Contact Energy Limited · NZX:CEN
Contact Energy — FY2024 Earnings Presentation
55 slides from Contact Energy's earnings presentation, Aug 19, 2024
Slide 1: 2024 full year results presentation
2024 full year results presentation Twelve months ended 30 June 2024 19 August 2024 1
Slide 2: Disclaimer and important information
Disclaimer and important information This presentation contains summary information and statements about Contact and its EBITDAF, free cash flow, operating free cash flow and return on invested capital are businesses and activities as at the date of this presentation. The information is not held fin
Slide 3: Agenda
Agenda 1 FY24 highlights / Mike Fuge, CEO 4-8 2 Market update / Mike Fuge, CEO 9 - 14 3 Financial results and outlook / Dorian Devers, CFO 15 - 29 3 4 Progress on strategy / Mike Fuge, CEO 30 - 37 5 3 Supporting materials 39 - 55 3
Slide 4: Summary of key financial performance measures
Summary of key financial performance measures Performance supports renewable investment Focus on delivering geothermal developments and flexing to manage fuel constraints Market Twelve months ended Twelve months ended 30 30 June 2024 (FY24) June 2023 (FY23) • Initial high hydro storage was quickly d
Slide 5: Execution: What we delivered over the last 12 months
Execution: What we delivered over the last 12 months Comparison to our FY24 operational plan Strategic theme FY24 operational plan FY24 achieved ▪ Conclude NZAS extension negotiations Concluded new long-term NZAS deal with improved pricing and demand response. Grow with improved long-term pricing. S
Slide 6: Delivering 225MW new geothermal generation
Delivering 225MW new geothermal generation Supporting the decarbonisation of NZ by bringing two world class geothermal power stations online in 2024 Tauhara Te Huka 3 ▪ Tauhara came online in May 2024 providing ▪ Recent project milestones include: new renewable generation ahead of winter as ▪ Comple
Slide 7: Glenbrook battery investment to enhance Contact's renewable energy flexibility
Glenbrook battery investment to enhance Contact’s renewable energy flexibility Battery investment metrics are compelling, supported by a range of strategic benefits Battery investment key metrics Initial EBITDAF ~$15-20m p.a. (average)1 Battery capacity 100MW Storage duration / 2 hr / Operating cost
Slide 8: Investment in Kōwhai Park solar diversifies Contact's renewable generation base
Investment in Kōwhai Park solar diversifies Contact’s renewable generation base Speed to market expected to enhance returns available to Contact from this attractive investment Key investment metrics Key investment metrics (Contact) (Project) ~168MWp Capacity ~150MWac Generation under 80% PPA to Con
Slide 9: Market update
Market update 9
Slide 10: National electricity demand
Market demand National electricity demand New Zealand electricity demand was up ~2% on FY23 Total national electricity demand increased Regional National electricity demand (TWh) 0% by 0.95 TWh (2% from FY23). change (%) FY24 vs FY23 +2% • A 15% increase in demand year on 6% +2% year in Huntly was l
Slide 11: Low hydro inflows impacted generation mix
Fuel supply Low hydro inflows impacted generation mix Below mean hydro inflows and higher demand saw increased thermal generation Generation by type (TWh) National hydro storage Hydro generation was down ~11% 44.1 1H23 2H23 1H24 2H24 43.2 43.1 on FY23 (wet year), with materially 3.1 3.9 lower hydro
Slide 12: Forward wholesale pricing is reflecting low hydro storage and gas decline
Wholesale market Forward wholesale pricing is reflecting low hydro storage and gas decline (fuel availability risk) Short-term external factors that Demand was up ~2% Wholesale and futures electricity pricing ($/MWh) can influence the market year on year3 Changes as at 30 June 2024 Long-dated future
Slide 13: Differences in retail strategies apparent
Retail electricity market Differences in retail strategies apparent Reflects range of views on the value of retail as a channel; Pass-through costs increasing Change in retail customer electricity connections (000s) 30 June 2022 – 30 June 2024 2yr ICP delta (1000s) 2yr % change Tier 1: +55k connecti
