $5m, with a tax expense credit of $83m 17 1H16 profit is negatively impacted by $257m of impairments Otahuhu thermal power station closure » At the end of September 2015, the Otahuhu thermal power station was closed » On 15 February 2016 Contact announced the unconditional sale of land and buildings for $30m • Payment spread over 2 years ($28m present value) • Proceeds from the Otahuhu plant and equipment sales in the 12 months after the sale will be shared equally between the purchaser and Contact » At 31 December 2015, the carrying value of the land and buildings was impaired to its fair value and classified as an asset held for sale » Impairment recognised was $222m plus $1m of closure costs » The net impact on profit/(loss) for the period was $151m » No value was attributed to the potential sale of plant and equipment in the next 12 months Taheke geothermal resource impaired » Between 2010 and 2014 Contact spent $35 million assessing the Taheke geothermal resource as a potential site for additional geothermal generation • Expenditure primarily related to the drilling and testing of four exploration wells » A recent review concluded the asset should be impaired to nil as current market conditions mean the resource is unlikely to be developed in the foreseeable future • Impairment recognised was $35m • The net impact on profit/(loss) for the period was $25m • Excluded from underlying profit » Contact continues to discuss options for developing the resource with joint venture partner Taheke 8C when market conditions warrant it • Future spend on maintaining the Taheke development option will be recognised as an operating expense » Excluded from underlying profit 1H16 Results Presentation 15 February 2016 Contact Energy Limited 18 Margin pressure in mass market and lower C&I sales reduce EBITDAF » Cost of energy favourable $29m (16%) to -$158m • Lower retail purchases reducing thermal generation • Lower gas and transmission unit costs • Improved plant availability Other segment EBITDAF increased $1m (5%) to $20m • LPG favourable $2m due to lower product costs • Meters & Other unfavourable $1m reflecting the continued transition to smart meters 1H15 Intergrated Energy $4m adverse » Netback unfavourable $33m (8%) to $392m • Volumes lower due primarily to reduced C&I sales (-$27m) • Netback down driven by increased discounting and operating costs (-$15m) • Improved steam sales EBITDAF Movement Other Segment $1m favourable Integrated energy segment EBITDAF down $4m (2%) to $234m Retail netback 29 LPG 2 Meters & other (1) 1H16 unfavourable 15 February 2016 Contact Energy Limited (33) Cost of energy 200 1H16 Results Presentation 257 254 220 240 260 $m favourable 19 Netback down $33m (8%) to $392m 4,026 GWh Electricity sales volume, down 7% due to lower C&I sales Lower C&I sales and continued discounting in mass market $82/MWh » 1H16 sales volume down 291GWh to 4,026 GWh • MM volumes reasonably stable, although average customer numbers down 10,000. Average usage per customer increased 2% • C&I sales down 276 GWh driven by decision not to re-sign some lower priced customers » Mass market electricity netback $8/MWh unfavourable • Tariff down $9/MWh due to continued discounting in response to competition. The number of customers on non-standard tariff discounts increased from 65% at 31 December 2014 to 76% at 31 December 2015 • Network costs reduced by $3/MWh with one-off costs in 1H15 not recurring to offset notified increases in 1H16 • Operating costs increased due to bad debts and ICT costs » C&I electricity netback up $1/MWh reflecting expiry of lower priced contracts » Retail gas volumes and netback largely stable » Steam revenue up $4m due to commencement of Te Rapa supply agreement Netback down $2/MWh due to continued price pressure in mass market Netback movement 1H15 425 C&I electricity revenue (27) MM electricity revenue (22) Electricity pass through costs 15 Gas and steam margin 5 Operating costs 1H16 