Contact Energy Limited · NZX:CEN
Contact Energy — FY2023 Earnings Presentation
46 slides from Contact Energy's earnings presentation, Aug 14, 2023
Slide 1: 2023 full year results presentation
2023 full year results presentation Twelve months ended 30 June 2023 14 August 2023 1
Slide 2: Disclaimer and important information
Disclaimer and important information While all reasonable care has been taken in compiling this presentation, neither Contact EBITDAF, free cash flow and operating free cash flow are financial measures that are nor any of its directors, employees, shareholders nor any other person gives any “non-GAA
Slide 3: Agenda
Agenda 1 FY23 highlights and market update / Mike Fuge, CEO 4 - 12 2 Financial results and outlook / Dorian Devers, CFO 13 - 27 3 Progress on strategy / Mike Fuge, CEO 28 - 32 3 4 Supporting materials 33 - 46 3
Slide 4: Delivering a solid FY23 performance while investing for decarbonisation
Summary of key financial performance measures Delivering a solid FY23 performance while investing for decarbonisation FY23 market Twelve months ended Twelve months ended 30 Contact has responded to the short-term 30 June 2023 (FY23) June 2022 (FY22) Operating conditions in FY23 were characterised by
Slide 5: 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 6: Execution: What we delivered over the past 12 months
Execution: What we delivered over the past 12 months Strategic theme FY23 achievements / progress Updated ambitions (FY27)1 Completed assessment of hydrogen Lock in major industrial electrification. Entered Grow 30MW off-peak supply arrangement with NZ • Facilitate 100MW of new demand economics dema
Slide 7: Geothermal investment programme update
Geothermal investment programme update Supporting the decarbonisation of New Zealand by building world class geothermal power stations Tauhara Te Huka 3 GeoFuture2 Size (TWh p.a) 1.4 0.4 1.43 FID date Feb 2021 Aug 2022 Early 2024 Online date Q4 2023 Q4 2024 2H 2026 Project progress (at 30 Jun) 96% 3
Slide 8: National electricity demand
Market demand National electricity demand New Zealand electricity demand is flat on FY22 in spite of industrial closures and warmer weather impacts Total national electricity demand increased Regional National electricity demand (TWh) (11%) by 0.1 TWh (0.23% from FY22): change (%) FY23 vs FY22 0% •
Slide 9: Hydrology significantly impacted generation mix
Fuel supply Hydrology significantly impacted generation mix High hydro inflows limited the need for thermal generation Generation by type (TWh) National hydro storage 1H22 2H22 1H23 2H23 43.1 43.2 43.2 Hydro generation was up 13% 4.5 3.1 when compared to FY22, Gas 5.2 4.9 0.5 driven by ~42% uplift i
Slide 10: Forward wholesale pricing continues to reflect high fuel cost and availability risk
Wholesale market Forward wholesale pricing continues to reflect high fuel cost and availability risk Aluminium prices lower Short-term external factors that Wholesale and futures electricity pricing ($/MWh) (-$440/t, down 13%) can influence the market Changes as at 30 June 2023 Methanol pricing at U
Slide 11: Retail competition remains intense
Retail electricity market Retail competition remains intense A wide range of market players continue with very competitive pricing despite rising costs Change in customer electricity connections (000s) 2yr ICP delta (1000s) 2yr % change 30 June 2021 – 30 June 2023 • Competition remains intense despi
Slide 12: Topical regulatory matters
Topical regulatory matters Contact’s focus on building new renewable generation, flexible storage and customer-focused demand response solutions is well aligned with the political and societal imperative to deliver net zero for NZ by 2050. Orderly decarbonisation of Contact’s portfolio is underway,
Slide 13: Financial results and outlook
Financial results and outlook 13
Slide 14: Key themes from the financial results
Key themes from the financial results Key accounting topics: A strong second half meant that Sales channels repricing to better Recognised onerous contract we outperformed our updated align with wholesale market, provision and applied updated guidance at 1H23 of $530m and further opportunity exists
Slide 15: Profit of $127m for FY23
FY23 results Profit of $127m for FY23 Excluding the onerous contract provision, EBITDAF up $27m (underlying) largely reflecting the better alignment of long-term channel prices to the wholesale market Profit ($m) EBITDAF ($m) +27 +29 546 18 573 46 27 -2 -11 9 14 12 24 9 113 38 -18 211 537 Onerous co
Slide 16: EBITDAF (underlying) up by $27m
FY23 results: Segmental performance EBITDAF (underlying) up by $27m Business performance by segment Wholesale EBITDAF1 (underlying, $m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) +75 -16 -31 43 49 632 58 Price recovery 81 557 9 17 1 632 1 6 -14 Electricity -28 and network 95 6 548 cost i
Slide 17: Generation costs
FY23 results: Wholesale business Generation costs Costs down $81m on reduced thermal and acquired generation volumes Generation volumes Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) • Hydro generation of 3,919GWh was down 21GWh (1%) on 8,739 FY22 and came in sl
Slide 18: Wholesale contracted revenue
FY23 results: Wholesale business Wholesale contracted revenue Diversified mix of long-term and ASX linked sales channels Contracted +43 revenue ($m) 936 • Fixed price variable volume electricity sales to the Retail segment and C&I customers 893 12 ended 198 GWh higher than FY22 (+$22m). Prices were
