Contact Energy Limited · NZX:CEN
Contact Energy — FY2011 Earnings Presentation
43 slides from Contact Energy's earnings presentation, Aug 22, 2011
Slide 1: Results Presentation
Results Presentation 12 month period ended 30 June 2011 22 August 2011
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: Overview
Overview Results 4 Strategic outlook and overview 12 Segmental analysis 17 Supporting material 24 © Contact Energy Limited 22 August 2011 Results for the 12 month period ended 30 June 2011 3
Slide 4: EBITDAF up $14m (3%) to $441m
EBITDAF up $14m (3%) to $441m Underlying earnings flat despite wholesale prices being down 7% • 2H11 EBITDAF improvement in Key financial information 12 Months Ended 12 Months Ended Variance electricity segment earnings in 30 June 2011 30 June 2010 $m $m $m % continuing wet hydrology Electricity seg
Slide 5: Underlying earnings after tax: $151m, up $1m (1%)
Underlying earnings after tax: $151m, up $1m (1%) Full year distribution of 23 cents per share 12 Months Ended 12 Months Ended Variance 30 June 2011 30 June 2010 $m $m $m % EBITDAF 441.4 427.0 14.4 3% Depreciation and amortisation (166.3) (161.9) (4.4) (3%) Equity accounted earnings of associates 3.
Slide 6: Statutory profit: $150m, down $4m (3%)
Statutory profit: $150m, down $4m (3%) 12 Months Ended 12 Months Ended Variance 30 June 2011 30 June 2010 $m $m $m % Underlying earnings after tax 150.9 149.8 1.1 1% Removal of New Plymouth asbestos and related costs (after tax) - (3.9) 3.9 100% Retail transaction processing outsourcing costs (after
Slide 7: Electricity segment EBITDAF
Positive initial impact of flexibility for electricity EBITDAF 2H11 EBITDAF 8% higher than 2H10 Electricity segment EBITDAF 250 8% increase 201 204 200 193 189 9 11 21 26 150 $m 100 195 182 180 163 50 0 1H10 2H10 1H11 2H11 Hedged electricity & Retail Exposed © Contact Energy Limited 22 August 2011 R
Slide 8: Flexibility improvements enable generation to align to retail demand
Flexibility improvements enable generation to more closely align to retail demand during periods of low prices, reducing cost Generation and Demand • 2010 and 2011 average wholesale 1200 electricity prices were below the cost of thermal generation in May and June 1000 800 – May 2010: $48/MWh – June
Slide 9: Targeted retail volume growth has provided increased hedge levels
Targeted retail volume growth has provided increased hedge levels to mitigate risk of continuing wet hydrology Load split by customer type and island (sales) • Retail sales volumes up 8% 9,000 8,254 7,674 8,000 7,000 1,911 • Retail volume growth has been focused on Time of Use 6,000 2,348 43% 33% 83
Slide 10: The restoration of portfolio flexibility will improve the base level of earnings
The restoration of portfolio flexibility will improve the base level of earnings • The reduction in gas take or pay commitments and Contact’s investment in Ahuroa gas storage and Stratford peaker have allowed a shift to a more flexible operating profile • This allows Contact to improve its performan
Slide 11: Overview
Overview Results 4 Strategic outlook and overview 12 Segmental analysis 17 Supporting material 24 © Contact Energy Limited 22 August 2011 Results for the 12 month period ended 30 June 2011 11
Slide 12: Strategy – (i) – Increasing portfolio flexibility
Strategy – (i) – Increasing portfolio flexibility • Ahuroa Gas Storage – Commissioned - enabling us to operate our gas-fired power stations as they are required by the market – 5.8 PJ injected during FY11 – Readily expandable • Stratford Peaker Project – Commissioned and providing the necessary flex
Slide 13: Strategy – (ii) – Lower average cost of generation
Strategy – (ii) – Lower average cost of generation Rendition of the Te Mihi power station • Contact continues to be a leader in geothermal generation development, and with a number of options available to us, this will continue to be a focus for future growth. • 166 MW Te Mihi geothermal power proje
Slide 14: Strategy – (iii) – Market share growth
Strategy – (iii) – Market share growth • In addition to geothermal, Contact continues to investigate wind, hydro and gas-fired opportunities. • Wind – 156 MW Waitahora project: Consented – 504 MW Hauāuru mā raki project: Consented • Hydro – Progressing selection of favoured Clutha hydro option • Gas
Slide 15: Capital expenditure reflects Contact's strategy
Capital expenditure – reflects Contact’s strategy, with further commitments dependant on market conditions • Stay in business capital expenditure increased 700 Capital Expenditure - Committed to $94m in FY11, up from $76m in FY10 600 500 • Growth capital expenditure was $436m, Cost $ m 400 (includin
Slide 16: Overview
