Contact Energy Limited · NZX:CEN
Contact Energy — H1 FY2024 Earnings Presentation
41 slides from Contact Energy's earnings presentation, Feb 19, 2024
Slide 1: 2024 interim results presentation
For personal use only 2024 interim results presentation Six months ended 31 December 2023 19 February 2024 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 For personal use only 1 1H24 highlights and market update / Mike Fuge, CEO 4 - 13 2 Financial results and outlook / Dorian Devers, CFO 14 - 28 3 Supporting materials 30 - 41 3
Slide 4: Summary of key financial performance measures
Summary of key financial performance measures Underlying performance strength Focus on delivering geothermal developments and supporting security of supply For personal use only Market Six months ended 31 Six months ended 31 December 2023 (1H24) December 2022 (1H23) A return to hydro volatility cate
Slide 5: Key strategic highlights from 1H24
Key strategic highlights from 1H24 For personal use only 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 Objective demand with globally and flexibilit
Slide 6: A new long-term deal for NZAS would support decarbonisation
A new long-term deal for NZAS would support the decarbonisation of New Zealand De-risking investment in new renewable generation, contributing to energy security and supporting For personal use only growth and decarbonisation of the New Zealand economy Negotiations progressing Anticipated sector out
Slide 7: Geothermal investment programme update
Geothermal investment programme update Supporting the decarbonisation of New Zealand by building world class geothermal power stations For personal use only Tauhara Te Huka 3 GeoFuture3 Size (TWh p.a) 1.42 0.4 1.44 FID date Feb 2021 Aug 2022 1H 2024 Online date Q3 2024 Q4 2024 2H 2026 Project progre
Slide 8: 1H24 delivery supported by enablers
1H24 delivery supported by enablers For personal use only Our ESG Operational Transformative commitment excellence ways of working Create long-term value through our strong Continuously improving our operations Create a flexible and high-performing Objective performance across a broad set of environ
Slide 9: Market demand
Market demand National electricity demand New Zealand electricity demand was up ~1% on 1H23 For personal use only Regional National electricity demand (TWh) 0% change (%) 1H24 vs 1H23 0% Total national electricity demand 5% +1% increased by 0.15 TWh (1% from 1H23). 2% 21.2 21.0 21.4 21.3 21.1 21.2 2
Slide 10: Fuel supply
Fuel supply Hydrology significantly impacted generation mix El Niño sequence saw low hydro inflows increasing the need for thermal generation; wind farms power up For personal use only Generation by type (TWh) National hydro storage Hydro generation was down 11% on 1H23, largely due to 4.5 1H24 22.4
Slide 11: Wholesale market
Wholesale market Forward wholesale pricing continues to reflect high fuel cost and availability risk For personal use only Aluminium prices remained Wholesale and futures electricity pricing ($/MWh) Short-term external factors that largely flat (+$10/t, up 0.3%) can influence the market Changes as a
Slide 12: Retail electricity market
Retail electricity market Differences in retail strategies apparent Reflects range of views on the value of retail as a channel; Rising pass-through costs on the horizon For personal use only Change in customer electricity connections (000s) 2yr ICP delta (1000s) 2yr % change • Competition remains i
Slide 13: 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 focus on electrifying NZ’s economy while maintaining security of supply Theme use only Security of supply Electricity Pr
Slide 14: Financial results and outlook
Financial For personal use only results and outlook 14
Slide 15: Key themes from the financial results
Key themes from the financial results For personal use only Key indicators re-enforce our view on Uplift in expected and normalised Sales channels repricing to better long-term wholesale electricity pricing performance; Expecting $620m align with wholesale market; of $110-120/MWh (2024 real)1 EBITDA
Slide 16: 1H24 results
1H24 results Profit of $134m for 1H24 (underlying) Excluding the AGS onerous contract provision, underlying EBITDAF up $68m (26%) reflecting continued improvement in the alignment of channel pricing to the wholesale market For personal use only Profit ($m) EBITDAF ($m) +68 325 18 -9 -9 -8 39 257 -11
Slide 17: 1H24 results: Segmental performance
1H24 results: Segmental performance EBITDAF up by $68m (underlying) Business performance by segment For personal use only Wholesale EBITDAF1 (underlying, $m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) +75 -5 354 -2 17 279 126 Price recovery 40 67 1 0 5 2 354 -1 Electricity and network 45
Slide 18: 1H24 results: Wholesale business
1H24 results: Wholesale business Generation costs Costs up $67m on increased thermal and acquired generation volumes to back higher sales position For personal use only Generation volumes Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) • Hydro generation of 1,916
Slide 19: Wholesale contracted revenue
1H24 results: Wholesale business Wholesale contracted revenue High stored fuel balances at the beginning of 1H24 paired with the anticipation of Tauhara coming online drove an increase in contracted sales volumes For personal use only Contracted +126 revenue ($m) 559 4 • Fixed price variable volume
Slide 20: Wholesale trading and merchant revenue
1H24 results: Wholesale business Wholesale trading and merchant revenue For personal use only Trading EBITDAF ($m) Long / short position (GWh) Merchant generation • In 1H24, merchant length offset location losses. This is in line with Merchant Spot sales and buy CFD guidance which assumed mean 223 $
Slide 21: 1H24 results: Retail business
1H24 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 high wholesale For personal use only prices. 1H24 1H23 Variance EBITDAF ($m) Reven