Slide 19: Wholesale trading and merchant revenue
FY23 results: Wholesale business Wholesale trading and merchant revenue Trading EBITDAF ($m) Long / short position (GWh) • Wholesale market conditions 625 (average OTA price of $86.71/ MWh1) did not support additional 1 CFD sales nor length that was $137.6/MWh thermal generation backed. 625 Merchant
Slide 20: Retail business performance
FY23 results: Retail business Retail business performance Managing through elevated wholesale input costs while growing market share through a multi-product strategy Retail margins have contracted, driven by sustained EBITDAF ($m) high wholesale futures prices. FY22 FY23 Variance Revenue & Tariff1 (
Slide 21: Operating costs up on investments in growth strategy and cost pressures
FY23 results: Operating costs Operating costs up on investments in growth strategy and cost pressures Non-recurring Other operating • FY22 one-off impacts relate to the release of Holidays Act credit and early- cost movement Non-recurring Base Invest in stage development costs which have shifted int
Slide 22: Cash flow and capital expenditure
FY23 results: Cash flow Cash flow and capital expenditure Cash conversion for FY23 impacted by higher tax paid, SIB capex and an increase in gas and carbon unit inventory Return on invested capital (ROIC) 12 months 12 months Net operating profit after taxes (NOPAT) / Invested capital (IC) ROIC (aver
Slide 23: Growth capital expenditure
FY23 results: Growth capital expenditure Growth capital expenditure Step-up in growth capital expenditure in FY23 reflects the advancing nature of Contact’s renewable development projects Growth capital expenditure ($m) • The Tauhara geothermal project is due for completion in Q4 2023, with the Rema
Slide 24: Strong balance sheet
FY23 results: Key balance sheet metrics Strong balance sheet A green and sustainably-linked debt portfolio aligned to our Contact26 strategy Borrowing maturities ($m) • Face value of borrowings (excl. leases) increased by Closing net debt ($m) Face value of borrowings less cash Average tenor of 5.9
Slide 25: Dividend for FY23 in line with performance
Dividend for FY23 in line with performance Ordinary dividends ($m) Declared Dividend for FY23 of 35 cents per share 280 280 272 272 273 • Final dividend of 21 cents per share is imputed up to 86% or 18 cents per share for qualifying shareholders. This 115 115 109 109 109 represents a pay-out of 97%
Slide 26: Uplifts in normalised and expected EBITDAF driven by pricing and channel management
Uplifts in Contact’s normalised and expected EBITDAF have been driven by pricing and channel management FY24 guidance does not include EBITDAF from Tauhara online Guidance vs Actual Normalised and expected EBITDAF ($ million) – excluding Tauhara online Guidance CAGR FY21 to FY24 (8% p.a.) Like-for-l
Slide 27: Guidance below EBITDAF
Guidance below EBITDAF FY23 guidance FY23 result FY24 guidance Commentary Stay in Business Capex $110m-120m $113m $115m - $125m1 Stay in business accelerated programme As at end of FY23 we had spent $65m out of the $150m accelerated stay in $38m $55m - $60m (cash) business capex programme2. Stay in
Slide 28: Progress on Strategy
Progress on Strategy 28
Slide 29: Grid-scale battery investment lined up
Grid-scale battery investment lined up Contact is planning to invest in renewable energy flexibility in the North Island Battery investment key metrics1 ✓ Participation across physical, reserve and frequency-keeping Auckland markets. Battery capacity 100MW Glenbrook Battery ✓ Supports both retail gr
Slide 30: Market leading renewable development pipeline consented
Market leading renewable development pipeline Contact has built a renewable electricity development pipeline of >6TWh, and is targeting 10.3TWh of renewable generation output online by end of FY27 6.5TWh Planned and consented renewable energy development projects1 Expected generation (indicative): 3
Slide 31: Our operational plan
Our operational plan What you can expect in the next 12 months Strategic theme FY24 Conclude NZAS extension negotiations Facilitate at least 25MW of new demand. with improved long-term pricing. Grow FID for one Green Chemical deal. Demand Achieve FID for GeoFuture and Kōwhai Tauhara operational Q4 2
Slide 32: Questions
Questions 32
Slide 33: Supporting materials
Supporting materials 33
Slide 34: Normalised and expected FY24 EBITDAF
ASSUMPTIONS FOR NORMALISED EARNINGS Normalised and expected FY24 EBITDAF Guidance to be updated for Tauhara once online CFDs C&I FY assumptions that deliver expected & normalised EBITDAF for FY24 (excluding Tauhara online) 600 250 230 1 Channel choices maximise long term value¹ x 2 Net price² driven
Slide 35: Normalised and expected EBITDAF assumptions
FY23 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance FY23 assumptions that deliver expected & normalised EBITDAF of $550m over a financial year EBITDAF guidance reconciliation to FY23 1 Channel choices maximise long term value¹ x 2 Net price² driven by b
Slide 36: Integrated portfolio performance
Integrated portfolio performance Operating earnings (EBITDAF) 1 Electricity sales Continuing operations ($m) (i) Long-term channels (ii) Market channels 553 131 133 133 546 115 Price 108 103 105 106 573 ($/MWh) 5051 EBITDAF 5.08 5.14 93 4.94 Price 87 446 4.59 4.57 ($/MWh) 3.73 5.03 3.61 3.69 4.29 3.
