Contact Energy Limited · NZX:CEN
Contact Energy — FY2019 Earnings Presentation
49 slides from Contact Energy's earnings presentation, Aug 12, 2019
Slide 1: 2019 Full Year Results Presentation
For personal use only 2019 Full Year Results Presentation Twelve months ended 30 June 2019 1
Slide 2: Disclaimer and important information
Disclaimer and important information For personal use only 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 material
Slide 3: Agenda
Agenda For personal use only 1 FY19 Highlights and Progress on Strategy Dennis Barnes, CEO 4 - 14 2 Operational Performance and Financial Results Dorian Devers, CFO 15 - 25 3 Market Update and Outlook Dennis Barnes, CEO 26 - 30 3
Slide 4: FY19 Highlights and Progress on Strategy
For personal use only FY19 Highlights and Progress on Strategy Dennis Barnes CEO 4 4
Slide 5: Strong financial performance and optimisation of the portfolio results in higher dividends
Strong financial performance and optimisation of the portfolio results in higher dividends For personal use only Summary of key financial performance measures Twelve months ended 30 June 2019 » Completed the sale of Ahuroa Gas Storage Continuing operations (AGS) and the sale of the Rockgas LPG Conti
Slide 6: Highlights
Highlights For personal use only Continued progress in delivering value for key stakeholders Comparison against FY18 MAINTAINING FINANCIAL DISCIPLINE Reduction in total Good cost control, with continuing other operating costs down by $3m (1%). Cash spent on continuing SIB capital expenditure down by
Slide 7: Further operational improvement expected
Further operational improvement expected For personal use only Maintaining financial discipline Safe and engaged employees Rewarding shareholders CONTROLLABLE OPEX AND CAPEX ($m) TOTAL RECORDABLE INJURY FREQUENCY RATE DISTRIBUTIONS ($m) Recordable injuries per million hours worked Declared 391 357 5
Slide 8: National electricity demand flat
National electricity demand flat For personal use only REGIONAL CHANGE (%) FY19 vs FY18 NATIONAL ELECTRICITY DEMAND (TWh) Source: EMI, Contact Source: EMI, Contact 0.2% 41.1 41.2 40.9 41.3 41.4 1% (1%) 25.9 25.9 25.9 26.1 26.1 0% 10.2 10.2 10.0 10.1 10.1 1% 5.0 5.0 5.0 5.0 5.2 (1%) FY15 FY16 FY17 FY
Slide 9: South Island hydrology rebounded
South Island hydrology rebounded For personal use only NATIONAL HYDRO STORAGE AGAINST MEAN STORAGE (TWh) South Island inflows normalised Mean storage 1926 – 2019 (source: NZX hydro) Mean 4.0 Actual » Extreme November 2018 rainfall added ~700GWh to national storage over 3.5 a two week period after th
Slide 10: Wholesale spot prices responded to fuel scarcity
Wholesale spot prices responded to fuel scarcity For personal use only Hydro storage volatility and thermal fuel MONTHLY WHOLESALE SPOT ELECTRICITY PRICES ($/MWh) constraints increased spot prices Generation weighted (source: Electricity Authority – Wholesale electricity prices) 300 » While volatile
Slide 11: Creating sustainable value for New Zealanders by putting our energy where it matters
Creating sustainable value for New Zealanders by putting our energy where it matters For personal use only Optimise the Customer and Wholesale businesses to deliver strong cash flows CUSTOMER BUSINESS STRATEGY WHOLESALE BUSINESS STRATEGY A service and value focused retailer, An innovative, safe and
Slide 12: Customer business continues to reduce cost to serve while improving customer experience
Customer business continues to reduce cost to serve while improving customer experience For personal use only Near-term description of success High-performing, efficient retailer with the lowest cost to serve and best customer experience of the tier 1 retailers in New Zealand, with an ability to exe
Slide 13: Wholesale business is delivering continuous improvement while enabling decarbonisation
