Infratil Limited · NZX:IFT
Infratil — Trustpower — FY2020 Earnings Presentation
54 slides from Infratil's earnings presentation, May 27, 2020
Slide 1: Investor Presentation for the year ended 31 March 2020
1. Investor presentation for the year ended 31 March 2020 | 27 May 2020 Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 2: Contents
Contents • Governance overview • COVID 19 update • Strategic update • Operational overview • FY20 financial review • Outlook 2. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 3: Investor Presentation for the year ended 31 March 2020| 27 May 2020
3. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 4: Our response to the COVID-19 pandemic – a view from the Board
Our response to the COVID 19 pandemic – a view from the Board The Board has been pleased with the company’s response to the COVID 19 pandemic An efficient transition • Trustpower has for some time being developing the systems and people capability to be adaptive and responsive to change. These were
Slide 5: Governance overview
Governance overview Trustpower retains focus on strong governance Chief Executive • David Prentice has been appointed to the role of Chief Executive until December 2021. – In these times of disruption and uncertainty the Board considered it important that the company have the longer term commitment
Slide 6: Trustpower demonstrates resilience and capability in COVID-19 pandemic
Trustpower demonstrates resilience and capability in COVID 19 pandemic Our focus on our customers • Over 10,000 proactive outbound calls to vulnerable and elderly customers to make sure they were OK • Suspension of normal collection activity and active assistance for customers in hardship Essential
Slide 7: Investor Presentation for the year ended 31 March 2019| 2020| 27 May 2020
7. Investor Presentation for the year ended 31 March 2019| 2020| 27 May 2020
Slide 8: Year at a glance: EBITDAF, NPAT, customers, generation
$186.4m Group EBITDAF $97.6m 16% Group Over NPAT 104,000 3% 1,759 GWh Telco generation Customers volumes 8% 12% $35.3m Retail $154.2m EBITDAF 73% of telco Generation 45% connections EBITDAF are fibre 10% 8. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 9: Investor Presentation for the year ended 31 March 2020| 27 May 2020
9. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 10: Macro environmental factors
Macro environmental factors Key factors The external macro environment affecting Trustpower’s performance are: • Weather • The supply/demand balance for electricity • Retail competition • Demand for data and digital interaction • Changes in regulatory/social expectations Each of these factors is dis
Slide 11: Weather
Weather Hydro generation revenue can fluctuate depending on inflows and wholesale prices Spot-exposed volume creates some volatility in earnings Actual NZ hydro generation (90% probability will be Acquisition of King Country within +/-$20 million) 2,500 Energy ~20% of generation volume 2,000 sold on
Slide 12: Trustpower absorbs weather volatility
Trustpower absorbs weather volatility Despite a level of volatility of earnings caused primarily by weather impacts Trustpower has maintained stable dividends EBITDAF and Ordinary Dividends 260 40 240 35 220 30 Ordinary Dividend (cps) 200 25 EBITDAF ($M) 180 20 160 15 140 10 120 5 100 0 FY-17 FY-18
Slide 13: Electricity demand
Electricity demand Key convictions Short term prices are impacted primarily by weather however longer term pricing is impacted by expectations of demand. If demand is expected to exceed supply then wholesale prices will move in a average year to the level required to encourage new generation to be b
Slide 14: Retail competition
Retail competition Competition levels remain high Trustpower’s hypothesis: Switches for all companies over time – Most of the increased competition over the last 10 years has been 25% driven by generators seeking additional customers in which to place Demand expected to Supply expected to exceed dem
Slide 15: Increasing demand for data
Increasing demand for data NZ Internet connections Fixed-line broadband Fixed-line broadband data connections by technology consumption Over 46% of household connections have no landline Source: Commerce Commission, Annual Telecommunications Monitoring Report, 12 March 2020, https://comcom.govt.nz/_
Slide 16: We have built a carrier grade ISP network & capability
We have built a carrier grade ISP network & capability Trustpower has invested $3-5 million per year for the last five years which means: PORTLAND, USA • We have a nationwide network with points of presence in all the SYDNEY3, AUSTRALIA SAN-JOSE, USA major cities supported by dedicated leased fibre
Slide 17: Digital - Meeting customer demand and driving productivity
Digital - Meeting customer demand and driving productivity Driving productivity improvement Meeting customers’ increasing demand for digital interaction with market leading automation Call Centre Costs over Total Customer Contacts 16 14 12 10 $ per contact 8 6 4 2 - FY-17 FY-18 FY-19 FY-20 In the fi
Slide 18: What does this mean for telco retail?
