Contact Energy Limited · NZX:CEN
Contact Energy — FY2021 Earnings Presentation
52 slides from Contact Energy's earnings presentation, Aug 16, 2021
Slide 1: 2021 Full Year Results Presentation
2021 Full Year Results Presentation Twelve months ended 30 June 2021 1
Slide 2: Disclaimer and important information
Disclaimer and important information This presentation may contain certain forward-looking statements with respect to the Although management may indicate and believe that the assumptions underlying the financial condition, results of operations and business of Contact. Forward-looking forward-looki
Slide 3: Presentation Agenda
PRESENTATION AGENDA 1 FY21 Highlights and Market Update/ Mike Fuge, CEO 4-13 2 Financial Results and Outlook / Dorian Devers, CFO 14-28 3 Progress on Strategy / Mike Fuge, CEO & Dorian Devers, CFO 29-37 4 Supporting Materials 38-52 Contact Contact Energy Energy // FY21 FY21 Full Full Year Year Resul
Slide 4: FY21 performance highlights
FY21 performance highlights Mike Fuge, CEO Contact Energy / FY21 Full Year Results Presentation / 16 August 2021 4 4
Slide 5: Solid financial performance supports continued investment to decarbonise New Zealand
SUMMARY OF KEY FINANCIAL PERFORMANCE MEASURES Solid financial performance supports continued investment to decarbonise New Zealand Twelve months Twelve months ended ended 30 June 2020 30 June 2021 (FY20) (FY21) EBITDAF1 $553m ↑ 24% from $446m3 Operating earnings (EBITDAF) were up by $107m when compa
Slide 6: Key strategic highlights from FY21
Key strategic highlights from FY21 Grow Grow renewable Decarbonise Create outstanding demand development our portfolio customer experiences Attract new industrial Build renewable generation Lead an orderly Create NZ's leading energy and Objective demand with globally and flexibility on the back tran
Slide 7: Key strategic highlights from FY21
Key strategic highlights from FY21 Our ESG Operational Transformative commitment excellence ways of working Create long-term value through our strong Continuously improving our Create a flexible and high- Objective performance across a broad set of operations through innovation and performing enviro
Slide 8: National electricity demand
MARKET DEMAND National electricity demand Regional change (%) (2%) National electricity demand (TWh) FY22 potential FY21 vs FY20 demand changes (TWh) 0% (2%) Major industrials +1% 3% 3% 41.2 40.9 41.3 41.4 41.2 41.6 (2%) 3% 4% 3% Potential 0.2 Demand flat North Island 25.9 25.9 26.1 26.1 25.8 26.1 d
Slide 9: Hydrology and impact on generation mix
FUEL SUPPLY Hydrology and impact on generation mix National hydro storage Generation by type (TWh) 1H20 2H20 1H21 2H21 Generation from generator retailers 4.5 Storage TWh 40.8 40.5 40.0 4.0 5.1 5.3 Hydro generation was down 5.2 Gas 3.5 by 5% when compared to 1.6 1.7 FY20 with below mean 3.1 Coal 3.0
Slide 10: Short-term factors influencing price all sharply higher over the last 12 months
FUEL SUPPLY AND NEAR-TERM PRICE IMPACT Short-term factors influencing price all sharply higher over the last 12 months Short-term external factors that Wholesale and futures electricity pricing ($/MWh) Aluminium prices sharply can influence the market Aluminium higher (+$1,123/t, up 45%). Changes as
Slide 11: Retail competition remains intense
RETAIL ELECTRICITY MARKET Retail competition remains intense Change in customer connections (000s) 2yr ICP delta (1000s) Divergent views on the value of a customer: Tier 1: -20k customers Tier 2: +84k customers 2yr % change ▪ Tier 1: Mercury 50k connections down over 2 years, Meridian growing 100 ma
Slide 12: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing Contact is investing $580m in Tauhara, rolling out virtual Peaker Gas availability and lower mean water levels through 2021 product and working with industry to efficiently increase thermal have resulted in higher spot and hedge market pric
Slide 13: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing The government is assessing options to address Contact supports further analysis to address dry year risk. Multiple New Zealand’s dry year risk with 100% renewable options exist that will require careful evaluation, including interruptible