320 (4) 392 360 unfavourable 1H16 Results Presentation 15 February 2016 Contact Energy Limited $m 400 440 favourable 20 Improvements are being sought across all retail metrics 49% Increase in saves and win backs Improving acquisitions and service but churn remains above market Net promoter score Average time to answer (seconds) 1H15 2H15 1H16 n/a -2% -4% 220 268 222 76% Of residential electricity customers on non-standard prompt payment discounts Year on year change in electricity and gas acquisitions +2.9% % of residential customers on non10% PPD discount 63% Saves/ win backs 2,273 -0.2% 70% 2,257 +1.4% 76% 3,362 Cost to serve per customer $113 $124 $128 Average late bills >30 days 12,000 5,000 2,000 25% Year on year monthly change Churn (variance to market) 20% 15% 10% 5% (5%) (10%) Bad and doubtful debt as a % of revenue 0.55% 0.70% 0.67% Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015 » Net electricity and gas customer losses in 1H16 were 10,000 1H16 Results Presentation 15 February 2016 Contact Energy Limited 21 Cost of energy improved $29m (16%) to -$158m 78% Renewable generation up from 76% in 1H15 Lower purchase volumes and improved gas costs reduced cost of energy by $4/MWh 4,189 GWh » Wholesale spot market up $19m • Retail purchases down 324 GWh on the back of lower retail volumes, resulting in an additional 186 GWh merchant sales » Wholesale financial market unfavourable $9m due to lower frequency keeping revenue as a result of increased supply being offered and lower CfD returns 324 GWh decrease in electricity purchase volumes Cost of energy movement » Fuel mix favourable $2m with renewable generation increasing from 76% to 78% • Thermal generation down 130 GWh reducing gas purchases by 2 PJ • Geothermal generation increased 144 GWh to offset reduced hydro volume despite unplanned Te Mihi outage • Plant availability improved from 82% in 1H15 to 91% in 1H16 1H15 (187) Wholesale spot market 19 Wholesale financial market (9) Fuel mix 2 » Unit generation cost favourable $17m with lower unit gas costs and lower gas transmission and operating costs due to the closure of Otahuhu more than offsetting increased carbon costs and plant maintenance expenses • 2 PJ net gas storage extractions support contracted volume and reduced stored volume to 9.3 PJ Unit generation cost 17 1H16 (158) (200) (180) (160) (140) (120) (100) $m unfavourable 1H16 Results Presentation 15 February 2016 Contact Energy Limited favourable 22 Focus continues across the business on allocation of both operating and capital expenditure Capital expenditure Other operating expenses 140 140 120 120 100 100 80 $m $m 80 60 60 40 40 20 20 0 1H12 1H14 1H13 Generation operating costs 1H15 Electricity and gas cost to serve 1H16 LPG and other » 1H16 other operating expenses $3m higher than 1H15 • Labour costs up primarily due to recognising a full year of LTI cost in August following Origin sale » 1H16 other operating expenses $2m lower than 2H15 • Initial signs of bad debt improvement • Corporate costs relating to international geothermal review not repeated • Savings from Otahuhu closure offset by increased repairs and maintenance costs 1H16 Results Presentation 15 February 2016 Contact Energy Limited FY15 FY16 Plant maintenance Wairakei Investment Programme Gas infrastructure FY17 FY18 Corporate/ Retail Resources » 1H16 capex $71m, up $23m from 1H15 due to the recognition of the Stratford super core as a capital expense and initial payments relating to the TCC inspection outage planned for February 2017 » ICT capex increases in FY16/17 as data centre move and full Origin separation completed » Improved geothermal performance following 1H16 outages supports reduced resources capex forecast from FY18 with no new wells expected pre-2020 23 Free cash flow up 24% Lower tax paid is partially offset by higher stay in business capex » Free cash flow measures the cash generating performance of the business and represents cash available to