Contact Energy Limited · NZX:CEN
Contact Energy — FY2014 Earnings Presentation
36 slides from Contact Energy's earnings presentation, Aug 18, 2014
Slide 1: 2014 Full Year Results Presentation
2014 Full Year Results Presentation 18 August 2014 Year ended 30 June 2014 Dennis Barnes, Chief Executive Officer Graham Cockroft, Chief Financial Officer
Slide 2: Disclaimer
Disclaimer 2 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-looking st
Slide 3: Performance highlights
Performance highlights
Slide 4: Safety through visible and active leadership and supporting a learn and improve culture
Safety through visible and active leadership and 4 supporting a learn and improve culture • The health, safety and well-being of our people remains our number one priority • In FY14 we have worked over four million hours on Contact sites with 17 injuries – two fractures were our most severe injuries
Slide 5: Profit for the period up 18% to $234m
Profit for the period up 18% to $234m 5 Underlying earnings per share up 12% Year ended 30 June 2014 EBITDAF1 $587m up 9% from $541m Profit for the period $234m up 18% from $199m Earnings per share (cents) 32.0 cps up 18% from 27.2cps Net items excluded from underlying earnings after tax $7m up from
Slide 6: Key milestones completed in FY14
Key milestones completed in FY14 6 • Te Mihi geothermal power station commissioned May 2014 • Resumption of bi-pole operation of the HVDC supporting increased hydro generation and its flow north • Final stages of Enterprise Transformation completed with the implementation of SAP customer billing and
Slide 7: Reduced fuel costs supported by increased electricity sales
Reduced fuel costs supported by increased electricity sales 7 Integrated Energy segment EBITDAF: up EBITDAF Movement $49m (11%) to $551m • Netback: unfavourable $22m (2%) FY13 541 Intergrated Energy unfavourable $49m favourable » Retail competition remains intense; volumes up 1%; netback per MWh Net
Slide 8: Operational Review - Dennis Barnes
Operational Review - Dennis Barnes Results for the year ended 30 June 2014
Slide 9: National electricity demand down 1% reflecting lower mass market demand
National electricity demand down 1 % reflecting lower mass 9 market demand Year ended Year ended Variance 30 June 2014 30 June 2013 GWh GWh GWh % North Island 23,214 23,501 (287) (1%) South Island ex Tiwai 8,909 9,015 (106) (1%) Tiwai 4,989 4,814 175 4% Total national demand 37,112 37,330 (218) (1%)
Slide 10: Above mean national storage levels kept wholesale prices suppressed
Above mean national storage levels kept wholesale prices 10 suppressed Price and National Storage Levels 250 4500 4000 200 3500 7 Day Average Price ($/MWh) 3000 National Storage (GWh) 150 2500 2000 100 1500 1000 50 500 0 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Hayward Price Hayward Price L
Slide 11: Netback – $22m lower (2%) to $887m
Netback – $22m lower (2%) to $887m 11 Netback movement • Change in electricity sales mix; volume increased 101 GWh to 8,378 FY13 909 GWh C&I electricity » Mass market consumption down revenue 17 215 GWh (5%) driven by warmer weather, home energy efficiency MM electricity (14) revenue measures and mi
Slide 12: Retail market remains highly competitive
Retail market remains highly competitive 12 Electricity Market Churn 30% Contact Energy Industry Average 25% 20% 15% 10% 5% 0% Jul 12 Jul 13 Sep 13 Sep 12 May 13 May 14 Jan 13 Jan 14 Nov 12 Nov 13 Mar 13 Mar 14 Source: Electricity Authority • Contact’s competitive pricing strategy has seen loss rate
Slide 13: Cost of energy – favourable $71m (17%) to –$336m
Cost of energy – favourable $71m (17%) to –$336m 13 Increased hydro generation and Te Mihi delay compensation • Wholesale spot market down $21m; Cost of Energy Movement generation volumes down 623 GWh • Wholesale financial market stable (407) FY13 » Net purchaser of CfDs reflecting (21) Wholesale sp
Slide 14: Flexibility of portfolio allows management of variable operating conditions
Flexibility of portfolio allows management of variable 14 operating conditions Generation by source • More flexible fuel allows reduced thermal 10,000 9,879 generation while hydro volumes increase 9,255 » Hydro generation was up 497GWh (14%) 8,000 2,591 3,618 » HVDC completion gives more south to no
Slide 15: Incremental efficiency gains help absorb cost pressures
Incremental efficiency gains help absorb cost pressures 15 • Continuing focus on cost Other Operating Expenses 300 » FY13 organisation structure redesign » Procurement and ICT rationalisation 250 programmes continue to deliver benefits 104 200 98 105 100 » Increase in non-labour costs primarily 83 $
Slide 16: Financial Review – Graham Cockroft
16 Financial Review – Graham Cockroft Results for the year ended 30 June 2014
Slide 17: Profit for the period up 18% to $234m
Profit for the period up 18% to $234m 17 Underlying earnings per share up 12% Year ended Year ended Variance 30 June 2014 30 June 2013 $m $m $m % Profit for the period 234 199 35 18% Earnings per share (cents) 32.0 27.2 4.8 18% Revenue and other income 2,446 2,526 (80) (3%) EBITDAF1 587 541 46 9% Un
Slide 18: Profit for the period up 18% from $199m to $234m
Profit for the period up 18% from $199m to $234m 18 Underlying earnings after tax up 12% from $202m to $227m Contact's statutory profit movement 280 260 5 11 240 15 7 46 220 200 3 $m 180 234 227 160 199 202 140 120 100 FY13 Net items FY13 EBITDAF Depreciation Net financing Tax FY14 UEAT Net items FY
Slide 19: Improved EBITDAF and lower stay in business capex offset by unfavourable working capital movement