Slide 14: Operational performance and financial results
Operational performance and financial results Dorian Devers, CFO Contact Energy / FY21 Full Year Results Presentation / 16 August 2021 14 14
Slide 15: Key themes from the financial results
Key themes from the financial results Asset portfolio and trading Gas availability expected Recent Mergers & capability ensure support to remain an issue for the Acquisitions aligned for the market at time of market but Contact is to strategy increased fuel risk relatively well positioned Key ESG KP
Slide 16: Profit of $187m, up $62m
FY21 RESULTS Profit of $187m, up $62m Profit ($m) EBITDAF ($m) +107 553 446 43 0 119 21 34 22 21 Network costs Customer tariff +62 Gas Contracted Wholesale Other 29 FY20 and FY21 sales channel income, EBITDAF 5 EBITDAF* Renewables carbon management fixed costs 28 187 pricing 0 7 costs 107 125 1 2 3
Slide 17: EBITDAF up by $107m
FY21 RESULTS EBITDAF up by $107m Wholesale EBITDAF ($m) Customer EBITDAF ($m) Corporate / unallocated costs ($m) +102 +6 0 527 12 47 426 132 30 77 0 2 56 50 4 -30 -30 18 Electricity gross margin Price recovery Electricity cost inflation FY20 Generation Total Trading, FY21* costs contracted merchant
Slide 18: Generation costs
FY21 RESULTS: WHOLESALE BUSINESS Generation costs Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) 9,040 +77 Hydro generation down 53GWh on FY20 (-1%), 8,858 Acquired 335 554 381 381 202GWh (-5%) below mean year expectations. Geothermal volumes were 219GWh down on
Slide 19: Wholesale contracted revenue
FY21 RESULTS: WHOLESALE BUSINESS Wholesale contracted revenue Contracted revenue ($m) +132 • Fixed price variable volume electricity sales to the Customer 821 segment and C&I customers ended 489GWh lower than FY20 (- 7 760GWh 28 -68GWh $42m), this was partially offset by higher prices (+$24m), refle
Slide 20: Wholesale trading and merchant revenue
FY21 RESULTS: WHOLESALE BUSINESS Wholesale trading and merchant revenue Trading EBITDAF ($m) Long / short position (GWh) Merchant generation +47 • 43GWh increase in Spot sales and buy 88 merchant sales volumes. CFD settlement 919 The price received for this Spot purchases and “long” generation was u
Slide 21: Customer business performance
FY21 RESULTS: CUSTOMER BUSINESS Customer business performance EBITDAF ($m) The electricity tariff changes balance FY20 FY21 Variance +6 the recovery of rising input costs, the Revenue & Tariff1 ($m) 56 competitive environment and $m $m Tariff $m Tariff 50 6 regulatory pressures: Other income 5 9 Ele
Slide 22: Operating costs up on acquisitions and improved financial performance
FY21 RESULTS Operating costs up on acquisitions and improved financial performance Other operating cost movement ($m) Portfolio performance and non-recurring Underlying Invest in • Holidays Act provision (-$5m) recognised in Portfolio, performance and non-recurring FY20 not repeated. movement growth
Slide 23: Greenhouse gas reporting
FY21 RESULTS: CARBON PERFORMANCE Greenhouse gas reporting kT of C02e emitted Performance 1,646 • Scope 1 emissions up 125kT, predominantly from carbon emitted from thermal generation with high volumes in FY21 to support lower 1,511 renewable generation • Carbon from swaption up over 300% as Contact
Slide 24: Cash flow and capital expenditure
FY21 RESULTS Cash flow and capital expenditure SIB capital expenditure – accounting ($m) 12 months 12 months 150 128 Comparison ended ended 102 against FY20 30 June 2021 30 June 2020 100 78 75 60 52 EBITDAF $553m $446m ↑ $107m 50 Working capital changes $3m $7m ↓ ($5m) 0 Tax paid ($79m) ($70m) ↓ ($9
Slide 25: Robust balance sheet
FY21 RESULTS Robust balance sheet. Closing net debt ($m) Borrowing maturities ($m) Net debt to EBITDAF (x) Face value of borrowings less cash Average tenor of 3.3 years as at 30 June 2021 Includes S&P adjustments (prior to FY20 AGS was treated as a 372 lease) 1,626 1,539 3.2 3.2 3.1 23 1,445 41 38 2
Slide 26: Dividend for FY21 in line with performance
FY21 DIVIDEND Dividend for FY21 in line with performance Ordinary dividends ($m) Declared 280 280 272 229 Dividend for FY21 of 35 cents per share 186 115 115 109 93 79 • Final dividend of 21 cents per share is imputed to 67% or 14 cents per share for 136 165 165 163 qualifying shareholders. This rep