fund distributions to shareholders and growth capital expenditure 6 months ended 6 months ended 31 December 2015 31 December 2014 254 257 (3) (1%) 26 23 3 13% Tax paid 8 (35) 43 (123%) Significant items 9 8 1 13% (5) (17) 12 (71%) 56 24% $m EBITDAF Change in working capital Other Variance $m % Operating cash flows 292 236 Stay in business capital expenditure (46) (26) (20) 77% 3 1 2 200% Net interest paid (46) (47) 1 (2%) Free cash flow 203 164 39 24% Proceeds from asset sales 1H16 Results Presentation 15 February 2016 Contact Energy Limited » The positive cash flow from the increased use of stored gas rather than contract gas in 1H16 was offset by unfavourable retail debtor movements due to one-off collection of late bills in 1H15 » Tax paid reduced due to a tax refund relating to FY15 tax payments and tax benefits from Otahuhu closure » Partially offset by higher stay in business capital expenditure driven by payments relating to the planned refurbishment of the Taranaki combined-cycle power station 24 The efficient return of free cash flow to shareholders remains a priority $62m share buyback completed in 1H16 Uses of free cash flow » 15 cps dividend paid in September 2015 » Share buyback programme announced 15 October to acquire up to $100m of shares 200 • 12.5m shares purchased to date at a cost of $62m 160 » Face value of net borrowings unchanged from 30 June 2015 as surplus cash was applied to the buyback programme. Gearing increased by 2% to 36.6% • Continued commitment to investment grade credit rating with buyback preferred distribution method for additional free cash flow $m • Expect to complete remainder of the programme in FY16 120 80 40 Interim dividend for 1H16 held stable at 11 cents per share » 7 cents per share imputed reflecting continued low imputation credit balance following payment of fully imputed special dividend in June 2015 0 Dividends 1H15 Share buyback Growth capex 1H16 Net debt repayments » Record date 2 March 2016; payment date 23 March 2016 • The NZD/AUD exchange rate used for the payment of Australian dollar dividends will be set in early March 1H16 Results Presentation 15 February 2016 Contact Energy Limited 25 Summary Dennis Barnes 1H16 Results 15 February 2016 Presentation Contact Energy Limited Outlook » Strong cash flow expected to continue » Second half earnings expected to be similar to prior year » Expect to complete remainder of current $100m share buyback programme in FY16 » No change in distribution policy with dividends to be imputed dependent on the availability of imputation credits » Continued sales, service and operational improvement in our customer business 1H16 Results Presentation 15 February 2016 Contact Energy Limited 27 Summary Strategy » Leverage integrated customer and generation business to deliver strong cash flows for distribution to shareholders • Deliver value to our customers by providing choice, control and certainty • Build customer centric offers in-house and with partners to improve customer life time value • Target lowest cost to serve in the industry by extracting greater efficiency and customer experience from our investment in customer service and billing system • A low cost, long life and flexible generation portfolio with focus on safety, reliability and resource utilisation • Disciplined approach to capital expenditure Performance » Free cash flow improved 24% to $203m; impairments at Otahuhu and Taheke resulted in loss for the period of $116m » Continued competition in retail business largely offset by lower purchase volume and improved gas costs • Mass market volume reasonably stable and progress made on initiatives to improve capability and performance • Improved geothermal availability and resource flexibility offset reduced hydro generation Capital management » Share buyback purchased $62m shares in 1H16 and expect to complete $100m in FY16 » Interim dividend stable at 11 cents per share; 7 cents per share imputed Focus on