Slide 14: Topical Regulatory matters: Net Zero 2050 imperative for NZ remains
Topical Regulatory matters: Net Zero 2050 imperative for NZ remains Contact’s focus on accelerating new renewable generation, flexible storage and customer-focused demand response solutions aligns with the political and societal imperative for the market to deliver a secure, low emissions, and renew
Slide 15: Financial results and outlook
Financial results and outlook 15
Slide 16: Key themes from the financial results
Key themes from the financial results Accelerated domestic gas decline Shift in national fuel mix leading Higher near-term pricing is a leading to more expensive risk to more pronounced feature of the energy transition, management products summer / winter pricing enabling investment in innovative te
Slide 17: Profit of $230m for FY24
FY24 results Profit of $230m for FY24 Excluding the onerous contract provision, EBITDAF up $90m (underlying) largely reflecting the better alignment of long-term channel prices to wholesale market prices Profit ($m) EBITDAF ($m) +90 19 --23 663 61 --24 573 63 --11 5 113 +19 460 675 -31 26 Onerous co
Slide 18: EBITDAF (underlying) up by $90m
FY24 results: Segmental performance EBITDAF (underlying) up by $90m Business performance by segment Wholesale EBITDAF1 (underlying, $m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) +114 -18 746 66 632 Price recovery 62 235 186 1 -14 10 5 -32 Electricity and network 87 cost inflation -44 2
Slide 19: Generation costs
FY24 results: Wholesale business Generation costs Costs up on increased thermal and acquired generation volumes Generation volumes Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) • Hydro generation of 3,628GWh was down 291GWh (7.4%) on FY23 9,220 and below mean (
Slide 20: Wholesale contracted revenue
FY24 results: Wholesale business Wholesale contracted revenue Diversified mix of long-term and ASX linked sales channels Contracted +235 revenue ($m) 1,171 • The closure of Te Rapa in June 2023 saw a significant decline in steam sales in FY24. the 1,219GWh 11 3 -196GWh remaining steam sales ($3.4m)
Slide 21: Wholesale trading and merchant revenue
FY24 results: Wholesale business Wholesale trading and merchant revenue Trading EBITDAF ($m) Long / short position (GWh) • FY23 was characterised with abundant 513 hydrology, with low wholesale prices. Merchant generation Contact reduced generation from more $178.4/MWh expensive fuel sources leading
Slide 22: Retail business performance
FY24 results: Retail business Retail business performance Managing through rising wholesale input costs while growing market share through a multi-product strategy FY23 FY24 Variance EBITDAF ($m) Other Retail margins have contracted, driven by sustained high wholesale Revenue & Tariff1 ($m) prices a
Slide 23: Operating costs rise due to inflationary adjustments and non-recurring expenses
FY24 results: Operating costs Operating costs rise due to inflationary adjustments and non-recurring expenses Non-recurring Other operating Base Invest in • FY23 one-off impacts represent strategic execution set up costs, Contact’s cost movement Non-recurring ($m) movement growth and share of BCG in
Slide 24: Cash flow and capital expenditure
FY24 results: Cash flow Cash flow and capital expenditure Cash conversion for FY24 up following strong EBITDAF, positive working capital changes and lower tax paid Return on invested capital (ROIC) ROIC (average)2 ROIC (FY) 3 Net operating profit after taxes (NOPAT) / Invested capital (IC)1 12 month
Slide 25: Growth capital expenditure
FY24 results: Growth capital expenditure Growth capital expenditure Step-up in growth capital expenditure in FY24 reflects the advancing nature of Contact’s renewable development projects • The Tauhara geothermal station has been generating since May 2024. Final Growth capital expenditure – cash bas
Slide 26: Strong balance sheet
FY24 results: Key balance sheet metrics Strong balance sheet Contact’s sustainable finance principles are built on diversified sources of funding Borrowing maturities ($m) • A Green Australian Medium Term Note (AMTN) was Closing net debt ($m) Face value of borrowings less cash Average tenor of 5.9 y
Slide 27: Dividend per share for FY24 is up 6%
