Contact Energy Limited · NZX:CEN
Contact Energy — Non-Deal Roadshow (October 2010)
32 slides from Contact Energy's roadshow presentation, Oct 4, 2010
Slide 1: J. P. Morgan Asia Roadshow Singapore & Hong Kong
J. P. Morgan Asia Roadshow Singapore & Hong Kong 4-6 October 2010
Slide 2: Important Notice
Important Notice 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-looki
Slide 3: Outline
Outline 1. Business and market overview 2. Performance 3. Strategy and growth 4. Financial results overview 5. Sector information © Contact Energy Limited 3
Slide 4: 1. Business and market overview
1. Business and market overview © Contact Energy Limited 4
Slide 5: Contact is New Zealand's leading integrated energy company
Contact is New Zealand’s leading integrated energy company • Third largest listed company on the NZX with a market capitalisation of NZ$3.5 billion a • Generates electricity from geothermal, hydro and gas • The largest geothermal energy producer in NZ b • Leading wholesaler and retailer of electrici
Slide 6: New Zealand produces the majority of its generation from hydro
New Zealand produces the majority of its generation from hydro NZ’s electricity supply and demand • Weather-dependent renewable generation requires …Thermal generation (in red) balances renewables (predominately hydro). The chart is ordered by thermal generation to balance supply decreasing renewabl
Slide 7: Hydrology-driven wholesale price volatility has resulted in vertical integration across the sector
Hydrology-driven wholesale price volatility has resulted in vertical integration across the sector Rio Tinto supply • New Zealand’s generators have adopted a retail customer base to reduce exposure to wholesale prices – Generators have also targeted hedge locations to match their generating sites •
Slide 8: Contact hedges ~80% of its generation through sales to customers
Contact hedges ~80% of its generation through sales to mass market, commercial and industrial customers. The balance is sold into to the wholesale electricity market Energy sold into the wholesale market Energy sold to customers © Contact Energy Limited 8
Slide 9: 2. Performance
2. Performance © Contact Energy Limited 9
Slide 10: Until 2006, Contact's flexible portfolio resulted in earnings growth in wet and dry conditions
Until 2006, Contact’s flexible and diverse portfolio resulted in earnings growth in wet and dry conditions EBITDAF and wholesale electricity prices 600 120 Wholesale price 500 100 NZ$ Millions EBITDAF 400 80 $/MWh 300 60 200 40 100 20 - - 2002 2003 2004 2005 2006 Financial Year • Until 2006, Contact
Slide 11: Between 2006 and 2010, portfolio inflexibility constrained the value of fuel diversity
Between 2006 and 2010, portfolio inflexibility constrained the value of Contact’s fuel diversity • Flexibility has been constrained by: Indicative EBITDAF outcomes - wet and dry - FY06 to FY10 – Highly inflexible gas supply 800 Gas cost increases , loss arrangements 700 of flexibility and HVDC const
Slide 12: Gas length during wet years resulted in low wholesale prices
Gas length during wet years resulted in low wholesale prices – constraining earnings from wholesale market sales • Since October 2008 New Zealand’s electricity market has been through a period of low wholesale prices, driven by high levels of must run fuel – Wet conditions have resulted in above ave
Slide 13: Projects initiated in 2007 to restore portfolio flexibility will be completed in 2010
Projects initiated in 2007 to restore portfolio flexibility will be completed in 2010 • Stratford peaker project - Leverages wholesale price volatility (predominately weather and peak demand driven) - Capital cost: $250m - Completion: November 2010 • Ahuroa gas storage facility - Gas injection comme
Slide 14: Restored portfolio flexibility expected to lift performance in wet and dry years
The restoration of portfolio flexibility is expected to lift performance in both wet and dry years – enabling Contact’s fuel diversity to be leveraged • Benefits of portfolio flexibility - Ahuroa gas storage and lower take-or-pay gas volumes will largely mitigate Contact’s exposure to gas length in
Slide 15: 3. Strategy and growth
3. Strategy and growth © Contact Energy Limited 15
Slide 16: Strategy is to add portfolio flexibility and grow market share
Contact’s strategy is to continue to add portfolio flexibility and grow market share through increasing its generation footprint • Demand growth has averaged 2% since 1990 – The GFC has constrained demand growth since 2009 – which is likely to continue for the next year or two before reverting to me
Slide 17: Geothermal energy is the most economic supply of new generation in NZ