Improved EBITDAF and lower stay in business capex 19 offset by unfavourable working capital movement Free Cash Flow Deferred Year ended Year ended Variance 400 billings 30 June 2014 30 June 2013 due to RT $m $m $m % 350 EBITDAF 587 541 46 9% 50 Change in working capital (103) (32) (71) (222%) 300 Ta
Slide 20: Financing costs increased by $11m due to reduction in capitalised interest
Financing costs increased by $11m due to reduction in 20 capitalised interest from the completion of Te Mihi and Retail Transformation projects Year ended Year ended Variance 30 June 2014 30 June 2013 $m $m $m % Interest income 6 2 4 200% Interest expense (120) (112) (8) (7%) Financing costs (114) (
Slide 21: 2014 refinancing programme completed, achieving objectives to improve tenor and diversity
2014 refinancing programme completed, achieving 21 objectives to improve tenor and diversity Debt Facilities • Balance sheet gearing level remains strong at 30 June 2014: 6% Bank debt $600m 12% » Net debt $1.4bn, in line with June USPP $599m 2013. Gearing ratio 28% 35% » $600m total committed facili
Slide 22: Distributions increased 1 cps to 26 cps
Fully imputed final distribution 22 Distributions increased 1 cps to 26 cps • Free cash flow including the purchase or sale of fixed assets in FY14 was $201m compared with $92m in FY13 due to the sale of gas meters and reduced growth capital expenditure • Reduction in growth capital expenditure has
Slide 23: Prospects
Prospects
Slide 24: In an environment of low growth and margin pressures Contact will target greater efficiencies
In an environment of low growth and margin pressures 24 Contact will target greater efficiencies • Leverage existing asset base » Integrate Te Mihi into Wairākei operations » Increase production from existing renewable assets • Improve efficiency » Reduce cost to serve with the benefits of SAP imple
Slide 25: Focused on managing for cash flow after completing the capital programme
With the completion of the current capital programme the 25 business is focused on managing for cash flow • Capital investment has positioned Capital expenditure - projected the business well for the current 600 No material change to 31 market conditions December 2013 disclosure Whirinaki 500 » No s
Slide 26: Retail Transformation
Retail Transformation 26 Operational change will support customer strategy and efficiency • New customer billing and service system live in late April » Progress since ‘go-live’ remains positive » The transition out of stabilisation and into the future mode of operation has commenced • Future mode o
Slide 27: Geothermal update
Geothermal update 27 • Te Mihi commissioned 1 May » Final megawatts subject to an outage planned for later in the year » Plant, including hot well pumps, running well • Wairākei resource optimisation will deliver efficiency improvements • Ohaaki reconsented and capital investment to improve and sust
Slide 28: Patient approach to gas contracting continues
Patient approach to gas contracting continues 28 • Gas supply agreement signed for 27 PJ over 6 years – significant step in contracting with a secondary supplier • A number of options exist to manage our Contact's contracted gas volumes gas position beyond the end of 2014 50 » Gas storage allows pat
Slide 29: Stable regulatory environment is important given the long-term nature of our business
Stable regulatory environment is important given the 29 long-term nature of our business • Labour-Green proposed reforms » Current market structure is delivering competition and security of supply » Charging for water is an issue with broader implications than the electricity generation sector alone
Slide 30: Summary
Summary 30 • Benefits of portfolio flexibility reflected in a solid full year result » Diverse and flexible generation portfolio took advantage of increased hydro generation » Te Mihi reduced cost of energy » Focus on being a competitive retailer increased sales volume » New retail systems implement
Slide 31: Supporting material
31 Supporting material Results for the year ended 30 June 2014
Slide 32: Non-GAAP profit measure - EBITDAF
Non-GAAP profit measure - EBITDAF 32 • EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items • The CEO monitors EBITDAF as a key indicator of Contact’s performance at segment and group lev
Slide 33: Explanation of reconciliation between EBITDAF and profit for the period
Explanation of reconciliation between EBITDAF and 33 profit for the period • The adjustments from EBITDAF to reported profit are as follows: » Depreciation and amortisation: Costs decreased by $5m (3%) due to lower operating hours of the thermal stations due to higher renewable generation partially
Slide 34: Non-GAAP profit measure – underlying earnings
Non-GAAP profit measure – underlying earnings 34 • The CEO monitors underlying earnings and believes it assists investors to understand the ongoing performance of the business • Underlying earnings after tax is calculated by adjusting reported profit for the year for significant items that do not re
Slide 35: Explanation of reconciliation from reported profit to underlying earnings
Explanation of reconciliation from reported profit to 35 underlying earnings • The adjustments from reported profit to underlying earnings are as follows: » The change in fair value of financial instruments that do not qualify for hedge accounting » Transition costs are those costs incurred on the R
Slide 36: Operating cashflow after tax (OCAT) and OCAT ratio
Operating cashflow after tax (OCAT) and OCAT ratio 36 • Contact uses OCAT and OCAT ratio as internal measures of the cash-generating performance of the business • Key difference between OCAT and statutory cash flows from operating activities is OCAT includes stay-in-business capex OCAT ratio • Measu