Slide 27: Normalised and expected FY22 EBITDAF assumptions
ASSUMPTIONS FOR NORMALISED EARNINGS Normalised and expected FY22 EBITDAF assumptions CFDs C&I FY assumptions that deliver expected & normalised EBITDAF for FY22 520 1 Channel choices maximise long term value¹ x 2 Net price² driven by best commercial practices = Total $139/ 641 $90/ MWh MWh Strategic
Slide 28: Strong delivery in FY21. Capability and capacity to be added in FY22
GUIDANCE Strong delivery in FY21. Capability and capacity to be added in FY22. FY21 Guidance Result FY22 Guidance Guidance commentary Other operating costs $200 – 210m $211m $215-225m Additional capacity and capability added to accelerate the delivery of the strategy. SIB capex Stay in business capi
Slide 29: Progress on Strategy
Progress on Strategy Mike Fuge, CEO & Dorian Devers, CFO Contact Energy / FY21 Full Year Results Presentation / 16 August 2021 29 29
Slide 30: Our strategy to lead NZ's decarbonisation
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ's leading energy and ser
Slide 31: We have set ambitious measures of success across our strategic themes
We have set ambitious measures of success across our strategic themes Grow Grow renewable Decarbonise Create outstanding demand development our portfolio customer experiences Senior in-house capability to Tauhara online by mid 2023 Complete thermal review in Top 10 ‘most trusted retailer’ support in
Slide 32: Tracking to targets: Grow demand
Tracking to targets Grow demand Demand backed by strategic fixed price PPA (GWh) Avoided carbon emissions (kTC02e) New load contracted, FY19 0 0 FY20 26 828 854 expected online in FY23 New industrial heat electricity 0 boilers rather than coal Terms agreed with FY20 30 0 30 FY21 509 87 760 1,356 Gen
Slide 33: Tracking to targets: Grow renewable development
Tracking to targets Grow renewable development New geothermal development (MW) New wind and solar development (MW) Consenting for increased 0 Land access agreements signed 60 generation on the Wairakei field 0 for up to 500MW of (incremental to current position) wind generation potential 152 Tauhara
Slide 34: Tracking to targets: Decarbonise our portfolio
Tracking to targets Decarbonise our portfolio Demand flex Renewable Scope 1 and 2 greenhouse Scope 3 emissions generation gas (GHG) intensity 0.124 600 13 83 83 81 0.110 0.108 524 6 317 MW Renewable % C02e/kWh kT of C02eT Strong growth in our demand flex Expect renewable generation FY19 FY20 FY21 pr
Slide 35: Tracking to targets: Create outstanding customer experiences
Tracking to targets Create outstanding customer experiences Growth Efficiency Value 477 484 481 2,332 3.4% 2,194 2,197 Energy Connections 0.7% connections per CSR 000 % of revenue from non energy products FY19-21 Energy Non energy 51 CTS per 162 156 155 Telco connection connections 26 1 000 13 2019
Slide 36: Our operational plan: What you can expect in the next 18 months
Our operational plan: What you can expect in the next 18 months H1-FY22 H2-FY22 H1-FY23 Strategic theme Hydrogen registration of interest Assess hydrogen position followed by request for proposals Develop hydrogen option Grow Build data centres Data centres online Advance data centre partnerships De
Slide 37: Questions
Questions Contact Energy / FY21 Full Year Results Presentation / 16 August 2021 37 37
Slide 38: Supporting materials
Supporting materials Contact Energy / FY21 Full Year Results Presentation / 16 August 2021 38 38
Slide 39: ASX futures pricing in fuel risk over the next 12 months
ASX FUTURES ASX futures pricing in fuel risk over the next 12 months ASX electricity forward pricing ($/MWh) BEN OTA Source: ASX Energy 12 July 2021 176 161 156 157 152 142 137 136 137 138 129 129 127 129 127 121 119 118 116 116 116 109 106 107 102 105 100 97 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022
Slide 40: Greenhouse gas emissions
CARBON REPORTING Greenhouse gas emissions Indicator Unit Target FY19 FY20 FY21 Direct GHG emissions (Scope 1) tC02e 985,905 920,403 1,044,893 - Stationary combustion tC02e 984,903 920,403 1,044,536 45% reduction of 2018 Scope - Mobile combustion tC02e 1 and 2 emissions by 2026 880 270 270 - Mobile c