structural efficiency » Closure of Otahuhu, contract supporting ongoing Tiwai operation and planned refurbishment of TCC has improved New Zealand’s energy and capacity balance • Confident industry will resolve any capacity requirements from 2019 in a rational manner » Regulatory changes around transmission pricing, network charging and carbon critical to ensure the right incentives are in place for customers and industry participants » Retail competition expected to continue, despite high costs of churn Outlook » Strong cash flow expected to continue » FY16 EBITDAF and underlying profit not to be materially different to FY15 subject to hydrology variability 1H16 Results Presentation 15 February 2016 Contact Energy Limited 28 Supporting material 1H16 Results 15 February 2016 Presentation Contact Energy Limited Electricity market conditions Price and national storage levels 160 4000 Otahuhu futures settlement price (ASX settlement) 140 3500 85 120 3000 100 2500 80 2000 60 1500 30/06/2015 31/12/2015 80 40 1000 20 500 0 Jan -15 75 $/MWh National storage (GWh) 7 day average price ($/MWh) 31/12/2014 70 65 0 Feb -15 Mar -15 Apr -15 May -15 Jun -15 Jul -15 Aug -15 Sep -15 Oct -15 Nov -15 Dec -15 60 Haywards 7 Day Average Price 1H16 Haywards 7 Day Average Price 1H15 National Storage 1H16 National storage 1H15 1H16 Results Presentation 15 February 2016 Contact Energy Limited National Storage Mean CY16 CY17 CY18 CY19 30 Thermal generation continues to decline supported by improved geothermal availability in 1H16 Gross Plant availability1 output 1H16 1H15 6,000 $60 5,000 $50 $40 GWh 4,000 3,000 $30 $/MWh Generation by source $20 1,000 $10 0 (%) (%) (%) Hydro 752 84% 89% 61% 2,010 56 112 Geothermal 431 91% 75% 85% 1,623 59 95 CCGTs (incl Te Rapa)* 601 97% 75% 31% 826 54 44 Peakers (incl Whirinaki) 355 93% 90% 13% 210 89 19 2,139 91% 82% 49% 4,669 58 270 Total (GWh) ($/MWh) ($m) Measures reliability of our generation plants * Otahuhu last day of operation 21 September $1H12 2H12 1H13 2H13 1H14 2H14 Geothermal generation Hydro generation Peaker 1H16 Results Presentation Pool revenue (MW) 1 2,000 Capacity Electricity factor output 1H15 2H15 1H16 CCGTs (incl Te Rapa) Cost of energy 15 February 2016 Contact Energy Limited 31 No change in contracted gas volumes with support provided by gas storage Contracted gas volumes Ahuroa gas storage monthly injections and extractions 4000 1000 25 Other Maui (max) Swap Genesis Maui (min) 900 20 Monthly Gas Injected TJ's Gas Injected cumulative TJ's 800 3500 Monthly Gas Withdrawn TJ's Gas Withdrawn cumulative TJ's 3000 PJ Monthly TJ's 15 10 2500 600 500 2000 400 1500 300 5 1000 200 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 0 Feb-15 0 Jan-15 Max contract volume only applies if min volumes taken CY16 CY15 CY20 Dec-14 CY19 Nov-14 CY18 Oct-14 CY17 Sep-14 CY16 Aug-14 CY15 500 100 Jul-14 0 » Working volume in Ahuroa gas storage at 31 December 2015 was 9.3PJ 1H16 Results Presentation 15 February 2016 Contact Energy Limited 32 TJ cumulative 700 Contact’s balance sheet is supported by a robust funding portfolio Funding Sources Funding maturity profile 6% 500 Bank Domestic USPP NEXI 10% 400 34% 300 $m 18% 200 4% 100 28% 0 2016 2017 2018 2019 2020 Maturity (financial year) 2021 to 2025 2025 to 2030 Bank debt $680m NEXI $90m USPP $560m Retail bond $372m Wholesale bonds $200m CP $120m » Contact benefits from a funding portfolio that is flexible, efficient, diverse and has a manageable maturity profile: • Face value of net debt remained unchanged from 30 June 2015 • $680m total committed bank facilities ($342m drawn and $120m commercial paper) • Weighted average tenor of funding facilities 4.3 years • Since FY15 balance date, $375m of refinancing has been secured via additional bank facilities ($80m), long term USPP note issuance (US$100m / NZ$145m) and a six year retail bond ($150m) » Average weighted cost of borrowings down 0.5% from 1H15 to 5.6% 1H16 Results Presentation 15 February 