Contact Energy Limited · NZX:CEN
Contact Energy — 1H19 Earnings Presentation
43 slides from Contact Energy's earnings presentation, Feb 11, 2019
Slide 1: 2019 Interim Results Presentation
For personal use only 2019 Interim Results Presentation Six months ended 31 December 2018 1
Slide 2: Disclaimer and important information
Disclaimer and important information 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 material
Slide 3: Agenda
Agenda For personal use only 1 1H19 Highlights and Progress on Strategy Dennis Barnes, CEO 4 - 14 2 Operational Performance and Financial Results Dorian Devers, CFO 15 - 25 3 Market Update and Outlook Dennis Barnes, CEO 26 - 30 3
Slide 4: 1H19 Highlights and Progress on Strategy
For personal use only 1H19 Highlights and Progress on Strategy Dennis Barnes CEO 4 4
Slide 5: Strong financial performance and optimisation of the portfolio results in higher dividends
Strong financial performance and optimisation of the portfolio results in higher dividends For personal use only Summary of key financial performance measures » Completed the sale of Ahuroa gas storage Six months ended 31 December 2018 Continuing operations (AGS) and the sale of the Rockgas LPG Cont
Slide 6: New distribution policy provides clarity to investors and will drive strong capital discipline
New distribution policy provides clarity to investors and will drive a strong capital discipline For personal use only Previous New distribution policy Ordinary dividend distribution policy Ordinary dividend of FY19 dividend of 80- 90% 100% 39 cps of expected Operating Free of Operating Free Cash Fl
Slide 7: Highlights
Highlights For personal use only CONTINUED PROGRESS IN DELIVERING VALUE FOR KEY STAKEHOLDERS Comparison against 1H18 MAINTAINING FINANCIAL DISCIPLINE Reduction in total Strong cost control, with continuing other operating costs down by $3m (3%). Cash spent on continuing SIB capital expenditure down
Slide 8: Further operational improvement expected
Further operational improvement expected For personal use only MAINTAINING FINANCIAL SAFE AND ENGAGED REWARDING DISCIPLINE EMPLOYEES SHAREHOLDERS CONTROLLABLE OPEX AND CAPEX COSTS ($m) TOTAL RECORDABLE INJURY FREQUENCY RATE DISTRIBUTIONS ($m) Recordable injuries per million hours worked Declared or
Slide 9: National electricity demand flat
National electricity demand flat For personal use only REGIONAL CHANGE (%) 1H19 vs 1H18 NATIONAL ELECTRICITY DEMAND (TWh) Source: EMI, Contact Source: EMI, Contact 0% 21.0 21.3 20.8 21.2 21.0 0% 1% 13.3 13.4 13.3 13.4 13.4 1% (1%) (1%) 5.2 5.4 5.0 5.3 5.0 2.5 2.5 2.5 2.5 2.6 +4% 1% 0% 1H15 1H16 1H17
Slide 10: National storage rising in advance of Winter
National storage rising in advance of Winter For personal use only SOUTH ISLAND INFLOWS NORMALISED FROM A NATIONAL HYDRO STORAGE AGAINST MEAN STORAGE (GWh) DRY 1H18 Mean storage 1926 – 2016 (source: NZX hydro) » An acute drought in key South Island catchments between October and 4,000 3,500 December
Slide 11: Wholesale spot prices responded to fuel scarcity
Wholesale spot prices responded to fuel scarcity For personal use only HYDRO STORAGE LEVELS AND THERMAL FUEL MONTHLY WHOLESALE SPOT ELECTRICITY PRICES ($/MWh) CONSTRAINTS INCREASED NEAR TERM PRICES Generation weighted (source: Electricity Authority – Wholesale electricity prices) » While volatile hy
Slide 12: Our strategy
For personal use only Our strategy Optimise the Customer and Wholesale businesses to deliver strong cash flows CUSTOMER WHOLESALE A service and value focused retailer, An innovative, safe and efficient generator connecting customers and communities to working with business customers, partners and sm
Slide 13: Customer business continues to reduce cost to serve while improving customer experience
Customer business continues to reduce cost to serve while improving customer experience For personal use only NEAR TERM DESCRIPTION OF SUCCESS High-performing, efficient retailer with the lowest cost to serve and best customer experience of the tier 1 retailers in New Zealand, with an ability to exe
Slide 14: Wholesale business is delivering continuous improvement while enabling decarbonisation