Wholesale business is delivering continuous improvement while enabling decarbonisation For personal use only Near-term description of success Focus on operational excellence and investment in digital with clear payback to accelerate continuous improvement Delivering on our strategy FY16 FY17 FY18 FY
Slide 14: Operational Performance and Financial Results
For personal use only Operational Performance and Financial Results Dorian Devers CFO 14 14
Slide 15: Profit of $345m, supported by proceeds from divestments
Profit of $345m, supported by proceeds from divestments For personal use only Profit from underlying continuing operations up by 51%; EBITDAF from continuing operations up by $56m STATUTORY PROFIT ($m) 345 +56 14 175 24 170 10 166 4 132 56 20 112 110 2 FY18 profit Discontinued Profit on Items FY18 E
Slide 16: EBITDAF from continuing operations up by $56m
EBITDAF from continuing operations up by $56m For personal use only Continuing business performance by segment WHOLESALE EBITDAF ($m) CUSTOMER EBITDAF ($m) CORPORATE / UNALLOCATED ($m) 67 -9 -2 464 Electricity 24 26 8 10 Networks, 76 meters, levies 60 4 397 -14 3 67 37 2 1 30 1 2 FY18 Staff FY19 Pri
Slide 17: Generation costs
Generation costs For personal use only Renewable generation volumes up 10%. Costs up $30m on rising thermal generation and risk management costs Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) 9,625 +30 » Hydro generation was up 752 GWh on FY18 (+21%), 9,223 634
Slide 18: Wholesale contracted revenue
Wholesale contracted revenue For personal use only Sales mix adjusted to manage commodity risk; higher pricing and volumes increase revenues Contracted revenue ($m) 37 » Fixed price variable volume electricity sales to Customer and C&I customers were 509 GWh lower than FY18 (-$42m), this was partial
Slide 19: Wholesale trading and merchant revenue
Wholesale trading and merchant revenue For personal use only Higher merchant sales at elevated spot prices offered better value than fixed price contracts TRADING EBITDAF ($m) LONG / SHORT POSITION (GWh) +60 973 » 266 GWh increase in merchant sales volumes (+$38m). The price received for 74 641 this
Slide 20: Customer business performance
Customer business performance For personal use only EBITDAF down by $9m as the 1% increase in tariff was not sufficient to recover rising input costs Revenue ($m) EBITDAF ($m) -12 -9 » Electricity gross margin down by $9m, tariff 960 76 increases (+$8m) only partially recovered pass- 67 4 Other inco
Slide 21: Electricity retailing margins remain under pressure
Electricity retailing margins remain under pressure For personal use only Intense retail competition has limited tariff increases. When combined with steadily rising input costs, margins from retailing electricity remain under pressure. Contact has focused on reducing its controllable costs and incr
Slide 22: Cost efficiency programme continues to deliver controllable cost reduction
Cost efficiency programme continues to deliver controllable cost reduction For personal use only OTHER OPERATING COST MOVEMENT ($m) Structural and performance Underlying Accelerated investment Learn and Underlying movement 223 movement Improve » Delivered $8m of underlying 9 operating cost improveme
Slide 23: Purposeful acceleration of operating cost spend
Purposeful acceleration of operating cost spend For personal use only Delivering smart customer solutions Geothermal fuelling $3m investment in our brand, new product development and promotion. Key Additional $2m investment in workovers of geothermal wells. R&D journeys digitised. and capability con
Slide 24: Cash flow and capital expenditure
Cash flow and capital expenditure For personal use only Operating free cash flow up by $40m on higher EBITDAF and lower interest and SIB capital expenditure 12 months 12 months ended ended Comparison SIB CAPEX ($m) 30 June 30 June against FY18 2019 2018 128 EBITDAF $518m $481m ↑ $37m Working capital
Slide 25: Free cash flow used to strengthen balance sheet
