Contact Energy Limited · NZX:CEN
Contact Energy — Non-Deal Roadshow (September 2018)
39 slides from Contact Energy's roadshow presentation, Sep 20, 2018
Slide 1: Investor Roadshow Presentation – September 2018
For personal use only 20 September 2018 INVESTOR ROADSHOW PRESENTATION – SEPTEMBER 2018 Please find attached a presentation delivered to investors in the United States, Canada, London, Japan, Hong Kong and Singapore. ENDS
Slide 2: United States, Toronto, London, Tokyo, Hong Kong, Singapore
For personal use only United States, Toronto, London, Tokyo, Hong Kong, Singapore
Slide 3: Disclaimer
For personal use only Not financial product advice: This presentation is for information purposes only and is not financial or investment advice or a recommendation to acquire Contact Energy's (Contact) securities, and has been prepared without taking into account the objectives, financial situation
Slide 4: Chief Executive Officer
For personal use only Chief Executive Officer Dennis Barnes has been Chief Executive Officer of Contact since 2011. Dennis has completed Contact’s NZD2bn investment programme in renewable energy, flexible generation and companywide systems. Over his time at Contact Dennis has provided industry leade
Slide 5: New Zealand economy
For personal use only New Zealand economy
Slide 6: New Zealand's stable economy makes it an attractive place to invest
For personal use only New Zealand's stable economy and political system, reputation for innovation and the ease of doing business make it an attractive place to invest » Safe, stable and secure business environment » Ease of doing business » Comparatively low developed-country business costs » Simpl
Slide 7: New Zealand is open for business
New Zealand is open fo: An economy teeming with opportunities where businesses thrive and investors are welcome. PROSPEROUS Is AND OPEN TO al country inthe world to negotiate a 0% SOCIAL SECURITY TAX to meet and future-proof the requirements of New Zealand's IE Srruston Perceptions Index, rapidly gr
Slide 8: Market dynamics
For personal use only Market dynamics
Slide 9: New Zealand electricity market structure
For personal use only 5 Major Hourly generators 1/2 wholesale 1 State-owned national 29 Distribution businesses 33 Retailers (44 2.1 Million consumers spot market transmission grid brands) operator 8
Slide 10: Reliable, affordable and environmentally sustainable electricity system
For personal use only New Zealand enjoys a reliable, affordable and environmentally sustainable electricity system “New Zealand serves as a model for effective energy Quality Progressive Rational markets and secure renewable regulatory Stable political market power system environment resources setti
Slide 11: National electricity demand of around 41,000 GWh
For personal use only National electricity demand of around 41,000 GWh Electricity consumption breakdown National electricity demand Source: MBIE quartely electricity generation and consumption survey Source: EMI Annual demand 40,399 40,041 41,067 41,181 40,927 41,254 (GWh) Agriculture, FY13 FY14 FY
Slide 12: Electricity generation mix for 2017
For personal use only Electricity generation mix for 2017 New Zealand electricity supply 2007 - 2017 Source: MBIE quartely electricity generation and consumption survey 100% Other Other 2% 90% Gas Coal 80% Wind Gas 70% Geothermal 15% Coal 3% 60% 50% Wind 5% 40% Hydro 58% 30% Geothermal Hydro 17% 20%
Slide 13: National hydro storage against mean storage
For personal use only National hydro storage against mean storage (controlled only) Source: NZX hydro 4,000 3,500 3,000 2,500 GWh 2,000 1,500 1,000 500 0 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18
Slide 14: Generation requirements and renewables firming
For personal use only Generation (TWh) 0 5 10 15 20 25 30 35 40 45 Total Generation 43 (=demand + losses) Mean Hydro 24 7 Geothermal 2 Wind 2 Co-Generation "Mean Year" 7 Residual Thermal Requirement "Wet Year" Residual 5 Thermal Requirement "Dry Year" Residual Thermal 10 Requirement Demand Growth of
Slide 15: Long term prices impacted by supply and demand balance
For personal use only Long term prices impacted by the fundamental supply and demand balance Source: EMI 140 120 100 $/MWh 80 60 40 7-day simple moving average spot price Short-dated Long-dated 20 14/07/2009 14/07/2010 14/07/2011 14/07/2012 14/07/2013 14/07/2014 14/07/2015 14/07/2016 14/07/2017 14/0
Slide 16: Long term prices impacted by supply and demand balance
For personal use only Long term prices impacted by the fundamental supply and demand balance » Estimated population growth » The Tiwai fourth potline provides » New products and services » Consented and scalable renewable of 320k by 2020 (+7%) medium term demand strength through a deeper customer de
Slide 17: Network costs rising, energy component falling
For personal use only Network costs rising, energy component falling; real cost to Year on year quarterly change in residential electricity prices households flat Source: MBIE Quarterly Survey of Domestic Electricity Prices » Residential electricity price increases remain below inflation 8% Lines co
Slide 18: Company strategy
For personal use only Company strategy
Slide 19: Customer and Generation strategy
For personal use only Customer Generation A service and value focussed retailer, An innovative, safe and efficient generator connecting customers and communities working with business customers, partners to smart solutions that make living easier and suppliers to decarbonise New for them now, and in
Slide 20: Market momentum is increasing
For personal use only While directionally the environment remains broadly similar the momentum driving the market is increasing Electricity demand Decarbonisation Regulatory settings Retail competition and supply » National demand for electricity » The Government's » Regulatory settings have » Retai
Slide 21: Customer: near term description of success
