Contact Energy Limited · NZX:CEN
Contact Energy — 1H23 Earnings Presentation
41 slides from Contact Energy's earnings presentation, Feb 13, 2023
Slide 1: 2023 interim results presentation
For personal use only 2023 interim results presentation Six months ended 31 December 2022 1
Slide 2: Disclaimer and important information
Disclaimer and important information For personal use only 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 per
Slide 3: Agenda
Agenda For personal use only 1 1H23 highlights and market update / Mike Fuge, CEO 4 - 14 2 Financial results and outlook / Dorian Devers, CFO 16 - 28 3 Supporting materials 31 - 41 3 3
Slide 4: Summary of key financial performance measures
Summary of key financial performance measures Performance reflects short-term wholesale market conditions, investing in decarbonisation strategy For personal use only Six months ended Six months ended 31 1H23 market 31 December 2022 December 2021 (1H23) (1H22) The operating conditions in 1H23 were c
Slide 5: Our strategy to lead NZ's decarbonisation
Our strategy to lead NZ’s decarbonisation For personal use only 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
Slide 6: Improving demand outlook for electricity
Improving demand outlook for electricity Decarbonisation ambitions and thermal economics will support growth For personal use only Focus Large scale Industrial Major Road Green area data centres process heat industrial transport chemicals energy users What we’ve • Attractive baseload • Some barriers
Slide 7: Wairākei geothermal consents granted
Wairākei geothermal consents granted Consent received to operate for the next 35 years on the Wairākei field, enabling Contact to proceed with its For personal use only plans for the replacement of Wairākei A and B legacy geothermal power stations at Te Mihi (GeoFuture) Wairākei re-consent highlight
Slide 8: Market leading renewable development pipeline
Market leading renewable development pipeline Contact has built a renewable electricity development pipeline of 6TWh, with capability to For personal use only deliver 6TWH Planned and consented renewable energy development projects1 Expected generation (indicative): 3.0 Planned and Tauhara Te Huka W
Slide 9: Market demand
Market demand National electricity demand For personal use only New Zealand electricity demand shows marginal increase on 1H22, despite industrial closures and weather impacts, indicating underlying demand growth Total national electricity demand increased Regional National electricity demand (TWh)
Slide 10: Fuel supply
Fuel supply Hydrology and impact on generation mix For personal use only High hydro inflows limited the need for thermal generation Generation by type (TWh) National hydro storage Generation from generator retailers - excludes embedded generation 4.0 2H21 1H22 2H22 1H23 22.3 22.1 22.2 3.5 Actual 2.1
Slide 11: Wholesale market
Wholesale market Wholesale risks remain elevated For personal use only Forward wholesale pricing reflects current market conditions, including fuel cost and availability risks Aluminium prices lower Short-term external factors that Elevated wholesale pricing out to 2026 (-$411/t, down 10%) can influ
Slide 12: Retail electricity market
Retail electricity market Retail competition remains intense Retailer’s long-term view of pricing rides through short-term wholesale input cost volatility For personal use only Change in customer electricity connections (000s) 31 December 2020 – 31 December 2022 Tier 1: +54k connections Tier 2: +12k
Slide 13: Climate change and regulation
Climate change and regulation The New Zealand regulatory framework is being adapted to deliver on this societal imperative. There is political consensus to For personal use only deliver net zero by 2050 and on the emissions reductions budgets needed to get there Potential electricity demand impact P
Slide 14: Topical regulatory matters
Topical regulatory matters For personal use only Key themes What Contact is doing Medium term spot and hedge market prices continue to Contact is exploring further renewable generation opportunities across geothermal, wind and be higher than long term averages due to coal prices, solar to reduce fut