Free cash flow used to strengthen balance sheet For personal use only EBITDAF to cash conversion increased to 66% in FY19 from 63% in FY18 OPERATING FREE CASH FLOW – OFCF ($m) SOURCES AND USES OF CASH ($m) 341 301 731 731 8 3 Growth investment 44 Investment in associates Cash change 481 518 EBITDAF
Slide 26: Robust balance sheet
Robust balance sheet For personal use only Well managed, diversified portfolio with green certification. Capacity to fund renewable generation CLOSING NET DEBT ($m) BORROWING MATURITIES ($m) NET DEBT TO EBITDAF (x) Face value of borrowings less cash Average tenor of 3.8 years as at 30 June 2019 Incl
Slide 27: Distribution policy provides clarity to investors and drives a strong capital discipline
Distribution policy provides clarity to investors and drives a strong capital discipline For personal use only FY19 Balance sheet Distribution policy Ordinary dividend capacity Ordinary dividend of 39 cps 2.8x 376 100% = 968 Net debt to EBITDAF 4.7% At the closing share price on 9 August 2019 Headro
Slide 28: Distributions
Distributions For personal use only Rewarding shareholders ORDINARY DIVIDENDS (cps) FINAL DIVIDEND FOR FY19 OF 23 CENTS PER SHARE UP 21% Declared or target » Final dividend of 23 cents per share (Final FY18 19 cents per share) is imputed to 65% or 15 cents per share for qualifying shareholders. This
Slide 29: Market update and Outlook
For personal use only Market update and Outlook Dennis Barnes CEO 29 29
Slide 30: Progress against near-term priorities
Progress against near-term priorities For personal use only As per 1H19 PROGRESS CONTRACT GAS Engaging with suppliers to contract for gas for 2019 and beyond. Increasingly confident that gas Long-term gas contract availability will improve as current gas supply constraints are unlocked signed MANA
Slide 31: Progress against medium-term priorities
Progress against medium-term priorities For personal use only As per 1H19 PROGRESS DECARBONISATION Develop options to enable the economic substitution of thermal generation with renewables Simply Energy acquisition Partner with customers on mutually beneficial decarbonisation completed in June 2
Slide 32: Guidance
Guidance For personal use only Further performance improvements targeted FY19 Result Change to prior FY20 (f) guidance Comment Other operating costs $200 – 210m $200 – 205m Stay in business capital $60 – 75m Prior range of $245 – 260m. expenditure $55 – 60m Mid-point now $260m Cash spend (‘Totex’) $
Slide 33: Supporting materials
For personal use only Supporting materials 33 33
Slide 34: Normalised EBITDAF for FY20
Normalised EBITDAF for FY20 For personal use only Higher wholesale prices offset by retail margin pressure, a full year of AGS and normalising trading income EBITDAF ($m) 518 Key assumptions: » Hydro generation at 3,900 GWh (mean), geothermal generation at 3,350 GWh 13 (average) 505 » ASX electricit
Slide 35: Expected operating free cash flow
Expected operating free cash flow For personal use only Basis for distributions DISTRIBUTION POLICY LONG RUN AVERAGE CAPEX ($m) MEDIUM TERM OFCF ($m) Excludes capex associated with Wairakei extension post 2026 *Operating Free Cash Flow (OFCF) is 75 65 operating cash flow less stay-in-business » Cont
Slide 36: Generation and sales position
Generation and sales position For personal use only CONTACT GENERATION OUTPUT (GWh) ELECTRICITY GENERATION AND SALES POSITION (GWh) 9,514 +337 9,255 9,002 8,908 9,627 9,627 8,537 8,614 67 9,290 9,290 83 2 2,321 634 1,614 1,421 Pool purchase 519 90 708 974 Merchant sales Thermal generation 2,865 1,74
Slide 37: Wairakei geothermal field mass take and efficiency
Wairakei geothermal field mass take and efficiency For personal use only GEOTHERMAL FUEL EXTRACTED AT WAIRAKEI VS CONSENTED (GWh) WAIRAKEI, POIHIPI AND TE MIHI CONVERSION EFFECTIVNESS (MWh per Kt EXTRACTED) -2% 0% 100 101% -1% 99% 97% 99% 90 94% 30.5 29.3 30.1 30.1 30.1 86% 80 25.7 70 60 50 40 30 20