What does this mean for telco retail? Demand for data and the fibre rollout will continue to drive change • The continuing demand for data will ensure the transition from copper to fibre will continue for 3-5 years continuing to provide a value led reason for changing providers • Bundling will be co
Slide 19: Society and regulatory change
Society and regulatory change Sustainability Trustpower has always considered all of its stakeholders in its decision making. We have a long history of supporting and engaging with our local communities, iwi, our employees, customers and the environment in addition to providing returns to our shareh
Slide 20: Trustpower's strategy – to create executable options driving shareholder returns
Trustpower’s strategy – to create executable options driving shareholder returns A changing world Trustpower has engaged the help of external facilitators and business process experts to assist it in thinking innovatively about how it can thrive and prosper in a post COVID world. We will share more
Slide 21: What this all means for Trustpower
What this all means for Trustpower What are we doing? As much as possible we are managing weather volatility through active risk management and stable dividends. We are actively engaging with other potential partners to look to participate in further renewable generation development to meet national
Slide 22: 22. Investor Presentation for the year ended 31 March 2020| 27 May 2020
22. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 23: Enhancing generation volume
Enhancing generation volume Continued focus on efficiency and Actual NZ hydro generation and long-run average enhancements delivers results 2,400 Long term expectation KCE Acquisition currently 1,917 GWh 2,200 • Average generation volume increased by 113GWh in the decade to FY-16 2,000 • Average gen
Slide 24: Waipori Scheme Outage
Waipori Scheme Outage Major scheme outage successfully delivered by Trustpower staff and contractors : • 8-week planned outage completed on time. • Major works included conveyance tunnel assessments and repairs, dam stability investigations, and penstock and turbine Investigations – WPI 2 Dam repair
Slide 25: Highbank Outage
Highbank Outage Trustpower’s diverse Generation portfolio highlights resiliency during unplanned outage. • Damage to the guide bearing of Trustpower’s fourth largest machine, located at Highbank Power Station, resulted in a three- month forced outage. • This was the worst single machine point of fai
Slide 26: 26. Investor Presentation for the year ended 31 March 2020| 27 May 2020
26. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 27: Focus on execution of proven products
Focus on execution of proven products Bundled Telco + Electricty $5,500 $2,900 Total Customers By Region Electricity Gross Profit Current $5,000 $2,700 By Region - FY-19 $2,500 Bay of Plenty Metro Regional Bay of Plenty Metro Regional $4,500 $2,300 $4,000 $2,100 22% $1,900 27% $3,500 $1,700 47% $3,0
Slide 28: Lower churn = higher value
Lower churn = higher value Electricity Only vs Multi-Product Customer Churn Electricity Only vs Multi-Product Customer Churn (excluding Tauranga) 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-1
Slide 29: Quality Customers are Essential in Tough Times
Quality Customers are Essential in Tough Times Residential Customer Persistence SME vs. Residential Connections Target Segment 45% 100,000 40% Customers Remaining % 35% 80,000 30% SME ICPs 60,000 Non-Target 25% Desirable Segment 20% 40,000 15% 10% 20,000 5% Undesirable Segments 0% - MEL CEN GNE MCY
Slide 30: Customer centred services driving satisfaction
Customer centred services driving satisfaction Customer Satisfaction 100% • Excellent customer satisfaction outcomes particularly for those which are non-staffed digital. This drives high levels of re- 90% engagement and significant utilisation of our lower cost service 80% delivery channels. High l
Slide 31: 31. Investor Presentation for the year ended 31 March 2020| 27 May 2020
31. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 32: EBITDAF bridge full year 2019 - 2020
EBITDAF bridge full year 2019 - 2020 IFRS15 relates to the net difference in amortisation and capitalisation for customer acquisition costs. Trustpower adopted the new IFRS16 accounting standard in FY-20, moving some leases onto the Balance Sheet. The sale of our Meter Asset and MEP business reduced
Slide 33: Generation earnings
Generation earnings Operating costs increased in FY-20 due to increased works carried out, increase in Includes a $7m increase personnel capability, and increase in one-off transferred to Retail opex projects (e.g. Highbank and Waipori) Other revenue decrease was mainly due to carbon credit revaluat
Slide 34: A challenging year for Retail
A challenging year for Retail Telco cost of sale normalisation relates to a large credit from prior periods being included in FY-19. Corporate cost allocation methodology change saw a much larger chunk of corporate costs now allocated to the business operating units. Includes a $7m increased Bad deb
Slide 35: Final dividend
Final dividend Final Dividend declared of 15.5 cps fully imputed bringing total ordinary dividends for the year to 32.5 cps fully imputed The decline in dividend reflects the current year performance and the Board’s view that a considered and conservative approach is required in relation to the unce
Slide 36: Debt capital management