For personal use only NEAR TERM DESCRIPTION OF SUCCESS High-performing, efficient retailer with the lowest cost to serve and best customer experience of the tier 1 retailers in New Zealand, with an ability to execute consistently FY16 FY17 FY18 Delivering on our strategy Employee 36% 53% 79% engagem
Slide 22: Operational performance metrics continue to improve
For personal use only Operational performance metrics continue to improve FY18 EBITDAF Keys to extracting value Best-in-class retailer, reducing Mass market earnings up $65m CTS while growing customer 1 marginally on cost improvements ($49m electricity, $12m gas, $4m meters and other income) advocac
Slide 23: Generation: near term description of success
For personal use only NEAR TERM DESCRIPTION OF SUCCESS Focus on operational excellence and investment in digital approaches with clear payback to accelerate continuous improvement FY16 FY17 FY18 Delivering on our strategy Employee engagement 60% 65% 68% » Executing on continuous improvement initiati
Slide 24: Strong operational performance, earnings impacted by hydrology
For personal use only Strong operational performance delivering cost reduction and improving resource utilisation, short term earnings impacted by hydrology. Long term growth dependent on the disciplined development of renewable generation 12 month rolling renewable generation vs mean Keys to extrac
Slide 25: Sale of Ahuroa gas storage and Rockgas LPG
For personal use only Sale of Ahuroa gas storage for $200m Sale of Rockgas LPG for $260m » Contact identified a higher value owner for this long life infrastructure » Divesting Rockgas will enable greater focus and allow for accelerated asset. Contact has retained access to competitive long term gas
Slide 26: Outlook
For personal use only Outlook
Slide 27: Customer and Generation priorities
For personal use only Customer Generation » Move to a simple, lean operating model centred on the » Sustainable cost reduction balanced against risk customer experience reinventing key customer experiences and processes » Strengthen geothermal capability to remain as a recognised world leader » Capa
Slide 28: Capital expenditure and targets
For personal use only Capital expenditure and targets » FY18 accounting capex of $69m, $32m lower than FY17 (32%). Cash spend on SIB capex of $78m, $38m down on FY17 (33%). SIB capital expenditure Sustainable capital expenditure, post financial close of AGS and Rockgas is between $60 - $65m Guided r
Slide 29: Controllable costs down by over $100m
For personal use only Controllable costs down by over $100m since the delivery of the geothermal and SAP capex programmes 450 SIB 27% FY15 FY16 FY17 FY18 FY19 (f)² FY20 (f) 400 1% Other operating 9% $263m $247m $243m $223m $205m $190m 350 costs 18% 4-6% Costs excluded 300 $24m $10m $12m - - - from u
Slide 30: Normalised FY20 EBITDAF
For personal use only With the sale of AGS and Rockgas due to complete in 1H19 a normalised FY20 EBITDAF is provided Bridge illustrating FY18 EBITDAF to FY20 operating free cash flow (excludes movement in working capital) 550 500 30 32 2 20 7 14 450 60-65 400 $m 55 350 481 480 70 300 250 290-295 Fav
Slide 31: Net debt and FY19 target ordinary dividend
For personal use only Net debt FY19 Target ordinary dividend Distribution policy Target ordinary dividend of between $1,448m Borrowings at 30 June ($410m) Reduction in net debt from 35cps 2018 proceeds of asset sales (after tax) up 80-90% +9% on FY18 S&P net debt Interim Final dividend dividend of O
Slide 32: Appendix: Operational and financial performance FY18
For personal use only Appendix Operational and financial performance FY18
Slide 33: Operational performance improves, cash discipline enables increasing dividends
For personal use only Operational performance improves, cash discipline enables increasing dividends Comparison against FY17 MAINTAINING FINANCIAL DISCIPLINE Reduction in total cash Strong cost control with other operating costs down by $20m (8%). Cash spent on SIB capital expenditure down by $38m (
Slide 34: Underlying profit down 8% from $142m to $130m
For personal use only Underlying profit down 8% from $142m in FY17 to $130m Contact’s statutory profit Financial performance compared to FY17 160 » Underlying profit of $130m, was down by Favourable Unfavourable $12m (8%) reflecting: 9 140 2 » $20m reduction in EBITDAF 20 11 » Depreciation and amort
Slide 35: Customer and Generation EBITDAF
For personal use only Customer EBITDAF of $109m, $9m lower than FY17 Generation EBITDAF of $372m, $11m lower than FY17 Customer EBITDAF movement on FY17 Generation EBITDAF movement on FY17 390 125 385 120 1 2 2 8 115 380 9 110 4 $m 375 $m 4 105 118 383 370 100 109 372 365 Favourable Unfavourable 95
Slide 36: C&I electricity and LPG EBITDAF
For personal use only C&I electricity EBITDAF of $12m, $8m lower than FY17 LPG EBITDAF of $32m, $4m lower than FY17 » Contact is not integrated into upstream LPG supply and is exposed to » Competition for C&I sales has increased, which has led to a reduction the fluctuations in oil linked commodity
Slide 37: Mass market electricity tariffs and EBITDAF
For personal use only Mass market electricity tariffs up 0.5%, network costs up EBITDAF from mass market electricity sales was $49m in 2%, cost to serve down 10% FY18, up $2m (4%) from the prior period despite lower sales volumes and rising energy prices Mass market electricity netback ($/MWh) year
Slide 38: Hydro generation volumes 10% below mean
For personal use only Hydro generation volumes 10% below mean for the second Contact hydro generation by quarter for FY15 – 18 consecutive financial year Source: Contact » Clutha hydro inflows during FY18 were 19% below mean for the first 1,000 three quarters (5% above mean for the last quarter) 800
Slide 39: Generation volumes and costs year on year
For personal use only Efficiency gains and maximum fuel use at Wairakei. Ohaaki Operating cost reduction offset by rising gas and carbon costs generation impacted by injection constraints Generation volumes (GWh) year on year movement Generation costs year on year movement 8,750 295 9 293 8,700 6.1