Ann: ADDRESS: CEN: Chairman's Address to Contact 2014 AGM

• Release Date: 14/10/14 10:03
• Summary: ADDRESS: CEN: Chairman's Address to Contact 2014 AGM
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					CEN
14/10/2014 10:03
ADDRESS

REL: 1003 HRS Contact Energy Limited

ADDRESS: CEN: Chairman's Address to Contact 2014 AGM

Chairman's Address to Contact Energy 2014 Annual Meeting of Shareholders

For immediate release

Tuesday 14 October 2014

The 2014 financial year has been one of significant achievement.

Financial performance has been sound with underlying earnings after tax of
$227 million up 12 per cent compared to the prior year and free cash flow,
including the purchase and sale of fixed assets, for the year of $201
million, up $109 million on the prior year.

Given the year's performance, your Directors have resolved that the final
dividend should be increased one cent per share to the equivalent of 15 cents
per share. This makes a total distribution for the year of 26 cents per
share, representing a payout ratio of 84 per cent of underlying earnings
after tax. All distributions have been paid as fully imputed cash
distributions.

Our balance sheet is strong with a number of financing transactions
undertaken during the year to ensure the company had sufficient liquidity to
fund its activities and maintain a BBB credit rating.

Two major projects were also successfully completed during the year. The
company's investment in new retail systems, which we called Retail
Transformation, was completed with the stabilisation activity, often
necessary after large system investments, nearly complete. The investment in
the $623 million geothermal power station at Te Mihi was also completed with
this project now making a significant contribution to Contact's earnings and
cash flow. Your CEO, Dennis Barnes, will talk further about these in his
presentation shortly.

The completion of these investments puts Contact in a strong competitive
position and well placed to produce consistent earnings and strong free cash
flow.

These outcomes for the year are achievement enough, but I think are best
viewed in light of events that began seven years ago.

Until then Contact was generating a substantial amount of energy from its
fleet of thermal power stations using relatively cheap and flexible gas
available to it under legacy take-or-pay gas contracts. This was at the then
core of the Company's competitive advantage but all began to change when gas
contracts became less flexible and gas prices began to rise in response to
predicted shortages in indigenous supply. The unexpected removal of Pole 1
transmission capacity between the North and South Islands also significantly
impacted the connection between our generation assets and customer demand.

With reducing flexibility of Contact's portfolio, increasing renewable
generation supply in the market, and diminishing demand growth, it became
clear to us that Contact's reliance on its gas position and in particular the
take-or-pay nature of those gas contracts was becoming a source of
inflexibility - a liability not an asset.

For these reasons Contact entered a significant period of change
characterised by substantial investment to improve the flexibility of its
investments in generation and the competitiveness of its business.

This period was characterised by investment in;
o the Ahuroa gas storage project and associated gas pipeline projects to
allow gas to be injected and withdrawn from storage to better reflect demand.

o the 200 MW Stratford and the 155 MW Whirinaki peaking plants to make
generation more able to respond to changes in demand for electricity.
o the 166 MW Te Mihi geothermal power station to increase the amount of low
marginal cost renewable generation.
o the Retail Transformation project to improve the quality and
competitiveness of products and services it can offer its customers.
o repositioning the Company's customer base to better match its position in
fuel and generation.

During this period Contact also reviewed all of its activities, as a result
Contact discontinued development of wind generation and divested a number of
assets, including its gas metering business, the New Plymouth power station
and a number of properties no longer required for the effective future
conduct of its business.

In November 2013 the interconnector capacity between the North Island and
South Island was finally restored, coinciding with the completion of all
these investments and restoring the flexibility that Contact's hydro
generation in the South Island brings to Contact's business.

It is also worth noting that this all occurred through a period of
significant uncertainty: economic uncertainty triggered by the global
financial crisis and policy uncertainty leading up to the partial
privatisation of the previously state-owned energy companies, a step we
believe was a sound initiative to put all energy companies on the same
competitive basis. The significant uncertainty around the potential
restructuring of the industry under proposals known as the single buyer
policy were,  we believe, an unwarranted intervention in a market that is
working effectively.

Contact now has a much more flexible portfolio of fuel and generation with a
significantly lower operating cost and the customer systems to compete
effectively in this very competitive energy market in New Zealand. Contact
also has access to some of the best undeveloped geothermal resources in the
world to be developed when demand for energy requires this to be done. With
little requirement for more capital investment in the short to medium term
Contact will be a strongly cash generative business able to fund whatever
opportunities the future has to offer.

During this period of significant change Contact has been well led by your
current CEO Dennis Barnes and his predecessor David Baldwin who set much of
this change in motion. They and their colleagues have demonstrated the
strategic, tactical and executional skills to manage this change and equip
Contact with world leading skills particularly in geothermal generation.
These skills will provide the basis for the ongoing growth and development of
your Company.

As we report to shareholders today all of these initiatives and issues are
behind us and Contact is very well placed to face the future whatever
challenges it will most certainly bring.

In concluding, I would like to thank my colleagues on the Board, your
Directors, for their contribution during the year. We also thank Dennis and
all the team at Contact for their ongoing efforts on your behalf.

We would also like to thank you, our shareholders for your continued support
of the company.

Thank you.

ENDS
End CA:00256382 For:CEN    Type:ADDRESS    Time:2014-10-14 10:03:15