Contact Energy Limited · NZX:CEN
Contact Energy — Merger or Acquisition (September 2024)
47 slides from Contact Energy's merger presentation, Sep 11, 2024
Slide 1: Contact Energy accelerates renewable generation strategy with proposed acquisition of Manawa
Contact Energy Accelerates renewable generation strategy with the proposed acquisition of Manawa 11 September 2024 1
Slide 2: Important Notice and Disclaimer
Important Notice and Disclaimer This presentation has been prepared by Contact Energy Limited (Contact or the Company) in relation to the No Adviser has authorised, permitted or caused the issue, submission, dispatch or provision of this presentation and proposed acquisition of 100% of the shares in
Slide 3: Important Notice and Disclaimer (cont.)
Important Notice and Disclaimer (cont.) General Pro forma Financial Information For the purposes of this Important Notice and Disclaimer, 'presentation' means these slides, any oral presentation of This presentation includes certain pro forma information. The pro forma financial information provided
Slide 4: Content
Content 1 Acquisition summary 5–8 2 Overview of Manawa 9 – 12 3 Strategic rationale 13 – 21 4 Combined group & financial impact 22 –28 5 Transaction process & key messages 29 – 32 A Appendices 33 – 47 4
Slide 5: 1. Acquisition summary
1. Acquisition summary 5
Slide 6: A highly strategic and financially compelling acquisition
A highly strategic and financially compelling acquisition 1 2 3 Geographically diversified Accelerates Contact’s strategy Transaction structure hydro schemes are to grow its renewable maintains Contact’s BBB complementary, enhancing generation portfolio and credit rating, retains capital portfolio r
Slide 7: Important combination for the New Zealand energy market and energy transition
Important combination for the New Zealand energy market and energy transition Combination benefits Enhanced Contact abilities Expected energy market benefits Increased hydro Greater ability to offer ✓ competitive risk management ✓ Ability for customers to reduce generation diversification and greate
Slide 8: Acquisition summary
Acquisition summary Contact has entered into a Scheme Implementation Agreement with Manawa to acquire 100% of Manawa via a mixture of Contact shares and cash • Contact has entered into a Scheme Implementation Agreement (Scheme) to acquire 100% of Manawa • As consideration, eligible Manawa shareholde
Slide 9: 2. Overview of Manawa
2. Overview of Manawa 9
Slide 10: Manawa owns and operates hydro schemes around NZ with ~500MW of capacity
Manawa owns and operates 25 hydro schemes around NZ with ~500MW of capacity and winter-weighted generation Key metrics Manawa hydro scheme locations Total hydro generation volumes >99% of FY24 generation from of 1.9TWh in FY24 renewable sources Kaimai Wairere Matahina 250MW Mokauiti Wheao & Flaxy No
Slide 11: Manawa has over 1,200MW of secured development options in wind and solar
Manawa has over 1,200MW of geographically diversified, secured development options in wind and solar Status of Manawa’s announced development options Wind Capacity Output Status Manawa’s announced (MW) (~GWh) Land secured all sites development locations and expected annual output Previous Central Wi
Slide 12: Strong cashflow visibility with embedded value upside
Strong cashflow visibility with embedded value upside Highly contracted revenue with future embedded value as long-term contracted sales reprice to winter-weighted market prices Manawa’s volumes are mostly under long-term Value expected to be realised as fixed price Mercury contracts begin to update
Slide 13: 3. Strategic rationale
3. Strategic rationale 13
Slide 14: A strategically compelling acquisition
A strategically compelling acquisition Geographically diversified hydro schemes are complementary, enhancing portfolio resilience and the 1 volume of fixed price supply agreements able to be placed into the market1 2 Hydro flexibility is expected to provide firming to expedite intermittent renewable
Slide 15: Manawa and Contact's geographically diversified hydro schemes are complementary
1 Manawa and Contact’s geographically diversified hydro schemes are complementary… North Island locations Type Contact Manawa Combined South Island locations Thermal peaking 2 1 3 stations T Hydro 2 25 27 H Includes one Geothermal 7 - 7 under H construction H Solar 1 - 1 Under Auckland construction
Slide 16: Enhancing portfolio resilience and volume of fixed price supply agreements
…enhancing portfolio resilience and volume of fixed price supply agreements able to be placed into the market 1 Risk management benefits from hydro diversification Seasonal shape Volatility and generation shape over time Output relative to average (x) Output relative to average (x) 1.4 1.3 1.3 1.2 A
