Contact Energy Limited · NZX:CEN
Contact Energy — H1 2015 Earnings Presentation
35 slides from Contact Energy's earnings presentation, Feb 16, 2015
Slide 1: 2015 Interim Results Presentation
2015 Interim Results Presentation 16 February 2015 6 months ended 31 December 2014 Dennis Barnes, Chief Executive Officer 1 Graham Cockroft, Chief Financial Officer
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking stat
Slide 3: Performance highlights
Performance highlights 3
Slide 4: Advancing our safety culture
Advancing our safety culture • Our number one priority is safety and we are advancing our safety culture to achieve zero harm • On track to meet our target of reducing TRIFR by 20% each year • Over 4,700 safety conversations recorded in 1H15 puts us on track to reach our observation target which if
Slide 5: Statutory profit down 54% to $51m; free cash flow up 51%
Statutory profit down 54% to $51m Underlying earnings per share down 21% 6 months ended 31 December 2014 EBITDAF1 $257m down 3% from $264m Profit $51m down 54% from $112m Earnings per share (cents) 6.9 cps down 55% from 15.3 cps Underlying earnings after tax 1 $76m down 22% from $97m Underlying earn
Slide 6: Business performance
Business performance • Retail volumes remained stable; increased share of growing small business market offset residential customer losses » National demand increased 2.9% with increased irrigation load and cooler temperatures offsetting efficiency gains • Continued intensity of retail competition r
Slide 7: Integrated Energy segment EBITDAF down $8m; Other segment up $1m
Cost of energy improvements more than offset by lower retail margins Integrated Energy segment EBITDAF: EBITDAF - 1H15 v 1H14 down $8m (3%) to $236m 1H14 264 • Netback: unfavourable $20m (4%) Other segment Intergrated Energy » Intense competition during new $8m adverse Retail netback (20) system imp
Slide 8: Netback – $20m lower (4%) to $423m
Netback – $20m lower (4%) to $423m Mass market discounting prevents full recovery of rising distribution costs Netback • Sales volume in line with 1H14 at 4,317 GWh 1H14 443 » Mass market sales up 38 GWh (2%) due to increased small business customer C&I electricity numbers offsetting residential cus
Slide 9: Retail Transformation
Retail Transformation Stabilisation continues; benefits realisation commences • Since system go-live » Average time to answer calls down 80% » Average call handing times reduced 33% » Contact proportion of EGCC complaints reduced from 70% to 30% in the December quarter and are continuing to fall1 »
Slide 10: Cost of energy – favourable $12m (6%) to $187m
Cost of energy – favourable $12m (6%) to $187m Renewable generation increased from 68% to 76% Cost of energy • Wholesale spot market up $1m » Generation volume up 74 GWh with Te (199) 1H14 Mihi increasing geothermal generation by 392 GWh, purchases up 86 GWh Wholesale 1 spot market » LWAP/GWAP separ
Slide 11: Other segment – favourable $1m (5%) to $21m
Other segment – favourable $1m (5%) to $21m Other segment • LPG margin up $3m » LPG sales up 2,288 tonnes (7%) with reticulated supply responding to 1H14 20 cooler weather » Profit margin up $42/tonne (12%) LPG with continued margin pressure 3 margin offset by efficiency savings » 2H15 product costs
Slide 12: Financial Review – Graham Cockroft
Financial Review – Graham Cockroft 12
Slide 13: Statutory profit down 54% to $51m; underlying EPS down 21%
Statutory profit down 54% to $51m Underlying earnings per share down 21% 6 months ended 6 months ended Variance 31 December 2014 31 December 2013 $m $m $m % Profit 51 112 (61) (54%) Earnings per share (cents) 6.9 15.3 (8.4) (55%) Revenue and other income 1,240 1,148 92 8% EBITDAF1 257 264 (7) (3%) U
Slide 14: Statutory profit down 54% from $112m to $51m
Statutory profit down 54% from $112m to $51m Underlying earnings after tax down 22% from $97m to $76m Contact's statutory profit movement 120 15 100 7 8 80 12 6 26 $m 60 112 97 40 76 51 20 0 1H14 Net items 1H14 EBITDAF Depreciation Net financing Tax 1H15 UEAT Net items 1H15 statutory excluded from U
Slide 15: Improved working capital partially offset by higher stay in business capex
Improved working capital is partially offset by higher stay in business capex and lower EBITDAF 6 months ended 6 months ended Variance 31 December 2014 31 December 2013 Free cash flow $m $m $m % 200 EBITDAF 257 264 (7) (3%) 180 180 Change in working capital 23 (50) 73 146% 160 Tax paid (35) (38) 4 8
Slide 16: Financing costs increased by $12m
Financing costs increased by $12m due to the reduction in capitalised interest following the completion of the Te Mihi and Retail Transformation projects 6 months ended 6 months ended Variance 31 December 2014 31 December 2013 $m $m $m % Interest income - 3 (3) (100%) Interest expense (49) (62) 13 2
Slide 17: Manageable funding maturity profile and diverse funding sources
Contact has a manageable funding maturity profile and retains a diverse portfolio of funding sources Funding maturity profile Funding Diversity $350 NEXI $300 USPP Domestic Bond $250 Bank Funding maturity ($m $200 $150 $100 $50 $- NEXI $93m Bank Debt $600m 2015 2016 2017 2018 2019 2020 2021 to 2026
Slide 18: Fully imputed interim distribution
Fully imputed interim distribution Stable at 11 cps • Free cash flow including the purchase or sale of fixed assets in 1H15 was $146m compared with $117m in 1H14 due to reduced growth capital expenditure, partially offset by the sale of gas meters in 1H14 • Record date 4 March 2015; payment date 26