Slide 15: Financials
For personal use only Financials 15
Slide 16: Key themes from the financial results
Key themes from the financial results For personal use only $120m non-cash onerous Extreme hydrology impacts New renewable electricity contract provision recognised on 1H EBITDAF, well positioned from projects under gas storage contract for 2H development to be sold into high priced futures market S
Slide 17: 1H23 results
1H23 results Loss of $7m for 1H23 For personal use only Excluding the onerous contract provision, EBITDAF down $76m (underlying) reflecting results from a record prior period and lower renewable generation Profit ($m) EBITDAF ($m) -76 322 -55 51 33 25 2 7 246 134 24 120 Onerous contract provision be
Slide 18: 1H23 results: EBITDAF down by $76m
1H23 results EBITDAF down by $76m For personal use only Business performance by segment Wholesale EBITDAF ($m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) -15 -48 315 11 Price recovery 18 47 268 16 12 1 Electricity and network -10 3 cost inflation 2 1 4 36 8 1 1H22 Generation Total Tradin
Slide 19: 1H23 results: Wholesale business, generation costs
1H23 results: Wholesale business Generation costs Costs down $11m on reduced thermal generation volumes, up $1.6/MWh on a higher proportion of fixed costs For personal use only Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) Generation volumes • Hydro generation
Slide 20: Wholesale contracted revenue
1H23 results: Wholesale business Wholesale contracted revenue For personal use only Diversified mix of long-term and ASX linked sales channels Contracted -47 revenue ($m) 469 Other net income 1 • Fixed price variable volume electricity sales to the Retail segment and C&I 19 422 customers ended 159GW
Slide 21: Wholesale trading and merchant revenue
1H23 results: Wholesale business Wholesale trading and merchant revenue For personal use only Trading EBITDAF ($m) Long / short position (GWh) • Rainfall events throughout the half significantly reduced market price 320 vs. 1H22 with average spot price Merchant generation down 46%. Critically, event
Slide 22: Retail business performance
1H23 results: Retail business Retail business performance Managing through elevated wholesale input costs while growing market share through multi-product strategy For personal use only Retail margins have contracted, driven by sustained 1H22 1H23 Variance EBITDAF ($m) high wholesale futures prices.
Slide 23: Operating costs
1H23 results: Operating costs Operating costs up on investments in growth strategy and cost pressures For personal use only Non-recurring Other operating • Holidays Act provision released in 1H22 post successful Metro Glass appeal, cost movement Non-recurring Base Invest in partially offset by accou
Slide 24: Cash flow and capital expenditure
1H23 results: Cash flow Cash flow and capital expenditure Cash conversion for 1H23 impacted by higher tax paid, SIB capex and an increase in gas and carbon For personal use only inventory Commentary • Lower EBITDAF on soft short-term wholesale market conditions. 6 months 6 months • Working capital i
Slide 25: Strong balance sheet
1H23 results: Key balance sheet metrics Strong balance sheet A green and sustainably-linked debt portfolio aligned to our Contact26 strategy For personal use only Closing net debt ($m) Borrowing maturities ($m) • Face value of borrowings (excl. leases) Face value of borrowings less cash Average teno
Slide 26: Dividend for 1H23
Dividend for 1H23 For personal use only Ordinary dividends ($m) Interim dividend for 1H23 of 14 cents per share Declared 39 39 • Interim dividend of 14 cents per share is imputed to 86% or 12 cents per share for qualifying shareholders. 35 35 • Record date of 10 March 2023; payment date of 30 March
Slide 27: Channel yields suggest an increase in normalised EBITDAF
Channel yields suggest an increase in normalised EBITDAF For personal use only Expect partial recovery of 1H impacts with sustainable pricing changes EBITDAF ($m) 550 14 6 28 13 530 16 12 16 -34 FY23 normalised¹ 1H23 actual variance to 2H23 performance Estimated FY23 updated and expected expectation