Debt capital management Strong position to manage uncertainty 500 179 400 187 $M 300 200 100 - 0-1 1-3 3-5 5-7 7+ Bank Senior Bonds Unutilised Bank • Trustpower has refinanced all its debt due in 2020 and does not expect 436 to be returning to the bank or debt markets over the next 12 months. Bank S
Slide 37: Generation asset valuation
Generation asset valuation Prudent approach Asset valuation movement The Board considered it prudent to seek a full revaluation of the 2,000 generation assets given the material changes in the environment • Price path is ASX initially then $81 flat real thereafter 1,500 • WACC is 7.0% • ACOT revenue
Slide 38: 38. Investor Presentation for the year ended 31 March 2020| 27 May 2020
38. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 39: In summary
In summary • The FY20 operating result was overall disappointing but Trustpower expects an improved FY21 • Focused on incremental value creation in generation, cost optimisation and volume gains • Building a network of partners that create options for participation in new generation • Trustpower rep
Slide 40: Market guidance update
Market guidance update FY21 EBITDAF CAPEX Trustpower expects its FY-21 EBITDAF to be in the range of Trustpower expects its FY21 capex to be in the range $190 - $215 million of $29m - $36m The FY-21 forecast is underpinned by the following assumptions: This is made up of: • Generation volumes for FY
Slide 41: 41. Investor Presentation for the year ended 31 March 2020| 27 May 2020
41. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 42: 42. Investor Presentation for the year ended 31 March 2020| 27 May 2020
42. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 43: How to ask questions
How to ask questions While you’re attending the webcast there are integrated features on the platform which allow you to send questions to the presenters. You can either ask questions via the Q&A feature and type your question, or you can use the Raise Hand feature if you would like to verbally ask
Slide 44: 44. Investor Presentation for the year ended 31 March 2020| 27 May 2020
44. Investor Presentation for the year ended 31 March 2020| 27 May 2020
Slide 45: Trustpower key facts
Trustpower key facts • Tauranga based national electricity generator and retailer of energy and telco • History dates back to 1923 as the Tauranga Electric Power Board • Market capitalisation circa $2.2 billon • Key shareholders Infratil (51.0%) and TECT (26.8%) • New Zealand generation capacity (hy
Slide 46: Trustpower adds shareholder value
Trustpower adds shareholder value Total Shareholder Return (TSR) - FY-18 to FY-20 Share price trend driven by 140% TPW 36% underlying value 120% CEN 24% • High dividend yield 100% • Sustainable gearing allowing for 80% GNE 25% future growth • Supportive major shareholders 60% MCY 39% • Credible reta
Slide 47: FY-20 Overview
FY-20 Overview Key Drivers Comments • A very strong result thanks to favourable hydrology and EBITDAF of $186.5 million is down 16% pricing as well as an improved retail contribution. Underlying Earnings of $75 million down 26% • Generation above long run average but below last year Generation produ
Slide 48: Electricity risk management
Electricity risk management Trustpower’s has successfully managed retail Trustpower supply/demand balance price risk for a number of years in a typical year • Trustpower understands the risk of retailing without full support of a generation business. • The existing risk management tools are sufficie
Slide 49: Balanced exposure to wholesale risk
Balanced exposure to wholesale risk Overview of a typical year Trustpower Generation Tilt FPVV PPAs FPVV PPAs (excl Tilt) FPFV Hedges incl ASX Spot passed through to C&I Generation/Purchase FPVV = Fixed Price Variable Customer Overall long generation Direct pass Volume contracts to reduce exposure t
Slide 50: Having a robust transfer price is key to measuring retail performance
Having a robust transfer price is key to measuring retail performance Trustpower’s methodology FY18 FY19 FY20 • Establish a monthly base rate based primarily on ASX pricing $000 $000 $000 (1/3 based 3 years ago, 1/3 2 years ago, 1/3 1 year ago). • Adjust for location factors and load shape relative
Slide 51: Netback
Netback FPVV Netback 140 Strong retail profitability reflects: 120 • Retention of existing customers through excellent service • Targeting of value adding new customers 100 80 $/MWh 60 40 20 - 2016 2017 2018 2019 2020 Total Netback Excluding CTA ASX benchmark Note: includes Fixed Price Variable Volu
Slide 52: Market Guidance Drivers
Market Guidance Drivers FY-20 contained 7.5 months of meter asset business contribution. This business was sold in November 2019. IFRS15 impact is driven by higher amortisation of previous period acquisition costs. Trustpower is expecting a return to more normal levels of generation production, albe
Slide 53: Non-GAAP Measures
Non-GAAP Measures • Underlying Earnings is a non GAAP (Generally Accepted Accounting Principles) financial measure. Trustpower believes that this measure is an important additional financial measure to disclose as it excludes movements in the fair value of financial instruments which can be volatile
Slide 54: Disclaimer
Disclaimer While all reasonable care has been taken in the preparation of this presentation, Trustpower Limited and its related entities, directors, officers and employees (collectively "Trustpower") do not accept, and expressly disclaim, any liability whatsoever (including for negligence) for any l