Slide 19: Prospects
Prospects 19
Slide 20: Capital investments have positioned Contact well for the New Zealand market
Contact’s capital investments have positioned it well for the New Zealand market … Upstream FuelFuel Generation Wholesale/Retail Retailer Generator Largely renewable fuel Flexible generation portfolio Significant retail customer • Renewable generation increased • Peakers and gas storage provide base
Slide 21: Geothermal performance
Geothermal performance • Te Mihi operating above business case » Extended outage in 1H15 increased net capacity to 163MW and can operate as high as 176MW » All construction claims now settled with EPC contractor » A determination process will be complete prior to the end of FY15 to potentially recov
Slide 22: Thermal assets provide hydrology risk management and optionality
Thermal assets provide hydrology risk management and optionality • Extension to gas supply agreement Contracted gas volumes 35 completed with Maui Developments OMV (take-or-pay) Peak take or pay Maui (max) Limited 30 was 52 PJ in CY10 Maui (min) » 22 and 26 petajoules over 2015-2017 25 Swap Genesis
Slide 23: Retail Transformation provides a platform for efficiency and innovation
Retail Transformation provides a platform for efficiency and innovation in a highly competitive market • Customer proposition based on SAP data capability which enables us to operationalise segmentation Stabilise Optimise Sustain Data Insight driven using SMART, customer & • Stabilise • Target custo
Slide 24: Outlook
Outlook • 2H15 expected to improve » Geothermal generation expected to increase to over 1,600 GWh with the possibility of a liquidated damages receipt for the extended Te Mihi outage in 1H15 » Higher plant availability » Lower contract gas costs balanced with storage extractions » LPG costs reflecti
Slide 25: The New Zealand electricity market is mature, limiting options for growth
The New Zealand electricity market is mature, limiting options for growth • No material long-term growth expected » Tiwai future is uncertain » Continued improvement in energy efficiency is likely » Technology advances may drive opportunity » Distributed generation uptake, particularly solar PV, wil
Slide 26: Investment in renewable generation lowered cost of energy; limited ongoing capex
The investment in renewable generation has lowered Contact’s cost of energy and requires limited ongoing capital expenditure Generation mix Capital expenditure 100% 600 500 Capital expenditure on the 80% CCGTs will be determined by market conditions . $50m 400 % generation (GWh) for every major outa
Slide 27: Cash generation provides opportunities to create shareholder value
Contact’s strongly cash generative business provides new opportunities to create shareholder value by: • Reducing debt » Current gearing ratio is 28% and supportive of BBB credit rating » De-leveraging is likely to be inefficient • Increasing distributions » To support the recent $2 billion capital
Slide 28: Geothermal and hydro capability provides opportunities for growth
A strong capability in geothermal and hydro development and operation provides opportunities for growth • Geothermal is Contact’s area of strongest capability » A dedicated, internationally recognised subsurface team in Wairakei » Operational experience in one of the world’s longest producing geothe
Slide 29: Summary
Summary • Transitional six-month period » Retail competition and generation oversupply reflected in lower retail margins » Capital projects integrated » Retail system stabilisation allows return to full acquisition activity and commencement of benefits realisation » Renewable generation increased wi
Slide 30: Supporting material
Supporting material 30
Slide 31: Non-GAAP profit measure - EBITDAF
Non-GAAP profit measure - EBITDAF • EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items • The CEO monitors EBITDAF as a key indicator of Contact’s performance at segment and group levels
Slide 32: Explanation of reconciliation between EBITDAF and profit for the period
Explanation of reconciliation between EBITDAF and profit for the period • The adjustments from EBITDAF to reported profit are as follows: » Depreciation and amortisation: Costs increased by $8m (9%) reflecting commissioning of Te Mihi and go-live of the Retail Transformation in 2H14. This is partial
Slide 33: Non-GAAP profit measure – underlying earnings
Non-GAAP profit measure – underlying earnings • The CEO monitors underlying earnings and believes it assists investors to understand the ongoing performance of the business • Underlying earnings after tax is calculated by adjusting reported profit for the year for significant items that do not refle
Slide 34: Explanation of reconciliation from reported profit to underlying earnings
Explanation of reconciliation from reported profit to underlying earnings • The adjustments from reported profit to underlying earnings are as follows: » The change in fair value of financial instruments that do not qualify for hedge accounting » Transition costs are those costs incurred on the Reta
Slide 35: Operating cashflow after tax (OCAT) and OCAT ratio
Operating cashflow after tax (OCAT) and OCAT ratio • Contact uses OCAT and OCAT ratio as internal measures of the cash-generating performance of the business • Key difference between OCAT and statutory cash flows from operating activities is OCAT includes stay-in-business capex OCAT ratio • Measures