Dividend per share for FY24 is up 6% Reflects 92% of the average operating free cash flow for the preceding four years Ordinary dividends ($m) Declared Dividend for FY24 of 37 cents per share • Final dividend of 23 cents per share is imputed up to 91% or 21 cents per share for qualifying shareholder
Slide 28: Uplift in Contact's expected FY25 EBITDAF to be driven by the realisation of growth investment
Uplift in Contact’s expected FY25 EBITDAF to be driven by the realisation of growth investment FY25 normalised and expected EBITDAF includes generation from Tauhara and Te Huka 3 which together represent $1.2bn of investment in renewable generation Guidance vs Actual Normalised and expected EBITDAF
Slide 29: Recap: Capital allocation framework
Recap: Capital allocation framework Guiding principles Our commitments What this means Continue to attract capital Higher SIB capex over next three years reflects Efficient deployment of stay- higher risk associated with the wholesale • Deliver competitive shareholder returns including dividend comm
Slide 30: Progress on Strategy
Progress on Strategy 30
Slide 31: Our strategy to lead NZ's decarbonisation
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ's leading energy and ser
Slide 32: Contact is preparing for further investment in renewable generation and storage
Contact is preparing for further investment in renewable generation and storage Geothermal generation potential (TWh p.a.) Wind and solar options under development (TWh p.a.)3 +1.8 Key updates (including grid-scale batteries) 6.3 • Kōwhai Park solar (0.3TWh) and Glenbrook battery 0.7 (100MW) now und
Slide 33: Phased development plans for Wairakei geothermal
Phased development plans for Wairakei geothermal Contact remains committed to the long-term development of the Wairakei geothermal field From To Wairakei Ohaaki A/B/binary Development Development approach Single build approach Phased build Te Mihi Tauhara Project GeoFuture Project Te Mihi Stage 2 Te
Slide 34: Contact plans to deliver 0.4TWh p.a. total uplift in Wairakei field output
Contact plans to deliver 0.4TWh p.a. total uplift in Wairakei field output Total field uplift of 0.4TWh p.a. is expected to be achieved in FY32 with Te Mihi Stage 3 online (compared to historic average). Contact has already delivered ~50GWh of this benefit from its revised resource consent. Indicati
Slide 35: Impacts of the energy transition in New Zealand are starting to become clearer
Impacts of the energy transition in New Zealand are starting to become clearer Domestic natural gas Thermal power stations High level of activity to Theme production in decline closing as more intermittent advance renewable renewables come online electricity builds • Ageing natural gas fields with l
Slide 36: Market changes indicate a value shift to flexibility
Market changes indicate a value shift to flexibility, impacting future investment prioritisation Long-run wholesale Winter Summer Price Value shift to electricity prices Separation Widening flexibility above historic While average prices reflect long-run Contact’s view of expected long-run wholesale
Slide 37: Our operational plan
Our operational plan What you can expect in the next 12 months Strategic theme FY25 New demand facilitated since FY21 to reach >120MW.1 Achieve FID for CO2 commercialisation. Grow Add 15MW of contracted flexible demand.2 Demand Te Huka 3 online Q4 CY2024. Achieve FID for Te Mihi Stage 2. Glenbrook B
Slide 38: Questions
Questions 38
Slide 39: Supporting materials
Supporting materials 39
Slide 40: Normalised and expected FY25 EBITDAF
ASSUMPTIONS FOR NORMALISED EARNINGS Normalised and expected FY25 EBITDAF Assumes mean hydrology conditions CFDs C&I FY assumptions that deliver expected & normalised EBITDAF for FY25 770 310 230 1 Channel choices maximise long term value¹ x 2 Net price² driven by best commercial practices = Total $1
Slide 41: Guidance below EBITDAF
Guidance below EBITDAF FY24 guidance FY24 result FY25 guidance Commentary Stay in Business Capex $120-130m1 $110m $115m - $125m Stay in business accelerated programme As at the end of FY24 we had spent $104m out of the $150m accelerated stay in $55m - $60m $39m ~$40m (cash) business capex programme.
