Contact Energy Limited · NZX:CEN
Contact Energy — H1 2022 Earnings Presentation
43 slides from Contact Energy's earnings presentation, February 2022
Slide 1: 2022 interim results presentation
2022 interim results presentation Six months ended 31 December 2021
Slide 2: Disclaimer and important information
Disclaimer and important information While all reasonable care has been taken in compiling this presentation, neither Contact EBITDAF, free cash flow and operating free cash flow are financial measures that are nor any of its directors, employees, shareholders nor any other person gives any “non-GAA
Slide 3: Agenda
Agenda 1 1H22 highlights and market update / Mike Fuge, CEO 4 - 13 2 Financial results and outlook / Dorian Devers, CFO 14 - 30 3 Supporting materials 31 - 43 3
Slide 4: 1H22 performance highlights
1H22 performance highlights Mike Fuge, CEO 4
Slide 5: Strong performance despite volatile market conditions, investment ramps up
Summary of key financial performance measures Strong performance despite volatile market conditions, investment ramps up Six months ended Six months ended 31 December 2021 31 December 2020 (1H21) 1H22 market (1H22) EBITDAF1 $322m ↑ 31% from $246m Contact responded to the conditions by: The operating
Slide 6: Key strategic highlights from 1H22
Key strategic highlights from 1H22 Grow Grow renewable Decarbonise Create outstanding demand development our portfolio customer experiences Attract new industrial Build renewable generation Lead an orderly Create NZ's leading energy Objective demand with globally and flexibility on the back transiti
Slide 7: Key strategic highlights from 1H22
Key strategic highlights from 1H22 Our ESG Operational Transformative commitment excellence ways of working Create long-term value through our strong Continuously improving our operations Create a flexible and high-performing Objective performance across a broad set of environmental, through innovat
Slide 8: National electricity demand
Market demand National electricity demand Electricity demand lower than 1H21 Regional 4% National electricity demand (TWh) Total national electricity demand change (%) decreased by 0.2TWh (-1% from 1H21): 1H22 vs 1H21 1% 1% -1% • Demand from large industrial users was down by 0.2TWh, largely as a (1
Slide 9: Hydrology and impact on generation mix
Fuel supply Hydrology and impact on generation mix Improved hydro inflows and generation in 1H22 saw a reduced reliance on gas and coal Generation by type (TWh) National hydro storage Generation from generator retailers 4.0 1H21 1H22 22.4 22.3 22.1 Hydro generation was up 3.5 2.7 2.9 2.1 Gas 6% when
Slide 10: Fuel supply and near-term price impact
Fuel supply and near-term price impact Factors that influence short-term prices, beyond hydrology, sharply higher over last 12 months Longer-term the market is reacting to these price signals and adding new capacity Short-term external factors that Wholesale and futures electricity pricing ($/MWh) c
Slide 11: Retail competition remains intense
Retail electricity market Retail competition remains intense Retailer’s long-term view of pricing rides through short-term wholesale input cost volatility Change in customer connections (000s) • Competition remains intense, not only from new and disruptive 50 competitors, but reinvigorated incumbent
Slide 12: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing Gas availability and lower mean water levels through 2021 have resulted in higher spot and hedge market Contact is exploring further renewable generation opportunities across wind, solar prices, increasing pressure on unhedged energy and gr
Slide 13: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing The government is assessing options to address Contact supports further analysis to address dry year risk. Multiple options exist that will require New Zealand’s dry year risk with 100% renewable careful evaluation, including interruptible
Slide 14: Operational performance and financial results
Operational performance and financial results Dorian Devers, CFO 14
Slide 15: Key themes from the financial results