Slide 17: Hydro flexibility is expected to provide firming to expedite intermittent renewable development
Hydro flexibility is expected to provide firming to expedite intermittent renewable development 2 Hydro flexibility is a valuable source of firming effective across a wide range of time periods ✓ ✓ ✓ ✓ ✓ Seconds Minutes Intra-day Inter-day Weekly+ Quarterly+ Manawa schemes derive flexibility from a
Slide 18: Combined portfolio mean renewable generation of more than 10TWh, 94% renewable
Combined portfolio will see mean renewable generation of more than 10TWh with 94% renewable output… 3 Diversification and increase in renewable generation Enhances Contact’s highly renewable mean output Mean renewable output (own generation, TWh)1 Mean renewable output (including acquired generation
Slide 19: Accelerating Contact's strategy to grow renewable generation while decarbonising
…accelerating Contact’s strategy to grow renewable generation while decarbonising its portfolio 3 Our strategy to lead NZ’s decarbonisation Grow Grow renewable Decarbonise Create outstanding demand development our portfolio customer experiences Combined portfolio increases Manawa’s >1,200MW wind and
Slide 20: Highest value options from a diversified combined development pipeline
Highest value options can be advanced from an attractive and diversified combined development pipeline… 4 Contact’s solar and wind pipeline Glorit Solar under development Wind under development 0.3TWh solar Geothermal Te Huka 3 0.4TWh Glenbrook Remaining consented 100MW battery ~1.2TWh (uplift)1 2TW
Slide 21: Supported by Contact & Manawa's renewable development execution capabilities
…supported by Contact & Manawa’s renewable development execution capabilities 4 Large capital project execution is a strategic advantage Shared expertise Tauhara Te Huka 3 Te Mihi Stage 2 & 3 Battery Solar Wind Hydro Design Capability Construction Access to finance ✓ Design efficiency through scope
Slide 22: 4. Combined group & financial impact
Appendix B Supplementary CombinedCo information 4. Combined group & financial impact 22
Slide 23: Acquisition is financially compelling
Acquisition is financially compelling Combination benefits expected to drive greater financial stability and value accretion 1 • Embedded value benefits as MCY, C&I contracts & PPA contracts roll- over onto more favourable pricing terms Key financial benefits Embedded future − net EBITDAF impact exp
Slide 24: EBITDAF synergies and expected portfolio benefits
EBITDAF synergies and expected portfolio benefits ~$220m Normalised EBITDAF contribution post realisation of future embedded value, portfolio benefits and cost synergies (~$75m higher than Manawa Reported FY24) Normalised EBITDAF bridge ($m) Non-quantified potential 3 strategic benefits 2 10 - 20 21
Slide 25: Cost synergies expected to be realised within 18-24 months
Cost synergies expected to be realised within 18 - 24 months Cost synergies of $23m-28m, predominantly from duplicated corporate functions Sources of cost synergies1 One-off integration cost $44m expected to be FY24 real, $m incurred within 18 - 24 months post completion FY24 real, $m Cost synergies
Slide 26: Full combination benefits to be realised over 3 horizons
Full combination benefits to be realised over 3 horizons Horizon 1: FY25 - 26 Horizon 2: FY27 - 28 Horizon 2: FY26 - 27 Horizon 3: FY28 and beyond Description 1 Combine 2 Deliver 3 Grow Objective Lower Contact’s overall market Integrate and optimise to deliver cost Look for opportunities to further
Slide 27: Scrip/cash consideration maintaining financial flexibility
Scrip/cash consideration maintaining financial flexibility Contact intends to fund the Transaction via a mixture of Contact shares and cash, and remains committed to maintaining its BBB S&P credit rating Funding & capital structure Estimated sources and uses ($m)4 • As consideration, eligible Manawa
Slide 28: Enhanced dividend profile in FY26 and FY27
Enhanced dividend profile in FY26 and FY27 Greater stability of generation and cash flow is expected to support a DPS profile which is 1cps higher in FY26 and 2 - 3cps higher in FY271 Higher DPS profile Dividend policy and outlook Historical and expected Contact DPS1 expected in FY26 and FY271 • Con
Slide 29: 5. Transaction process & key messages
5. Transaction process & key messages 29
Slide 30: Transaction overview
Transaction overview The acquisition of Manawa is to be achieved by a New Zealand Court approved Scheme of Arrangement (the Scheme) and has the support from major Manawa shareholders • The acquisition of Manawa is to be achieved by a New Zealand Court approved Scheme of Arrangement (the Scheme) • Th
Slide 31: Targeting completion in first half 2025