2016 Contact Energy Limited 33 Non-GAAP profit measure - EBITDAF » EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items » The CEO monitors EBITDAF as a key indicator of Contact’s performance at segment and group levels, and believes it assists investors to understand the performance of the core operations of the business » Reconciliation of EBITDAF to statutory profit/(loss): Variance 6 months ended 6 months ended 31 December 2015 31 December 2014 EBITDAF 254 257 (3) (1%) Depreciation and amortisation (97) (101) 4 (4%) (9) (18) 9 (49%) (263) (17) (246) 1445% (52) (49) (3) 7% Tax expense 51 (21) 72 Profit/(Loss) (116) 51 (167) $m Change in fair value of financial instruments Other significant items Net interest expense $m % (343%) 328% » Depreciation and amortisation, change in fair value of financial instruments, net interest and tax expense are explained in the following slide 1H16 Results Presentation 15 February 2016 Contact Energy Limited 34 Explanation of reconciliation between EBITDAF and profit » The adjustments from EBITDAF to reported profit/(loss) are as follows: • Depreciation and amortisation: Costs decreased by $4m (4%) reflecting the closure of Otahuhu power station • Change in fair value of financial instruments: the balance of ($9m) reflecting an unfavourable movement in interest rate derivatives over the period • Other significant items: these are detailed on the next two slides • Net interest expense increased $3m (6%) to $52 million in 1H16 due to funding related to the special dividend distributed at the end of FY15. This is partially offset by lower average interest rates reflecting the success of the 2015 refinancing programme • Tax expense for 1H16 is a $51m credit compared to $21m expense for 1H15 due to lower profit and impairment of Otahuhu and Taheke. Tax expense represents an effective tax rate of 31% compared to 30% in 1H16. The variance from the statutory rate of 28% is a result of tax expense credits relating to Otahuhu gain on sale of land not being taxable. 1H16 Results Presentation 15 February 2016 Contact Energy Limited 35 Non-GAAP profit measure – underlying profit » The CEO monitors underlying profit and believes it assists investors to understand the ongoing performance of the business » Underlying profit is calculated by adjusting reported profit/(loss) for the year for significant items that do not reflect Contact’s ongoing performance » Other significant items are determined in accordance with the principles of consistency, relevance and clarity. Items considered for classification as other significant items include impairment or reversal of impairment of assets; business integration, restructure, acquisition and disposal costs; and transactions or events outside of Contact’s ongoing operations that have a significant impact on reported profit » Reconciliation of statutory profit for the year to underlying profit: $m Profit/(Loss) 6 months ended 6 months ended 31 December 2015 31 December 2014 (116) Variance $m % 51 (167) (328%) Change in fair value of financial instruments 9 18 (9) (49%) Transition costs 5 17 (12) (70%) 35 - 35 100% Otahuhu closure 223 - 223 100% Tax on items excluded from underlying profit (83) (10) (73) 733% 73 76 (3) (3%) Asset impairments Underlying profit 1H16 Results Presentation 15 February 2016 Contact Energy Limited 36 Explanation of reconciliation from reported profit to underlying profit » The adjustments from reported profit to underlying profit are as follows: • Change in fair value of financial instruments: Movements in the valuation of interest rate derivatives and electricity price derivatives that are not hedge accounted, and the effect of credit risk on hedged debt • Otahuhu thermal power station closure: At the end of September 2015, the Otahuhu thermal power station was closed. At 31 December 2015, the carrying value of the land and buildings was impaired to its fair value and classified as an asset held for sale in