Overview Results 4 Strategic outlook and overview 12 Segmental analysis 17 Supporting material 24 © Contact Energy Limited 22 August 2011 Results for the 12 month period ended 30 June 2011 16
Slide 17: FY11 Segment overview
FY11 Segment overview Electricity segment EBITDAF: up $23m EBITDAF by segment (6%) to $405m: 500 • Hedged generation: Up $52m (18%) with 450 441 427 benefits from Stratford peaker and Ahuroa gas 36 45 storage reducing costs in 2H11 400 28 30 • Exposed generation: Down $7m (18%) due to 350 50 the int
Slide 18: FY11 Electricity segment operational performance data
FY11 Electricity segment operational performance data (FY10 in parentheses) © Contact Energy Limited 22 August 2011 Results for the 12 month period ended 30 June 2011 18
Slide 19: FY11 Hedged Generation - Up $52m (18%) to $347m
FY11 Hedged Generation - Up $52m (18%) to $347m Benefits from peaker and storage reducing costs in 2H11 • Hedged generation volume increased 55 GWh Breakdown of hedged generation costs – Renewable and thermal mix remained in-line with the 70 prior period at 68% renewable, 32% non-renewable 60 Hedged
Slide 20: FY11 Exposed Generation - Down $7m (18%) to $30m
FY11 Exposed Generation - Down $7m (18%) to $30m Due to the introduction of carbon • Similar exposed prices ($63/MWh FY11, $64/MWh FY10) Breakdown of exposed generation contributionper MWh and volumes (1,233 GWh FY11, 1,244 GWh FY10) for the two financial years 80 Exposed generation GWAP components
Slide 21: FY11 Retail Electricity - Down $22m (44%) to $28m
FY11 Retail Electricity - Down $22m (44%) to $28m Due to increasing unit energy cost, mass market network costs and line losses more than offsetting the benefits of price increases and growth in Time of Use sales • Sales volume up 8% to 8,254 GWh Breakdown of retail contribution 200 – Time of Use sa
Slide 22: FY11 Other segment contribution down $9m (20%) to $36m
FY11 “Other” segment contribution down $9m (20%) to $36m Due to decreasing volumes and carbon costs • LPG EBITDAF down $3m to $7m Other Segment EBITDAF – Volumes down 5,126 tonnes to 65,201 EBITDAF FY10 45 – Sales and purchase price down $55/T and $94/T respectively due to favourable CP and fx rates
Slide 23: Overview
Overview Results 4 Strategic outlook and overview 12 Segmental analysis 17 Supporting material 24 © Contact Energy Limited 22 August 2011 Results for the 12 month period ended 30 June 2011 23
Slide 24: Predominantly wet conditions and stagnant demand resulting in low wholesale prices
Predominantly wet conditions throughout the period and stagnant demand resulting in low wholesale prices National hydro storage 6,000 5,000 4,000 GWh 3,000 Historical 2,000 storage range 1,000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Lower quartile Upper quartile FY10 storage FY11 storage •
Slide 25: Stagnant demand due to Christchurch earthquake, financial crisis and warm temperatures
Stagnant demand due to Christchurch earthquake, the ongoing impact of the global financial crisis and warm temperatures Historical National Demand Real Gross Domestic Product 35,000 4% 30,000 3% 25,000 2% 20,000 1% GWh 15,000 0% 10,000 -1% 5,000 -2% - -3% FY06 FY07 FY08 FY09 FY10 FY11 National Deman
Slide 26: Generation and demand (GWh)
Flexibility improvements enable generation to more closely align to retail demand during periods of low prices Management of take-or-pay Gas take-or-pay volumes Peakers gas volumes in FY10 and FY11 reduced from 52 PJs to 40 commissioned PJs Jan 2011 June 2011 1100 600 Generation and demand (GWh) 100
Slide 27: The addition of the Stratford peaker enables generation costs to be reduced
The addition of the Stratford peaker enables generation costs to be reduced during a wet hydrology sequence • The availability of the Stratford peaker from June daily average wholesale prices June has allowed Contact to better adapt to the 180 soft market conditions by reducing generation costs 160
Slide 28: Taranaki Combined Cycle and Otahuhu take an important seasonal role
Taranaki Combined Cycle and Otahuhu have now taken an important seasonal role in Contact’s generation portfolio Generation from the CCGTs is still a critical part of Contact’s portfolio due to: • Thermal efficiency – the primary driver behind the CCGT’s running is their gas consumption efficiency. T
Slide 29: The pricing event of 26 March and the subsequent UTS represent a key decision point
The pricing event of 26 March and the subsequent UTS represent a key decision point for the electricity sector • Market setting certainty and stability are key to investor confidence for new generation investments • Generators who provide firming capacity to the market must be able to either: a) con
Slide 30: Operating expenses by segment