Geothermal energy is the most economic supply of new generation in NZ Long-run costs 180 • Contact’s geothermal , wind and 160 hydro growth options are at the lower 140 $ / MWh end of the long-run cost curve 120 100 80 60 Wind Range Geothermal Range Hydro Range Gas Base Loaded OCGT @ $7.75/GJ CCGT @
Slide 18: Contact has a long history in geothermal energy
Contact has a long history in geothermal energy NZ is part of the Pacific “ring of fire” Contact’s157 MW Wairakei geothermal plant was commissioned in 1958 © Contact Energy Limited 18
Slide 19: More than 500 MW of new geothermal power under construction and in development
Contact has more than 500 MW of new geothermal power under construction and in development © Contact Energy Limited 19
Slide 20: Gas, wind and hydro growth options
Gas, wind and hydro growth options Gas • Contact is currently seeking to consent an option for a new set of 200 MW peakers • 900 MW of consented development sites Wind • HMR (500 MW) – in development (consenting) • Waitahora (156 MW) – in development (consenting) Hydro • Conceptual design and commun
Slide 21: Capital expenditure outlook reflects strategy of portfolio flexibility and renewables growth
Capital expenditure outlook reflects Contact’s strategy of increasing portfolio flexibility and growth through renewables • Committed capex includes: – Ahuroa gas storage – first stage – Stratford peaker plant – Other geothermal investment in existing field (wells, steamfield investment etc.) • At 3
Slide 22: 4. Financial Results Overview
4. Financial Results Overview © Contact Energy Limited 22
Slide 23: EBITDAF down $18m (4%) from FY09
EBITDAF down $18m (4%) from FY09 Wet conditions for most of the year; retail competition intensified • Retail electricity margins contracted from 5% to 2% – Volumes and customer numbers maintained – Sales revenue up $18m (2%) – Network, energy and retail costs up $48m (4%) • Unit generation costs up
Slide 24: Statutory profit: $155m, up $39m (34%) from FY09
Statutory profit: $155m, up $39m (34%) from FY09 • Depreciation and amortisation expense was down $4m or 2% primarily as a result of the normal periodic review in useful life of assets – About $13m lower than anticipated at the time of the half year result (see slide 44) • Net interest expense reduc
Slide 25: Underlying earnings after tax: $150m, down 6% from FY09
Underlying earnings after tax: $150m, down (6%) from FY09 • Key movements: – Adjustments for the unusual items (increase in New Plymouth asbestos removal costs and retail outsourcing costs) - $6m post tax – $43m post tax positive movement in the change in fair value of financial instruments – Change
Slide 26: Significant progress on delivery of strategic initiatives
Significant progress was made on the delivery of Contact’s strategic initiatives Te Huka • Projects under construction: – Te Huka Geothermal Power Station: completed early, below budget and operating above expected capacity – Stratford Peakers: Commissioning progressing – Ahuroa Gas Storage: Gas inj
Slide 27: If Stratford Peakers and Ahuroa were operational in FY10, EBITDAF up to $60m higher
If the Stratford Peakers and the Ahuroa gas storage facilities were fully operational in FY10, EBITDAF would have been up to $60m higher • The volume injected would have increased from 5 PJ (actual injected in FY10) to 11 PJ – At an injection rate of 32TJ/day • The peakers would have covered for CCG
Slide 28: Safety performance improved by 25% during the year
Contact’s safety performance improved by 25% during the year • The safety of our employees, contractors and visitors to any Contact site is the company’s highest priority • Safety performance is measured in various ways Total recordable injury frequency rate (TRIFR) TRIFR: total number of recordable
Slide 29: 5. Sector Information
5. Sector Information © Contact Energy Limited 29
Slide 30: Overview of New Zealand electricity generation
Overview of New Zealand electricity generation Generation and demand by region - CY 2009 • The New Zealand electricity generation market comprises roughly between 50% - 55% hydro generation, 10% other renewables, and the remainder, thermal • The majority of hydro generation is in the South Island Na
Slide 31: Electricity demand
Electricity demand • Electricity demand has been growing at around 2% p.a. over the last 10 years • Residential demand has grown despite price increases which have averaged 5% p.a. over the last 10 years • The recession has resulted in a period of relatively flat demand; growth is expected to transi
Slide 32: New Zealand's gas market
New Zealand’s gas market • The major owners of gas in New Zealand are: – Shell (48% Pohokura, 50% Kapuni, 84% Maui) – OMV (26% Pohokura, 10% Maui) – Todd (26% Pohokura, 50% Kapuni, 6% Maui, 100% McKee and Mangahewa) – Origin (100% Rimu / Kauri and TAWN, 50% of Kupe) – Greymouth (100% Ngatoro, Turang