the Statement of Financial Position. Subsequent to the end of the reporting period, the thermal power station site was sold • Asset impairments: The expenditure on Contact’s development of the Taheke geothermal resource was impaired to nil as current market conditions mean the resource is unlikely to be developed in the foreseeable future • Transition costs: • Origin’s sale of their majority shareholding in August 2015 ($2 million) comprising ASX listing, incremental share-based compensation expense and other transaction costs • The Retail Transformation project and associated activities in the Retail business ($3m) comprising mainly temporary staffing and infrastructure costs 1H16 Results Presentation 15 February 2016 Contact Energy Limited 37 Integrated Energy segment 6 months ended 6 months ended 31 December 2015 31 December 2014 Mass market electricity 481 503 (22) (4%) Commercial and industrial electricity 249 276 (27) (10%) Retail gas 35 34 1 3% Steam 16 12 4 33% Total revenue 781 825 (44) (5%) Cost of energy (158) (187) 29 (16%) Electricity networks, levies & meter costs (310) (326) 16 (5%) (18) (18) - 0% (486) (531) 45 (8%) Electricity and gas cost to serve (61) (56) (5) 9% EBITDAF 234 238 (4) (2%) Mass market electricity sales (GWh) 2,052 2,067 (15) (1%) Commercial & industrial electricity sales (GWh) 1,974 2,250 (276) (12%) Retail gas sales (GWh) 377 367 10 3% Steam sales (GWh) 377 376 1 0% 4,780 5,060 (280) (6%) Average electricity sales price ($/MWH) 181.29 180.56 0.73 0% Electricity direct pass through costs ($/MWh) (77.02) (75.21) (1.81) 2% Electricity and gas cost to serve ($/MWh) (13.75) (12.07) (1.68) 14% 81.92 84.19 (2.27) (3%) (1%) (17%) Integrated energy segment $m Gas networks, levies & meter costs Total cost of goods sold Total retail sales (GWh) Netback ($/MWh) 1H16 Results Presentation Variance $m % Actual electricity line losses (%) 5% 6% Retail gas sales (PJ) 1.3 1.3 Electricity customer numbers (closing) 421,000 432,000 (11,000) (3%) Retail gas customer numbers (closing) 60,500 61,500 (1,000) (2%) 15 February 2016 Contact Energy Limited - 0% 38 Cost of Energy 6 months ended 6 months ended 31 December 2015 31 December 2014 276 335 (59) (18%) Wholesale gas revenue 1 12 (11) (92%) Te Mihi compensation 2 1 1 100% 279 348 (69) (20%) (262) (324) 62 (19%) (1) (3) 2 (67%) Electricity transmission & levies (20) (22) 2 (9%) Gas purchases (78) (107) 29 (27%) Gas transmission & levies (8) (13) 5 (38%) Emission costs (4) (1) (3) 300% (373) (470) 97 (21%) (64) (65) 1 (2%) (158) (187) 29 (16%) (11%) Cost of energy $m Wholesale electricity revenue Total wholesale revenue Electricity purchases Other purchase costs Total direct costs Generation operating costs Cost of energy $m % Thermal generation (GWh) 1,036 1,165 (129) Geothermal generation(GWh) 1,623 1,479 144 10% Hydro generation (GWh) 2,010 2,168 (158) (7%) Spot market generation (GWh) 4,669 4,812 (143) (3%) Spot electricity purchases (GWh) 4,186 4,519 (333) (7%) 39 25 14 56% GWAP ($/MWh) 57.80 66.32 (8.52) (13%) LWAP ($/MWh) (62.29) (71.71) 9.42 (13%) 108% 108% - 0% Gas used in internal generation (PJ) 9.8 10.9 (1.1) (10%) Wholesale gas sales (PJ) 0.1 1.3 (1.2) (92%) (2.0) (0.1) (1.9) 1900% Unit generation costs ($MWh) (35.24) (38.67) 3.43 (9%) Cost of energy ($MWh) (33.27) (37.13) 3.86 (10%) CfD sales/(purchases) (GWh) LWAP/GWAP (%) Gas storage net movement (PJ) 1H16 Results Presentation Variance 15 February 2016 Contact Energy Limited 39 Other segment 6 months ended 6 months ended 31 December 2015 31 December 2014 63 63 - 0% Meter leases revenue 2 2 - 0% Other revenue - 2 (2) (100%) 65 67 (2) (3%) LPG purchases (38) (40) 2 (5%) Total direct costs (38) (40) 2 (5%) Other operating costs (7) (8) 1 (13%) EBITDAF 20 19 1 5% LPG sales (tonnes) 37,379 37,440 Customer number 72,500 68,000 Other segment $m LPG revenue Total other segment revenue 1H16 Results Presentation 15 February 2016 Contact Energy Limited Variance $m % (61) 4,500 (0%) 7% 40