Slide 22: 1H24 results: Operating costs
1H24 results: Operating costs Operating costs up on investments in growth strategy and cost pressures For personal use only Non-recurring Other operating • 1H23 one-off impacts related to strategic execution set up costs, Contact’s cost movement share of BCG Industry report and cost of retaining Te
Slide 23: 1H24: Cash flow
1H24: Cash flow Cash flow and capital expenditure Cash conversion for 1H24 impacted by higher EBITDAF, lower fuel inventory and lower tax payments For personal use only • Higher underlying EBITDAF on execution of long-term channel price increases. • Working capital increase was $33m less than in the
Slide 24: Key balance sheet metrics
1H24 results: Key balance sheet metrics Strong balance sheet With market leading sustainable finance principles built on diversified sources of funding • For personal use only Borrowing maturities ($m) Face value of borrowings (excl. leases) increased by Closing net debt ($m) Face value of borrowing
Slide 25: Growth investment funding strategy
1H24 results: Funding strategy Growth investment funding strategy Complementing conventional debt funding and hybrid debt instruments, Contact has a Dividend Reinvestment Programme that can provide additional equity support For personal use only Growth capital expenditure ($m) Medium-term capital in
Slide 26: Dividend for 1H24
Dividend for 1H24 For personal use only Ordinary dividends ($m) Interim dividend for 1H24 of 14 cents per share Declared 280 273 • Interim dividend of 14 cents per share is imputed to 86% or 12 cents per share for qualifying shareholders. 272 272 • Dividend timeline brought forward. Record date of 2
Slide 27: Sustainable pricing changes drive an uplift in FY24 expected EBITDAF
Sustainable pricing changes drive an uplift in FY24 expected EBITDAF For personal use only EBITDAF ($m) 620 1H24 actual performance vs. normalised and expected that will not unwind in 2H24 600 18 10 20 8 FY24 normalised¹ 1H realised hydrology 1H realised impairments 1H gas and risk Sustainable long
Slide 28: Our operational plan
Our operational plan What you can expect in the next 12 months For personal use only Strategic theme Calendar 2024 Grow Enter new long-term supply Final Investment Decision (FID) for Demand agreement with NZAS. C02 commercialisation. Tauhara operational Q3 20241. Achieve FID for GeoFuture. Grow rene
Slide 29: Questions
For personal use only Questions 29
Slide 30: Supporting materials
Supporting For personal use only materials 30
Slide 31: Guidance confirmation
Guidance confirmation Updated For personal use only 1H24 result Change to prior guidance FY24 guidance Stay in Business Capex $120m - $130m1 $64m +$5m Stay in business accelerated programme (cash) $55m - $60m $24m - Non-sustained increase relates to emergency repairs at Wairākei Stay in business cap
Slide 32: Normalised and expected EBITDAF assumptions
1H24 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance 1H24 assumptions that deliver expected & normalised EBITDAF of $600m over a financial year EBITDAF reconciliation to 1H24 ($m) For personal use only Normalised & Expected 1 Channel choices maximise lon
Slide 33: Operational data: Generation and sales position
Operational data Generation and sales position Contact generation output sold to the national grid (GWh) Hydro generation (GWh) For personal use only 4,327 4,533 4,359 4,378 4,411 4,385 Inflows stored include uncontrolled storage lakes Thermal 836 360 3,905 966 825 870 246 817 2,053 generation 1,886
Slide 34: Plant and fuel performance
Plant and fuel performance Geothermal fuel performance Plant availability Geothermal fuel extracted at Wairākei vs consented (mT) Hydro Geothermal +10% Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue For personal use only capacity (%) factor outp
Slide 35: 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) 7.8 4.7 191 0.5 2.7 259 6.1 97 5.0 116 253 5.8 2.4 141 175 166 5.0 0.8 2.2 1.7 2.7 264 Inflows 248 189 1.5 324 242 3.7 3.1 230 324 0.9 Gas Injected 300 7.8 1.7
Slide 36: Operational data: 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) For personal use only 16.6 16.9 2.3 15.5 14.6 1.1 4.5 13.6 0.6 2.0 3.1 5.5 11.7 5.3 0.55 5.2 4.5 4.5 0.26 0.25 0.25 0.28 9.4 9.3 9.8 9.8 5.5 0.21 0.24 0.20 Purc
Slide 37: Fuel position
Fuel position Contractual fuel position sufficient to support expected sales position For personal use only Portfolio requirements for thermal generation FY24 (TWh) Gas supply and demand FY24 (PJ) Excludes stored gas Hydro variation >> 13.9 13.2 Options in a dry year: • Access to stored water -3.3 2
Slide 38: 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 changes The adjustments from EBITDAF to reported profit and in fair value of financial instruments. movements on 1H23 are as
Slide 39: Historic performance
Historic performance Historical financial information 1H231 1H24 For personal use only Unit 1H20 1H21 1H22 Underlying2 Reported Underlying2 Reported Revenue $m 1,110 1,141 1,141 994 1,306 Expenses3 $m 889 895 819 737 857 981 952 EBITDAF $m 221 246 322 257 137 325 354 Profit $m 59 78 134 79 (7) 134 1
Slide 40: Segmental performance: Wholesale segment
Segmental performance Wholesale segment 1H24 1H23 Six months ended 31 December 2023 Six months ended 31 December 2022 Volume GWAP Volume GWAP For personal use only Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m2 Electricity sales to Retail segment 1,989 141 280 1,9
Slide 41: Historic performance: Retail segment
Historic performance Retail segment Residential electricity unit 1H21 1H22 1H23 1H24 Residential gas unit 1H21 1H22 1H23 1H24 Average connections # 357,756 367,199 381,222 386,540 Average connections # 60,563 63,182 66,796 67,658 Sales volumes GWh 1,349 1,408 1,445 1,478 Sales volumes TJ 954 970 881