Slide 28: Guidance confirmation
Guidance confirmation For personal use only Updated FY23 1H23 result Change to prior guidance guidance Sustainable SIB capex remains $65m p.a. An additional $100m SIB capex above this level is expected between FY22-27 to support higher asset availability and output as Stay in business capital expend
Slide 29: Questions
For personal use only Questions 29
Slide 30: Supporting materials
Supporting For personal use only materials 30
Slide 31: Operational data: Generation and sales position
Operational data Generation and sales position For personal use only Contact generation output sold to the national grid (GWh) Hydro generation (GWh) 4,327 4,533 4,359 4,378 4,411 4,310 Inflows stored include uncontrolled storage lakes Thermal 836 360 3,905 685 966 825 870 246 2,053 generation 1,886
Slide 32: Plant and fuel performance
Plant and fuel performance Geothermal fuel performance Plant availability For personal use only Geothermal fuel extracted at Wairākei vs consented (GWh) Hydro Geothermal -4% Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue 101% 100% capacity (%) f
Slide 33: Operational data: Fuel storage movements
Operational data Fuel storage movements For personal use only Hawea storage (GWh) Gas storage (PJ) Closing storage Closing storage (current) 5.6 7.8 4.7 0.8 0.5 257 90 260 6.1 2.7 152 5.0 5.8 113 253 2.4 166 4.4 5.0 0.8 175 2.2 2.7 Gas Injected 244 0.6 1.7 190 1.5 159 351 324 294 229 323 299 7.5 7.8
Slide 34: Operational data: Contracted and stored gas
Operational data Contracted and stored gas For personal use only Contracted gas volumes (PJ) Gas storage monthly injections and extractions (PJ) Uses of gas (PJ) 18.4 16.9 1.1 16.6 2.3 15.5 3.1 6.5 14.6 4.5 14.0 2.0 13.4 5.5 1.08 Purchases 10.3 5.3 9.4 9.3 9.5 9.8 5.1 8.1 3.4 4.5 7.0 6.6 4.5 0.50 0.
Slide 35: Fuel position
Fuel position Contractual fuel position sufficient to support expected sales position For personal use only Portfolio requirements for thermal generation (TWh) Gas supply and demand 2023 (PJ) Hydro variation >> 17.6 -3.3 1.4 Short term gas purchases 2.7 Gas in storage Gas available for an extreme dr
Slide 36: Non-GAAP profit measure
Non-GAAP profit measure Reconciliation between Profit and EBITDAF For personal use only EBITDAF is Contact’s earnings before interest, tax, depreciation and amortisation, and The adjustments from EBITDAF to reported profit and changes in fair value of financial instruments. movements on 1H22 are as
Slide 37: Historic performance
Historic performance Historical financial information For personal use only 1H23 Unit 1H18 1H19 1H20 1H21 1H22 Underlying1 Reported Revenue $m 1,190 1,363 1,110 1,141 1,141 994 Expenses $m 954 1,072 889 895 819 748 868 EBITDAF $m 236 291 221 246 322 246 126 Profit $m 58 276 59 78 134 79 (7) Operatin
Slide 38: Segmental performance
Segmental performance Wholesale segment For personal use only 1H23 1H22 Six months ended 31 December 2022 Six months ended 31 December 2021 Volume GWAP Volume GWAP Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m Electricity sales to Retail segment 1,988 121.0 240.6
Slide 39: Historic performance: Retail segment
Historic performance Retail segment Residential electricity unit 1H20 1H21 1H22 1H23 Residential gas unit 1H20 1H21 1H22 1H23 For personal use only Average connections # 355,216 357,756 367,199 381,222 Average connections # 61,959 60,563 63,182 66,796 Sales volumes GWh 1,328 1,349 1,408 1,445 Sales
Slide 40: Normalised and expected EBITDAF assumptions
1H23 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance For personal use only 1H23 assumptions that deliver expected & normalised EBITDAF of $550m over a financial year EBITDAF reconciliation to 1H23 1 Channel choices maximise long term value¹ x 2 Net price
Slide 41: Provision – Gas Storage Costs
Provision – Gas Storage Costs Onerous contract provision for AGS Contact has recognised an onerous contract provision of $120m ($86m after tax) in 1H23, reflecting the For personal use only modelled reduction in gas storage capacity at AGS Onerous contract treatment for AGS: Provision release schedu