Key themes from the financial results Financial performance Positive view on decarbonisation Sales channel choices largely as guided when demand, including the ability to delivering value higher renewable generation retain major electricity users volumes are considered Innovative retail products Sig
Slide 16: Profit of $134m, up $56m
1H22 results Profit of $134m, up $56m EBITDAF up $76m, as Contact supported the wholesale market as competitors faced fuel uncertainty Profit ($m) EBITDAF ($m) +76 322 34 11 246 43 18 6 +56 15 7 134 21 1H21 Renewables Gas Contracted Wholesale Other 1H22 9 EBITDAF and sales channel income, EBITDAF 76
Slide 17: EBITDAF up by $76m
1H22 results EBITDAF up by $76m Business performance by segment Wholesale EBITDAF ($m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) +3 -14 +86 5 Price recovery 28 316 30 0 89 229 25 Electricity, 21 network 16 0 cost inflation 2 2 -10 6 Electricity gross margin (-$16m) -13 1 1H21 Generation
Slide 18: Generation costs
1H22 results: Wholesale business Generation costs Costs down $25m ($5.4/MWh) on higher renewable generation, which reduced thermal volumes Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) Hydro generation up 407GWh on 1H21 (+20%), 4,615 4,620 401GWh (+20%) above m
Slide 19: Wholesale contracted revenue
1H22 results: Wholesale business Wholesale contracted revenue Sales mix adjusted to reflect the uncertainty of fuel availability Contracted +89 revenue ($m) 469 • Fixed price variable volume electricity sales to the Retail segment and C&I 2 19 customers ended 368GWh lower than 1H21 (-$33m), this was
Slide 20: Wholesale trading and merchant revenue
1H22 results: Wholesale business Wholesale trading and merchant revenue Trading EBITDAF ($m) Long / short position (GWh) • 157GWh decrease in merchant sales volumes. 476 320 The price received for this “long” generation was down by $13.5/MWh 23 on 1H21. 320 • Inter-island separation 56 $117.1/MWh in
Slide 21: Greenhouse gas reporting
1H22 results: Carbon performance Greenhouse gas reporting Lower carbon emissions reflects higher renewable generation and lower thermal generation kT of C02e emitted Performance 706 • Total emissions are 161 kT lower in 1H22. 664 • Emissions from generation was lower in 1H22 as a result of higher hy
Slide 22: Retail business performance
1H22 results: Retail business Retail business performance Managing through elevated wholesale input costs 1H21 1H22 Variance Revenue & Tariff1 EBITDAF ($m) The electricity tariff changes balance the ($m) $m $m Tariff $m Tariff % recovery of rising input costs, the Electricity gross 30 competitive en
Slide 23: Operating costs flat despite acquisitions, strong performance and cost pressures
1H22 results Operating costs flat despite acquisitions, strong performance and cost pressures Other operating costs Other operating • All costs associated with meters are now reflected in cost movement Portfolio, performance and non-recurring Underlying Invest in Cost of Goods (Network, Meters and L
Slide 24: Normalised and expected EBITDAF assumptions
1H22 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance 1H22 assumptions that deliver expected & normalised EBITDAF of $520m over a financial year EBITDAF reconciliation to 1H22 1 Channel choices maximise long term value¹ x 2 Net price² driven by best comme
Slide 25: Cash flow and capital expenditure
1H22 results Cash flow and capital expenditure Underlying cash conversion for 1H22 impacted by investments in gas and carbon to manage risk 6 months 6 months SIB capital expenditure – accounting ($m) ended 31 ended 31 Comparison 80 December December against 1H21 64 2021 2020 60 EBITDAF $322m $246m ↑
Slide 26: Strong balance sheet
1H22 results: Key balance sheet metrics Strong balance sheet Diverse sources of funding provide capacity to support Contact’s growth strategy Closing net debt ($m) Borrowing maturities ($m) Face value of borrowings less cash Average tenor of 7.9 years as at 31 December 2021 372 • Face value of borro
Slide 27: Dividend for 1H22
Dividend for 1H22 Ordinary dividends ($m) Declared Interim dividend for 1H22 of 14 cents per share 280 280 272 • Interim dividend of 14 cents per share (1H21 14 cents per share) is imputed to 71% or 10 cents per share for qualifying shareholders. This represents a pay-out of 83% of 1H22 operating fr
Slide 28: Guidance confirmation