Slide 38: Generation volumes
Generation volumes For personal use only Renewable generation up 10% on FY18 Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh) 2,417 3,297 3,233 3,323 3,257 4,231 96 0 3,074 196 198 189 189 186 204 337 280 310 1,903 336 4,119 1,834 327 4,091 477 90 3 407 411 388 1,708 92 1
Slide 39: Plant availability
Plant availability For personal use only HYDRO TARANAKI COMBINED CYCLE (TCC) OTAHUHU Net Capacity Electricity Pool revenue Net Capacity Electricity Pool revenue Net Capacity Electricity Pool revenue Availabilit capacity Availability factor output capacity factor output capacity Availability factor o
Slide 40: Fuel storage movements
Fuel storage movements For personal use only HAWEA STORAGE (GWh) GAS STORAGE (GWh EQUIVALENT) Using the FY19 thermal efficiency (9.25 TJ/GWh) CLOSING STORAGE 295 107 151 27 CLOSING STORAGE 1,205 1,171 843 55 Gas injected 170 200 144 814 Inflows 536 563 450 542 363 484 447 149 Opening storage 162 132
Slide 41: Contracted and stored gas
Contracted and stored gas For personal use only CONTRACTED GAS VOLUMES (PJ) AHUROA GAS STORAGE MONTHLY SOURCES AND USES OF GAS (PJ) INJECTIONS AND EXTRACTIONS (PJ) CLOSING 10.9 7.7 18.6 18.4 STORAGE 7.5 1.03 16.7 4.5 4.5 4.5 0.72 Purchases 18.3 19.5 4.4 20.4 12.8 17.3 3.1 3.4 0.47 1.2 1.03 0.44 4.5
Slide 42: Non-GAAP profit measure: EBITDAF
Non-GAAP profit measure: EBITDAF For personal use only » EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items » EBITDAF is commonly used in the electricity industry so provides a comparab
Slide 43: Reconciliation between Profit and EBITDAF
Reconciliation between Profit and EBITDAF For personal use only » The adjustments from EBITDAF to reported profit and movements on FY18 are as follows: » Depreciation and amortisation: Reduced by $15m (7%) as depreciation on the held for sale asset (AGS) and the discontinued operation (Rockgas) stop
Slide 44: Non-GAAP profit measure: Underlying profit
Non-GAAP profit measure: Underlying profit For personal use only » Underlying profit provides a consistent measure of Contact’s ongoing performance » Underlying profit excludes the effect of significant items from reported profit. Significant items are determined based on principles approved by the
Slide 45: Reconciliation between Profit and Underlying profit
Reconciliation between Profit and Underlying profit For personal use only » The adjustments from reported profit to underlying profit for FY19 are as follows: » Change in the fair value of financial instruments » Rockgas Limited Sale: Rockgas was sold to Gas Services NZ Midco Limited on 30 November
Slide 46: Historical financial information
Historical financial information For personal use only Unit 2015 2016 20172 20183 20193 Revenue $m 2,443 2,163 2,079 2,275 2,519 Expenses $m 1,918 1,640 1,578 1,794 2,001 EBITDAF $m 525 523 501 481 518 Profit/(loss) $m 133 (66) 151 132 345 Underlying profit $m 161 157 142 130 176 Underlying profit p
Slide 47: Wholesale segment
Wholesale segment For personal use only FY19 FY18 Twelve months ended 30 June 2019 Twelve months ended 30 June 2018 Volume GWAP Volume GWAP Reference to Wholesale segment note Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m Electricity sales to Customer 3,789 83.0 3
Slide 48: Commercial and Industrial sales
Commercial and Industrial sales New C&I load FY19 (GWh) and long-dated futures ($/MWh) Commercial and Industrial price progression For personal use only C&I - FPVV FY18 FY19 77% of new C&I load signed before future prices increased C&I volumes (GXP) GWh 3,285 2,936 GWh $/MWh C&I volumes (ICP) GWh 3,
Slide 49: Customer segment
Customer segment Residential electricity FY16 FY17 FY18 FY19 Residential gas FY16 FY17 FY18 FY19 For personal use only Average connections # 362,456 362,570 359,171 353,105 Average connections # 58,741 59,809 60,905 61,711 Sales volumes GWh 2,603 2,628 2,549 2,491 Sales volumes TJ 1,577 1,581 1,600