Slide 37: Greenhouse gas emissions
Carbon reporting Greenhouse gas emissions Indicator Unit Target FY20 FY21 FY22 FY23 Direct GHG emissions (Scope 1) tC02e 920,403 1,044,744 786,842 526,621 45% reduction of 2018 - Stationary combustion tC02e Scope 1 and 2 emissions 920,403 1,044,537 786,544 526,282 by 2026 (Absolute - Mobile combusti
Slide 38: Generation and sales position
Operational data Generation and sales position Contact generation output sold to the national grid (GWh) Hydro generation (GWh) 8,537 8,614 8,908 8,445 8,404 8,269 Inflows stored include uncontrolled storage lakes Thermal 1,421 7,543 3,919 1,742 1,812 1,360 1,592 1,046 generation 439 3,752 4,231 3,6
Slide 39: Plant and fuel performance
Plant and fuel performance Geothermal fuel performance Plant availability Geothermal fuel extracted at Wairākei vs consented (GWh) Hydro Geothermal Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue -2% capacity (%) factor output capacity (%) factor
Slide 40: Fuel storage movements
Operational data Fuel storage movements Hawea storage (GWh) Gas storage (PJ) Closing storage Closing storage (current) 7.7 4.7 0.5 2.7 256 98 192 6.1 260 5.0 5.8 156 116 2.4 252 4.4 5.0 0.8 175 165 2.2 1.7 2.7 0.6 248 265 189 1.5 352 324 3.7 Inflows 291 230 324 300 7.8 1.7 Gas Injected 6.1 5.7 5.6 5
Slide 41: Contracted and stored gas
Operational data Contracted and stored gas Contracted gas volumes (PJ) Gas storage monthly injections and extractions (PJ) Uses of gas (PJ) 16.6 16.9 2.3 15.5 14.6 1.1 4.5 13.5 2.0 13.2 3.1 5.5 5.3 5.2 4.5 6.2 Purchases 10.3 4.5 9.4 9.3 9.8 9.8 1.08 8.1 6.6 6.3 7.0 6.1 7.4 0.50 0.55 6.4 0.43 8.1 0.3
Slide 42: Contractual fuel position sufficient to support expected sales position
Fuel position Contractual fuel position sufficient to support expected sales position Portfolio requirements for thermal generation (TWh) Gas supply and demand 2024 (PJ) Scenario shown is pre-Tauhara online, backed by TCC Hydro variation >> 17.3 17.3 0.4 Short term gas purchases -3.3 Retail 2.5 3.7
Slide 43: 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 The adjustments from EBITDAF to reported profit and in fair value of financial instruments. movements on FY22 are as follows: • Depreciatio
Slide 44: Historical financial information
Historic performance Historical financial information FY23 Unit FY19 FY20 FY21 FY221 Underlying2 Reported Revenue $m 2,519 2,073 2,573 2,387 2,118 Expenses $m 2,001 1,627 2,020 1,820 1,500 1,613 EBITDAF $m 518 446 553 546 573 460 Profit $m 345 125 187 182 211 127 Operating free cash flow $m 341 290
Slide 45: Wholesale segment
Segmental performance Wholesale segment FY23 FY22 Year ended 30 June 2023 Year ended 30 June 2022 Volume GWAP Volume GWAP Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m2 Electricity sales to Retail segment 3,727 129 482 3,689 107 395 Electricity sales to C&I (netba
Slide 46: Retail segment
Historic performance Retail segment Residential electricity unit FY20 FY21 FY22 FY23 Residential gas unit FY20 FY21 FY22 FY23 Average connections # 355,073 357,117 373,347 380,482 Average connections # 61,591 60,701 64,649 66,605 Sales volumes GWh 2,532 2,520 2,644 2,688 Sales volumes TJ 1,577 1,495