Targeting completion in first half 2025 The transaction is targeting receipt of regulatory approvals and Scheme implementation first half 2025 Indicative transaction timeline (all dates calendar year) Key event Indicative date Entry in Scheme Implementation Agreement 11 September 2024 NZ Commerce Co
Slide 32: Key messages
Key messages Contact has entered into a Scheme Implementation Agreement to acquire ✓ 100% of Manawa via a mixture of Contact shares and cash The combination of Contact and Manawa delivers portfolio resilience and cash ✓ flow stability while accelerating Contact’s decarbonisation strategy and future
Slide 33: Appendix A: Supplementary Contact information
Appendix A Supplementary Contact information 33
Slide 34: Contact value creation track record
Contact value creation track record Contact has delivered a total shareholder return of 15.9% for FY24 and an average annual return of 10.3% since 2000, along with a consistent dividend yield of 4 – 5% 10,000 4% 9,000 Accumulated total shareholder return as at 30 June2 4% 4% 8,000 5% 7,000 4% 6,000
Slide 35: Appendix B: Supplementary CombinedCo information
Appendix B Supplementary CombinedCo information 35
Slide 36: Adhering to Contact's capital allocation framework
Adhering to Contact’s capital allocation framework Value accretive transaction supported by market fundamentals Aligns with long-term market fundamentals… … and Contact’s decision-making framework to deliver value accretive growth Long-run wholesale electricity prices remain supportive Returns on Ta
Slide 37: Manawa has a long history providing renewable energy to New Zealand
Manawa has a long history providing renewable energy to New Zealand 1923 1994 - 2015 2022 The origins of Manawa go back to Trustpower grows hydro and wind Trustpower Limited changes its the early 20th century, when water generation capacity through name to Manawa Energy Limited from the Omanawa Rive
Slide 38: Combined business operational dashboard
Combined business operational dashboard Generation & trading Sales & customer solutions Renewable development Geothermal 7 stations1 | 4.6TWh Strategic 3.9TWh Geothermal 1.3TWh long term 2TWh MCY volume repricing FY25-31 Uplift on FY25 and future consented5 Hydro 27 schemes | 5.8TWh C&I 2.3TWh Wind
Slide 39: CombinedCo contribution snapshot
CombinedCo contribution snapshot Combined entity is expected to have a significant asset base of ~$8.3bn and combined EBITDAF of ~$893m based on FY24 Reported plus realisation of Manawa embedded value and synergy delivery FY24 revenue1 Combined EBITDAF2 ($m) Total assets3 900 10 - 20 893 23 - 28 850
Slide 40: Manawa's targeted hydro asset refurbishment programme is nearing completion
Manawa’s targeted hydro asset refurbishment programme is nearing completion Expected mean generation of 1,991GWh from FY29 includes ~50GWh remaining uplift from approved projects and ~40GWh mean reversion (relative to FY24 generation) Targeted asset refurbishment: Announced major projects Programme
Slide 41: Calculation of normalised EBITDAF contribution
Calculation of normalised EBITDAF contribution Includes embedded value, cost synergies and portfolio benefits Factor Units Low Mid High Commentary FY29 estimate of forecast generation in mean hydro conditions and Manawa future mean annual hydro generation GWh 1,991 1,991 1,991 following the completi
Slide 42: Appendix C: New Zealand electricity sector overview
Appendix C New Zealand electricity sector overview 42
Slide 43: New Zealand's reliable, competitive and environmentally sustainable electricity system
New Zealand’s reliable, competitive and environmentally sustainable electricity system Competitive Regulated monopolies Competitive Spot 5+ electricity pool 1 29 8 2.3 Generators National Distribution Retailers Million consumers1 transmission businesses over 50k connections grid operator NZAS 21% 13
Slide 44: NZ electricity supply is highly renewable
NZ electricity supply is highly renewable Contact has led the way in decarbonising the NZ electricity system through geothermal development Electricity generation carbon emissions (units of CO2e)1 New Zealand has limited hydro storage and high variability Calendar year Annual hydro generation volume
Slide 45: Hydrology
The market responds to changes in supply and demand by sending price signals And the fundamental requirement for thermal to support a hydro dominated system supports forward electricity prices Short-term external factors that Wholesale and futures electricity pricing ($/MWh) can influence the market
Slide 46: Appendix D: Glossary
Appendix D Glossary 46
Slide 47: Glossary
Glossary Term Description Term Description ASX Australian Stock Exchange market for electricity derivatives A non-GAAP measure used by S&P for their credit rating evaluations. Gross debt with S&P Net debt specific adjustments less cash C&I Commercial and Industrial Customers NZ$ New Zealand dollars
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