Slide 42: Normalised and expected EBITDAF assumptions
FY24 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance FY24 assumptions that deliver expected & normalised EBITDAF of $600m over a financial year EBITDAF guidance reconciliation to actual FY24 1 Channel choices maximise long term value¹ x 2 Net price² driv
Slide 43: Integrated portfolio performance
Integrated portfolio performance Operating earnings (EBITDAF) 1 Electricity sales Continuing operations ($m) (i) Long-term channels (ii) Market channels 150 663 Price 131 133 133 ($/MWh) 127 108 106 115 105 EBITDAF1 553 Price 546 4.94 5.08 5.14 5.02 ($/MWh) 573 4.57 87 446 3.61 3.69 3.73 3.80 4.29 4
Slide 44: Greenhouse gas emissions
Carbon reporting Greenhouse gas emissions Indicator Unit Target FY20 FY21 FY22 FY23 FY24 Direct GHG emissions (Scope 1) tC02e 920,403 1,044,744 786,842 526,621 947,491 45% reduction of 2018 - Stationary combustion tC02e Scope 1 and 2 920,403 1,044,537 786,544 526,282 947,131 emissions by 2026 - Mobi
Slide 45: Generation and sales position
Operational data Generation and sales position Contact generation output sold to the national grid (GWh) Hydro generation (GWh) 8,614 8,908 8,636 8,445 8,404 8,269 Inflows stored include uncontrolled storage lakes Thermal 1,421 7,543 1,812 1,360 1,592 1,046 1,620 3,919 generation 439 3,752 4,231 3,6
Slide 46: Plant and fuel performance
Plant and fuel performance Geothermal fuel performance Plant availability3 Geothermal fuel extracted at Wairakei vs consented (mT) Hydro Geothermal +3%1 Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue output capacity (%) factor output capacity (%
Slide 47: Fuel storage movements
Operational data Fuel storage movements Hawea storage (GWh) Gas storage (PJ) Closing storage Closing storage (current) 7.8 4.7 0.5 2.4 98 192 6.1 260 5.0 5.8 2.4 116 252 139 0.8 175 165 2.2 1.7 2.7 265 86 Inflows 248 189 324 242 3.4 2.8 1.6 230 324 236 7.8 0.9 300 1.3 Gas Injected 6.1 1.7 5.8 5.0 5.
Slide 48: Contracted and stored gas
Operational data Contracted and stored gas Contracted gas volumes (PJ) Gas storage monthly injections and extractions (PJ) Uses of gas (PJ) 16.9 2.3 15.5 15.2 14.6 Net extraction 1.1 14.5 (injection) 0.6 2.0 3.1 5.5 5.2 3.6 5.3 1.3 0.35 0.34 0.37 4.5 0.25 0.28 0.12 0.03 0.14 0.11 Purchases 9.4 9.3 9
Slide 49: Contractual fuel position sufficient to support expected FY25 sales position
Fuel position Contractual fuel position sufficient to support expected FY25 sales position Portfolio requirements for thermal generation (TWh) Gas supply and demand FY25 (PJ) Hydro variation >> 10.9 Options in a dry year: • Access to stored water -4.6 in Hawea. 3.8 Short term gas purchases • Access
Slide 50: Reconciliation between Profit and EBITDAF
Non-GAAP profit measure Reconciliation between Profit and EBITDAF EBITDAF is Contact’s earnings before interest, tax, depreciation and amortisation, asset The adjustments from EBITDAF to reported profit and movements on FY23 are as impairment and write-offs, and changes in fair value of financial in
Slide 51: Historical financial information
Historic performance Historical financial information FY23 FY24 Unit FY20 FY21 FY22 Underlying1 Reported Underlying1 Reported Revenue $m 2,073 2,573 2,387 2,118 2,863 Expenses $m 1,627 2,020 1,820 1,500 1,613 2,200 2,188 EBITDAF $m 446 553 546 573 460 663 675 Profit $m 125 187 182 211 127 230 235 Op
Slide 52: Wholesale segment
Segmental performance Wholesale segment FY24 FY23 Year ended 30 June 2024 Year ended 30 June 2023 Volume GWAP Volume GWAP Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m Electricity sales to Retail segment 3,787 148 562 3,727 129 482 Electricity sales to C&I (netbac
Slide 53: Retail segment
Historic performance Retail segment Residential electricity unit FY21 FY22 FY23 FY24 Residential gas unit FY21 FY22 FY23 FY24 Average connections # 357,117 373,347 380,482 388,459 Average connections # 60,701 64,649 66,605 68,092 Sales volumes GWh 2,520 2,644 2,688 2,798 Sales volumes TJ 1,495 1,583
Slide 54: Insight to Net Debt / EBITDAF ratio (S&P approach)
Insight to Net Debt / EBITDAF ratio (S&P approach) FY21 FY22 FY23 FY24 Actuals from S&P ratings report Estimated • These calculations have been provided as an illustration of the adjustments Net Debt made by Contact’s ratings agency, S&P Carrying value of borrowings 856 1,099 1,556 1,913 Global, whe
Slide 55: Te Huka 3 Commissioning stages and sequencing
Te Huka 3 Commissioning stages and sequencing The commissioning process is designed to test all functions of the geothermal well operations, steam field and power station under a range of conditions, including extreme emergency simulations Steam-field Power Station Steam-field High Voltage Power Sta