Contact Energy Limited · NZX:CEN
Contact Energy — Non-Deal Roadshow (October 2010)
33 slides from Contact Energy's roadshow presentation, Oct 5, 2010
Slide 1: ASX cover note: Contact Energy JP Morgan Asia Roadshow presentation
For personal use only To Company Announcements Office Facsimile 1300 135 638 Company ASX Limited Date 5 October 2010 From Helen Hardy Pages 33 Subject CONTACT ENERGY – JP MORGAN ASIA ROADSHOW PRESENTATION Attached herewith is a copy of a presentation released to the NZX by Contact Energy on 4 Octobe
Slide 2: J. P. Morgan Asia Roadshow, Singapore & Hong Kong
For personal use only J. P. Morgan Asia Roadshow Singapore & Hong Kong 4-6 October 2010
Slide 3: Important Notice
Important Notice 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 materially from those state
Slide 4: Outline
Outline For personal use only 1. Business and market overview 2. Performance 3. Strategy and growth 4. Financial results overview 5. Sector information © Contact Energy Limited 3
Slide 5: 1. Business and market overview
For personal use only 1. Business and market overview © Contact Energy Limited 4
Slide 6: Contact is New Zealand's leading integrated energy company
Contact is New Zealand’s leading integrated energy company For personal use only • Third largest listed company on the NZX with a market capitalisation of NZ$3.5 billion a • Generates electricity from geothermal, hydro and gas • The largest geothermal energy producer in NZ b • Leading wholesaler and
Slide 7: New Zealand produces the majority of its generation from hydro
New Zealand produces the majority of its generation from hydro NZ’s electricity supply and demand For personal use only • Weather-dependent renewable generation requires …Thermal generation (in red) balances renewables (predominately hydro). The chart is ordered by thermal generation to balance supp
Slide 8: Hydrology-driven price volatility has resulted in vertical integration
Hydrology-driven wholesale price volatility has resulted in vertical integration across the sector Rio Tinto supply For personal use only • New Zealand’s generators have adopted a retail customer base to reduce exposure to wholesale prices – Generators have also targeted hedge locations to match the
Slide 9: Contact hedges ~80% of its generation through customer sales
Contact hedges ~80% of its generation through sales to mass market, commercial and industrial customers. The balance is sold into to the wholesale electricity market For personal use only Energy sold into the wholesale market Energy sold to customers © Contact Energy Limited 8
Slide 10: 2. Performance
For personal use only 2. Performance © Contact Energy Limited 9
Slide 11: Until 2006, flexible portfolio resulted in earnings growth in wet and dry conditions
Until 2006, Contact’s flexible and diverse portfolio resulted in earnings growth in wet and dry conditions For personal use only EBITDAF and wholesale electricity prices 600 120 Wholesale price 500 100 NZ$ Millions EBITDAF 400 80 $/MWh 300 60 200 40 100 20 - - 2002 2003 2004 2005 2006 Financial Year
Slide 12: Between 2006 and 2010, portfolio inflexibility constrained fuel diversity value
Between 2006 and 2010, portfolio inflexibility constrained the value of Contact’s fuel diversity For personal use only • 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 flex
Slide 13: 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 For personal use only • 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
Slide 14: Projects initiated in 2007 to restore portfolio flexibility 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 For personal use only and peak demand driven) - Capital cost: $250m - Completion: November 2010 • Ahuroa gas storage facility
Slide 15: Restoration of portfolio flexibility expected to lift performance
The restoration of portfolio flexibility is expected to lift performance in both wet and dry years – enabling Contact’s fuel diversity to be leveraged For personal use only • Benefits of portfolio flexibility - Ahuroa gas storage and lower take-or-pay gas volumes will largely mitigate Contact’s expo
Slide 16: 3. Strategy and growth
For personal use only 3. Strategy and growth © Contact Energy Limited 15
Slide 17: Strategy: 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 For personal use only • 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
Slide 18: Geothermal energy is the most economic supply of new generation in NZ
For personal use only 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
Slide 19: 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” For personal use only Contact’s157 MW Wairakei geothermal plant was commissioned in 1958 © Contact Energy Limited 18
Slide 20: New geothermal power under construction and in development
Contact has more than 500 MW of new geothermal power under construction and in development For personal use only © Contact Energy Limited 19
Slide 21: Gas, wind and hydro growth options
Gas, wind and hydro growth options Gas For personal use only • 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 • Concep
Slide 22: Capital expenditure outlook and funding
Capital expenditure outlook reflects Contact’s strategy of increasing portfolio flexibility and growth through renewables For personal use only • Committed capex includes: – Ahuroa gas storage – first stage – Stratford peaker plant – Other geothermal investment in existing field (wells, steamfield i
Slide 23: 4. Financial Results Overview
For personal use only 4. Financial Results Overview © Contact Energy Limited 22
Slide 24: EBITDAF down $18m (4%) from FY09
EBITDAF down $18m (4%) from FY09 Wet conditions for most of the year; retail competition intensified For personal use only • 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%) • Un
Slide 25: Statutory profit: $155m, up $39m (34%) from FY09
For personal use only 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
Slide 26: Underlying earnings after tax: $150m, down 6% from FY09
For personal use only 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 financia
Slide 27: Significant progress on delivery of strategic initiatives
Significant progress was made on the delivery of Contact’s strategic initiatives For personal use only Te Huka • Projects under construction: – Te Huka Geothermal Power Station: completed early, below budget and operating above expected capacity – Stratford Peakers: Commissioning progressing – Ahuro
Slide 28: Impact if Stratford Peakers and Ahuroa were fully operational in FY10
If the Stratford Peakers and the Ahuroa gas storage facilities were fully operational in FY10, EBITDAF would have been up to $60m higher For personal use only • 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 woul
Slide 29: Safety performance improved by 25% during the year
Contact’s safety performance improved by 25% during the year For personal use only • 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: tota
Slide 30: 5. Sector Information
For personal use only 5. Sector Information © Contact Energy Limited 29
Slide 31: Overview of New Zealand electricity generation
Overview of New Zealand electricity generation Generation and demand by region - CY 2009 For personal use only • 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
Slide 32: Electricity demand
For personal use only 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
Slide 33: New Zealand's gas market
New Zealand’s gas market • The major owners of gas in New Zealand are: For personal use only – 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