Operating expenses by segment (excl. electricity purchases) Electricity segment - operating expenses by type 1,200 • Electricity segment expenses up $90m (9%) 1,087 1,100 997 – Electricity transmission costs increased by $31m 1,000 212 900 193 29 – Gas purchases increased by $14m 800 29 25 700 279 –
Slide 31: Effective gas costs for generation increased to $9.27/GJ
Effective gas costs for generation increased from $9.00/GJ in FY10 to $9.27/GJ • Underlying gas costs increased $0.27/GJ • Gas length during FY11 was 11.8 PJ (10.2 PJ in FY10) • Injections into storage mitigated 5.8 PJ (equivalent to $45m in costs). Current gas inventory 10.6 PJ • The remaining gas
Slide 32: Carbon costs
Carbon costs Carbon costs Volume Average Tonnes Unit cost Carbon factor expense Gas purchases 40.0 PJ 53,500 T/PJ 2,141,828 $20.11 $21.5m Geothermal generation 22,125,199 T* 0.0132 292,053 $19.77 $2.9m LPG 65,201 T 3.0 180,400 $21.97 $2.0m Swaption 384 GWh 970 T/GWh 371,995 $20.72 $3.9m * Geothermal
Slide 33: Christchurch Earthquake – LPG impact
Christchurch Earthquake – LPG impact • Contact was recognised and applauded for its support of the Christchurch community in the aftermath of the February earthquake. With support from Rinnai, Contact provided mobile hot water shower units, offered free 9kg bottlefills through the branch and service
Slide 34: Health, safety and environmental performance
Health, safety and environmental performance TRIFR down 12% continuing improvement towards zero harm • The safety of our employees, contractors and Total recordable injury frequency rate (12 month rolling average) visitors to any Contact site is the company’s 10 highest priority 7.3 8 6.6 • Safety p
Slide 35: Enterprise Transformation Programme
Enterprise Transformation Programme Successful rollout across finance and all generation stations on schedule and budget • Phased replacement of Contact’s finance, procurement, generation and retail systems with SAP • Rollout of new asset management and procurement systems completed on schedule acro
Slide 36: Financial Results Summary
Financial Results Summary Key financial information 12 Months Ended 12 Months Ended Variance 30 June 2011 30 June 2010 $m $m $m % Operating revenue 2,230.9 2,164.4 66.5 3% Operating expenses (1) (1,789.5) (1,737.4) (52.1) (3%) EBITDAF (2) 441.4 427.0 14.4 3% Depreciation and amortisation (166.3) (16
Slide 37: Electricity segment result
Electricity segment result Electricity Segment 12 Months Ended 12 Months Ended Variance 30 June 2011 30 June 2010 $m $m $m % Wholesale electricity revenue 505.7 539.4 (33.7) (6%) Retail electricity revenue 1,443.6 1,301.9 141.7 11% Steam revenue 19.7 17.9 1.8 10% Total electricity revenue 1,969.0 1,
Slide 38: Other segment result
Other segment result Other Segment 12 Months Ended 12 Months Ended Variance 30 June 2011 30 June 2010 $m $m $m % Wholesale gas revenue 50.9 75.4 (24.5) (32%) Retail gas revenue 72.4 78.0 (5.6) (7%) LPG revenue 117.0 130.3 (13.3) (10%) Meter leases revenue 12.7 11.8 0.9 8% (1) Meter leases revenue -
Slide 39: Hedged Generation - Up $52m (18%)
Hedged Generation - Up $52m (18%) with benefits from peakers and storage reducing costs in 2H11 Hedged segment contribution Units FY11 FY10 Var Var (%) Hedged generation GWh 9,026 8,971 55 1% Transfer price $ / MWh 88.21 81.11 7.10 9% Hedged generation at GWAP transfer price $ 'm 796.2 727.6 68.6 9%
Slide 40: Exposed generation: Down $7m (18%)
Exposed generation: Down $7m (18%) due to the introduction of carbon Exposed segment contribution Units FY11 FY10 Var Var (%) Exposed generation volume GWh 1,233 1,244 (11) (1%) Exposed GWAP $ / MWh 62.87 63.67 (0.8) (1%) Revenue $ 'm 77.5 79.2 (1.7) (2%) Expenses Gas purchases and transmission $ 'm
Slide 41: Retail: Down $22m (44%)
Retail: Down $22m (44%) due to increasing unit energy cost, mass market network costs and line losses more than offsetting the benefits of price increases and growth in Time of Use sales Retail electricity contribution Units FY11 FY10 Var Var (%) Sales GWh (ICP) 8,254 7,674 580 8% Revenue $'m 1,452.
Slide 42: Half on half comparative operational statistics
Half on half comparative operational statistics Data Measure H2 2011 H2 2010 H1 2011 H1 2010 Generation* Thermal generation GWh 1,507 1,698 2,201 1,956 Geothermal generation GWh 1,121 1,118 1,154 1,158 Hydro generation GWh 1,955 1,874 1,905 1,887 Swaption GWh 181 300 203 192 Embedded generation GWh
Slide 43: Half on half comparative operational statistics
Half on half comparative operational statistics Data Measure H2 2011 H2 2010 H1 2011 H1 2010 Exposed Exposed generation volume GWh 508 697 725 547 Generation Unit generation operating cost $/MWh 41.65 34.25 36.48 34.14 1 Exposed GWAP $/MWh 58.54 70.95 65.90 54.40 Hedged Hedged generation volume GWh