Wholesale business is delivering continuous improvement while enabling decarbonisation For personal use only NEAR TERM DESCRIPTION OF SUCCESS Focus on operational excellence and investment in digital approaches with clear payback to accelerate continuous improvement. DELIVERING ON OUR STRATEGY PROGR
Slide 15: Operational Performance and Financial Results
For personal use only Operational Performance and Financial Results Dorian Devers CFO 15 15
Slide 16: Profit of $276m, supported by proceeds from portfolio changes
Profit of $276m, supported by proceeds from portfolio changes For personal use only PROFIT ON CONTINUING OPERATIONS UP BY 111% AS EBITDAF FROM CONTINUING OPERATIONS INCREASED BY $61m STATUTORY PROFIT ($m) 276 +49 4 177 4 20 97 99 2 61 58 11 47 48 1 1H18 profit Discontinued Profit on Items 1H18 EBITD
Slide 17: EBITDAF from continuing operations up by $61m
EBITDAF from continuing operations up by $61m For personal use only Continuing business performance WHOLESALE EBITDAF ($m) CUSTOMER EBITDAF ($m) CORPORATE / UNALLOCATED ($m) 0 +58 +3 13 13 243 48 1 1 39 2 1 2 7 185 12 45 1 1 1H18 Generation Contracted Trading / 1H19 1H18 Electricity Gas Energy Other
Slide 18: Generation costs
Generation costs For personal use only Renewable generation up 10% on 1H18, costs down by $12m Electricity generated or acquired Electricity generated or acquired ($m) (GWh) » Hydro generation was up 410 GWh (25%) as -12 4,762 4,754 hydro generation returned to mean after a dry 171 176 176 Acquired
Slide 19: Wholesale contracted revenue
Wholesale contracted revenue Energy prices higher on the prior period, reduced exposure to fixed price sales and redirected For personal use only load to higher priced channels Contracted revenue ($m) +7 » Fixed price variable volume electricity sales to Customer 355 362 7 and C&I customers were 216
Slide 20: Wholesale trading and merchant revenue
Wholesale trading and merchant revenue Contact was able to generate to support the market during higher priced periods in 1H19 For personal use only TRADING EBITDAF ($m) LONG / SHORT POSITION (GWh) » Contact’s flexible generation portfolio +39 299 458 and access to stored gas saw a 102 45 GWh increa
Slide 21: Customer business performance
Customer business performance For personal use only EBITDAF up by $3m on higher tariff, lower network costs and a reduction in cost to serve Revenue ($m) EBITDAF ($m) » Electricity sales volume down 33 GWh due to -2 +3 lower customers numbers, offset by higher gas 499 497 45 48 sales to SME customer
Slide 22: Cost efficiency programme continues to deliver controllable cost reduction
Cost efficiency programme continues to deliver controllable cost reduction For personal use only OTHER OPERATING COSTS ($m) OTHER OPERATING COST MOVEMENT ($m) 114 5% reduction in like for -4 2 114 112 like other operating costs 110 110 » Efficiency programme delivers $6m 6 4 operating cost reduction
Slide 23: Cash flow and capital expenditure
Cash flow and capital expenditure OPERATING CASH FLOW UP BY $62m ON HIGHER EBITDAF, FAVOURABLE WORKING CAPITAL For personal use only MOVEMENTS AND LOWER INTEREST AND CAPEX COSTS 6 months SIB CAPEX ($m) 6 months ended ended Comparison against 31 31 December 1H18 128 December 2017 102 2018 EBITDAF $29
Slide 24: Strong free cash flow directed to strengthening the balance sheet
Strong free cash flow directed to strengthening the balance sheet For personal use only EBITDAF TO CASH CONVERSION INCREASED TO 70% IN 1H19 FROM 60% IN 1H18 OPERATING FREE CASH FLOW – OFCF ($m) SOURCES AND USES OF CASH ($M) 203 641 641 141 207 291 438 236 298 8 8 10 142 142 -8 4 1 14 10 7 -60 -77 20
Slide 25: Strong balance sheet
Strong balance sheet For personal use only ROBUST TREASURY MANAGEMENT ENSURES ACCESS TO DIVERSE FUNDING SOURCES CLOSING NET DEBT ($m) BORROWING MATURITIES ($m) NET DEBT TO EBITDAF (x) Face value of borrowings less cash Average tenor of 3.6 years as at 31 December 2018 Includes S&P adjustments (AGS c
Slide 26: Market update and Outlook
For personal use only Market update and Outlook Dennis Barnes CEO 26 26
Slide 27: Our strategy
For personal use only Our strategy Optimise the Customer and Wholesale businesses to deliver strong cash flows CUSTOMER WHOLESALE A service and value focused retailer, An innovative, safe and efficient generator connecting customers and communities to working with business customers, partners and sm
