Sale of Contact’s LPG business Rockgas

31 July 2018 Sale of Contact's LPG business Rockgas Delivering on our strategy through portfolio optimisation Contact has entered into an agreement to sell 100% of the shares in Rockgas Limited (Rockgas) to Gas Services NZ Midco Limited (GSNZ) an associate of First Gas Limited (First Gas), for a cash consideration of $260 million after an extensive competitive sales process. Rockgas holds Contact's LPG operations as well as 50% of the issued shares in Rockgas Timaru Limited? and an 8.5% investment in Liquigas Limited?. As part of the transaction, Contact will enter into an exclusive marketing alliance with GSNZ to be able to continue to offer LPG to mass market customers. In addition, Contact will enter into a services agreement to provide call centre and billing services for mass market LPG customers. Rationalisation of non-core portfolio assets Contact's strategy is to optimise the Customer and Generation businesses to deliver strong cash flows for distribution to shareholders. The strategy is underpinned by a disciplined and transparent approach to operating and capital expenditure while ensuring our portfolio of assets are delivering returns for shareholders. Rockgas purchases LPG from New Zealand producers (and when necessary, imports LPG) at prices linked to international commodity indices and then arranges for storage and distribution to customers. Rockgas supplies over 88,000 customers through an extensive branch and franchise network, which has national distribution coverage. The Rockgas business is markedly different to the generation of electricity at single sites and the retailing of electricity, natural gas and broadband, which are distributed on networks not owned or controlled by Contact. Contact's primary strategic interest in LPG is being able to offer the product as part of its energy offering to customers which is retained as part of the transaction. Creating value for Contact shareholders Improve the focus and speed of transformation in the Customer business In an environment of continuing competitive intensity, operational improvements in the Customer business over the last few years have seen a move to a high-performing, efficient retailer focused on improving the customer experience. The evidence of progress includes an 11% reduction in cost to serve in FY18 (on FY17) and improving customer advocacy. Divesting Rockgas will enable greater focus and allow for accelerated transformation in the Customer business, delivering digitally led customer experience improvements and ultimately creating value for shareholders. Value in dual fuel and customer scale retained Customers value a multiple product offering and are therefore more loyal with a lower propensity to switch providers. Satisfied customers have higher customer lifetime value. The marketing alliance with GSNZ will preserve the value in a multi-fuel offering and support our ability to compete in the electricity market. In addition, the value from the scale advantage that Contact has in servicing customers is maintained through the services agreement covering call centre and billing services for mass market LPG customers. This allows for enhanced returns from digital transformation. Reduced exposure to commodity prices The price of and demand for LPG in New Zealand is affected by the domestic availability and wholesale price of LPG (linked to international benchmarks in US$). Post sale, Contact will no longer be directly exposed to movement in these commodity prices. Improved balance sheet strength, debt to return to target gearing ratio The sale proceeds will strengthen our balance sheet and facilitate improved distributions to shareholders. Contact expects that post completion of the transaction the S&P net debt / EBITDAF ratio will fall comfortably below the target 2.8x. Consideration The total consideration for the disposal is $260 million payable in cash at completion, with net proceeds subject to standard pre-completion adjustments for net debt (primarily property leases), working capital movements and transaction costs. As a sale of shares, the sales proceeds arising from the disposal will not be subject to income tax. The transaction proceeds will be applied to the reduction of debt on completion. Completion Completion of the sale is subject to the fulfilment of certain conditions set out in the transaction agreements. These include GSNZ obtaining the required consents under the Overseas Investment Act 2005 and the consent to change of control or assignment or novation of agreements from a limited number of contractual counter-parties. Contact is targeting the satisfaction of these conditions and completion of the transaction by 31 December 2018. On-going agreements Rockgas and Contact will enter into a marketing alliance to promote and cross-sell their respective LPG and electricity products. Contact will provide support services, including call centre, billing and credit control services to Rockgas for mass market customers for an annual fee of $2 million. Background Contact entered the LPG market in 2007, through the purchase of Rockgas from Origin Energy (who held a majority shareholding in Contact) for $156 million, during the first year of operation, EBITDAF was $20m. The average annual EBITDAF for the period under ownership was $22 million, with a range of $13 million to $35 million. During the period of ownership, Contact improved the integrity, reliability and costs of operation with operating costs down by $5 million which along with significant improvements to fuels procurement and consolidation of bulk distribution and shipping along with lower product costs saw FY18 earnings before interest, tax, depreciation and fair value adjustments in financial instruments (EBITDAF) of $32 million (unaudited). About Gas Services New Zealand GSNZ provides operational services for First Gas and other customers. GSNZ operates one of New Zealand's largest gas networks. GSNZ and Contact are currently working to satisfy the conditions to complete the sale of the Ahuroa gas storage facility to GSNZ. ENDS Investor enquiries: Matthew Forbes +64 21 072 8578 End CA:00321500 For:CEN Type:TRANSACT Time:2018-07-31 08:31:51