Guidance confirmation Updated FY22 1H22 result Change to prior guidance guidance All meter costs now included in cost of goods Other operating costs $202-212m $98m ↓ $13m ($13m annual), favourable actual one-off’s offset by higher brand investment. Stay in business capital expenditure Covid impacts
Slide 29: Our strategy to lead NZ's decarbonisation
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ's leading energy and ser
Slide 30: Questions
Questions 30
Slide 31: Supporting materials
Supporting materials 31
Slide 32: ASX futures pricing in fuel risk over next months
ASX futures ASX futures pricing in fuel risk over next 12 months ASX electricity forward pricing ($/MWh) 200 199 192 BEN OTA 171 175 164 159 159 149 140 142 137 130 130 126 123 114 116 112 112 115 109 108 110 101 90 94 85 83 80 78 70 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1
Slide 33: Generation and sales position
Operational data Generation and sales position Contact generation output sold to the national grid (GWh) Electricity and generation sales position (GWh) 4,533 +5 4,359 4,378 4,411 4,310 4,327 360 4,615 4,615 4,620 4,620 Thermal 836 685 Direct generation 189 48 162 47 320 generation 825 870 476 Merch
Slide 34: Wairākei geothermal field mass take and efficiency
Geothermal performance Wairākei geothermal field mass take and efficiency Geothermal fuel extracted at Wairākei vs consented (GWh) Wairākei, Poihipi and Te Mihi conversion effectiveness (MWh per kT extracted) +1% +5% 50 +4% 101% 100% 100% 32.3 45 97% 95% 31.0 30.7 31.4 30.6 30.3 94% 40 35 30 25 20 1
Slide 35: Generation volumes: renewable generation up by 15% on 1H21
Operational data Generation volumes: renewable generation up by 15% on 1H21 Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh) 1,726 1,886 1,016 2,391 2 1,652 1,649 1,659 99 50 1,552 92 95 99 1,984 918 161 1,524 887 875 3 94 2,073 133 4 48 155 171 104 170 2,045 51 1 50 159 2
Slide 36: Plant availability
Operational data Plant availability Hydro Geothermal Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue (%) capacity (%) factor output capacity factor output (MW) (%) (GWh) ($/MWh) ($m) (MW) (%) (GWh) ($/MWh) ($m) 1H18 784 95% 47% 1,635 88 144 1H18
Slide 37: Fuel storage movements
Operational data Fuel storage movements Hawea storage (GWh) Gas storage (PJ) Closing storage Closing storage 5.6 7.7 Gas Injected 0.8 257 90 260 6.1 152 5.0 5.8 2.4 175 166 4.4 0.8 5.0 244 2.2 0.6 1.7 159 351 324 294 229 1.5 299 Inflows 252 Opening Storage 7.5 257 159 152 175 166 6.1 5.6 5.7 90 5.0
Slide 38: 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) 18.6 18.4 16.9 1.1 16.6 16.6 Net extraction 4.1 1.9 15.2 (injection) 2.3 14.6 6.5 4.5 1.1 2.0 6.9 3.1 5.6 5.3 0.55 10.3 0.50 0.50 9.4 9.3 9.8 3.4 4.5 0.42 0.45
Slide 39: 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, and The adjustments from EBITDAF to reported profit and changes in fair value of financial instruments. movements on 1H21 are as follows: • Depreciatio
Slide 40: Historical financial information
Historic performance Historical financial information Unit 1H18 1H19 1H20 1H21 1H22 Revenue $m 1,190 1,363 1,110 1,141 1,139 Expenses $m 954 1,072 889 895 817 EBITDAF $m 236 291 221 246 322 Profit $m 58 276 59 78 134 Operating free cash flow $m 141 203 120 157 131 Operating free cash flow per share
Slide 41: Wholesale segment
Segmental performance Wholesale segment 1H22 1H21 Reference number for Six months ended 31 December 2021 Six months ended 31 December 2020 Wholesale segment Volume GWAP Volume GWAP note (see following Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m page) Electricity
Slide 42: Wholesale segment key
Segment note to operational performance Wholesale segment key Reference to detailed operating segment Wholesale segment Comment performance C&I electricity – Fixed Price 2 Spot sales are regarded as a pass-through and not reflected in performance C&I electricity – Spot 2-spot reporting, any margin i
Slide 43: Retail segment
Historic performance Retail segment Residential electricity unit 1H19 1H20 1H21 1H22 Residential gas unit 1H19 1H20 1H21 1H22 Average connections # 352,159 355,216 357,756 367,199 Average connections # 61,332 61,959 60,563 63,182 Sales volumes GWh 1,335 1,328 1,349 1,408 Sales volumes TJ 936 911 954