Slide 41: Generation and sales position
OPERATIONAL DATA Generation and sales position Contact generation output sold to the national grid (GWh) Electricity and generation sales position (GWh) 9,514 +181 9,245 9,002 8,908 8,537 8,614 9,040 9,040 8,445 8,404 8,859 8,859 2,321 Pool purchase 1 0 335 79 554 Thermal 1,614 1,421 Direct generati
Slide 42: Wairākei geothermal field mass take and efficiency
GEOTHERMAL PERFORMANCE Wairākei geothermal field mass take and efficiency Geothermal fuel extracted at Wairākei vs consented Wairākei, Poihipi and Te Mihi conversion effectiveness (GWh) (MWh per kT extracted) +1% 100 -3% -2% 101% 100% 99% 99% 31.1 90 97% 30.1 30.1 30.5 30.1 30.5 98% 29.3 94% 80 70 6
Slide 43: Generation volumes: renewable generation down by 4% on FY20
OPERATIONAL DATA Generation volumes: renewable generation down by 4% on FY20 Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh) 3,297 3,323 3,333 3,752 1,903 3,233 3,257 1,834 3 196 198 186 198 3,114 1 90 189 4,083 1,708 92 280 155 3,979 1,673 337 310 340 3,698 0 211 336 94
Slide 44: Plant availability
OPERATIONAL DATA Plant availability Hydro Geothermal Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue (%) capacity (%) factor output capacity factor output (MW) (%) (GWh) ($/MWh) ($m) (MW) (%) (GWh) ($/MWh) ($m) FY17 784 92% 52% 3,562 47 169 FY17
Slide 45: Fuel storage movements
OPERATIONAL DATA Fuel storage movements Hawea storage (GWh) Gas storage (PJ) CLOSING STORAGE CLOSING STORAGE 7.5 4.5 257 90 152 6.1 5.8 175 166 152 53 244 27 159 351 294 229 103 Inflows 277 174 299 231 Opening Storage 7.7 4.5 252 7.5 216 257 6.1 152 159 152 175 Opening storage 104 103 90 27 53 -140
Slide 46: Contracted and stored gas
OPERATIONAL DATA Contracted and stored gas Contracted gas volumes (PJ) Gas storage Uses of gas (PJ) monthly injections and extractions (PJ) 18.6 18.4 16.7 16.6 16.6 16.9 4.1 2.3 14.6 6.5 5.7 0.2 4.5 Net extraction (injection) 2.0 0.3 6.9 3.1 5.3 2.3 3.1 3.4 4.5 4.5 1.2 4.5 0.50 Purchases 20.2 18.4 1
Slide 47: Contractual fuel position impacted by gas availability issues
FUEL OUTLOOK Contractual fuel position impacted by gas availability issues Portfolio requirements for thermal generation (TWh) Gas supply and demand FY22 (PJ) Hydro variation >> 18.1 -3.3 3.4 Short Term (if in line with FY21) -0.4 8.0 Storage 12.7 2.0 net movement In addition to market -2.9 -2.9 gas
Slide 48: Reconciliation between Profit and EBITDAF
NON-GAAP PROFIT MEASURE Reconciliation between Profit and EBITDAF • EBITDAF is Contact’s earnings before interest, tax, depreciation and amortisation, and changes in fair The adjustments from EBITDAF to reported profit and value of financial instruments. movements on FY20 are as follows: • EBITDAF i
Slide 49: Historical financial information
HISTORIC PERFORMANCE Historical financial information Unit FY17 FY18 FY19 FY20 FY21 Revenue $m 2,079 2,275 2,519 2,073 2,573 Expenses $m 1,578 1,794 2,001 1,622 2,020 EBITDAF $m 501 481 518 446 553 Profit/(loss) $m 151 132 345 125 187 Profit per share - basic cps 21.0 18.4 48.2 17.5 25.3 Operating f
Slide 50: Wholesale segment
SEGMENTAL PERFORMANCE Wholesale segment FY21 FY20 Reference number for Twelve months ended 30 June 2021 Twelve months ended 30 June 2020 Wholesale segment Volume GWAP Volume GWAP note (see following Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m page) Electricity s
Slide 51: Wholesale segment key
SEGMENT NOTE TO OPERATIONAL PERFORMANCE Wholesale segment key Reference to detailed operating Wholesale segment Comment segment performance C&I electricity – Fixed Price 2 Spot sales are regarded as a pass-through and not reflected in C&I electricity – Spot 2-spot performance reporting, any margin i
Slide 52: Customer segment
HISTORIC PERFORMANCE Customer segment Residential electricity unit FY18 FY19 FY20 FY21 Residential gas unit FY18 FY19 FY20 FY21 Average connections # 359,171 353,105 355,073 357,117 Average connections # 60,905 61,711 61,591 60,701 Sales volumes GWh 2,549 2,491 2,532 2,520 Sales volumes TJ 1,600 1,6