Slide 28: Priorities
Priorities For personal use only NEAR TERM MEDIUM TERM CONTRACT GAS Engaging with suppliers to contract for gas for 2019 and beyond. Increasingly confident that gas DECARBONISATION availability will improve as current gas supply constraints are unlocked Develop options to enable the economic sub
Slide 29: Guidance affirmed
Guidance affirmed For personal use only CONFIDENCE IN THE ABILITY TO DELIVER PERFORMANCE IMPROVEMENTS FY20 OFCF ($m) Change to prior Change to prior FY19 (f) guidance FY20 (f) guidance 285 Other operating costs $200 – 210m - $185 – 195m - Range narrowed 480 Depreciation and amortisation $200 – 205m
Slide 30: New distribution policy
New distribution policy For personal use only NEW POLICY INTERIM DIVIDEND FOR FY19 OF 16 CENTS PER SHARE UP 23% » Contact’s policy is to distribute ordinary dividends targeting a pay-out » Interim dividend of 16 cents per share (1H18 13 ratio of 100% of an Operating Free Cash Flow* which is adjusted
Slide 31: Supporting materials
For personal use only Supporting materials 31 31
Slide 32: Financial impact of the asset disposals
Financial impact of the asset disposals For personal use only ASSET DISPOSALS COMPLETED IN THE PERIOD SALE OF AHUROA GAS STORAGE FOR $200M SALE OF ROCKGAS LPG FOR $260M » On 1 October 2018, Contact completed the sale of AGS and » On 1 December 2018, Contact completed the sale of Rockgas and received
Slide 33: Generation and sales position
Generation and sales position For personal use only CONTACT GENERATION OUTPUT (GWh) ELECTRICITY GENERATION AND SALES POSITION (GWh) 4,916 4,761 4,738 4,812 4,669 4,820 4,820 4,755 4,755 4,533 50 58 51 1 4,310 4,327 357 171 384 459 1,166 1,036 836 658 1,522 685 708 2,149 1,768 966 1,736 1,572 2,010 2
Slide 34: Wairakei geothermal field mass take and efficiency
Wairakei geothermal field mass take and efficiency For personal use only GEOTHERMAL FUEL EXTRACTED AT WAIRAKEI VS CONSENTED (GWh) WAIRAKEI, POIHIPI AND TE MIHI CONVERSION EFFECTIVNESS (MWh per KT EXTRACTED) -1.8 102% +2% 98% 99% 94% +1% 88% 82% 32.0 32.3 30.3 30.8 30.7 26.3 0 0 1H14 1H15 1H16 1H17 1
Slide 35: Generation volumes
Generation volumes For personal use only Renewable generation up 10% on 1H18 Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh) 1,726 2,045 1,090 1,623 1,652 2,073 54 1,016 1,552 99 98 161 92 116 50 2 887 94 155 165 2,010 133 159 209 203 51 4 208 211 736 199 114 52 69 539 2,
Slide 36: Fuel storage movements
Fuel storage movements For personal use only HAWEA STORAGE (GWh) GAS STORAGE (GWh EQUIVALENT) Using the 1H19 thermal efficiency (9.1 TJ/GWh) 55 159 CLOSING STORAGE 616 677 616 CLOSING STORAGE 104 Gas injected 63 162 86 229 247 Inflows 219 104 Opening storage 858 829 Opening storage 55 767 27 Release
Slide 37: Contracted and stored gas
Contracted and stored gas For personal use only CONTRACTED GAS VOLUMES (PJ) AHUROA GAS STORAGE MONTHLY SOURCES AND USES OF GAS (PJ) INJECTIONS AND EXTRACTIONS (PJ) 24.4 7.0 1.03 5.6 7.6 4.3 0.72 11.1 9.3 10.0 1.6 18.4 18.4 16.7 4.5 4.5 0.47 1.03 4.4 0.35 7.8 7.0 7.6 10.9 0.78 3.1 2.7 1.2 0.51 -0.8 0
Slide 38: Historical financial information
Historical financial information For personal use only Unit 1H15 1H16 1H17 1H18 1H19 Revenue $m 1,240 1,120 1,037 1,190 1,363 EBITDAF $m 257 254 264 236 291 Profit/(loss) $m 51 (116) 96 58 276 Underlying profit $m 76 73 82 59 107 Underlying profit per share cps 10.4 10.0 11.5 8.2 15.0 Operating free
Slide 39: Non-GAAP profit measure: EBITDAF
Non-GAAP profit measure: EBITDAF For personal use only » EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items » EBITDAF is commonly used in the electricity industry so provides a comparab
Slide 40: Reconciliation between EBITDAF and Profit
Reconciliation between EBITDAF and Profit For personal use only » The adjustments from EBITDAF to reported profit are as follows: » Depreciation and amortisation: Reduced by $7m (6%) as depreciation on the held for sale asset (AGS) and the discontinued operation (Rockgas) stopped, offset by an incre
Slide 41: Non-GAAP profit measure: Underlying profit
Non-GAAP profit measure: Underlying profit For personal use only » Underlying profit provides a consistent measure of Contact’s ongoing performance » Underlying profit excludes the effect of significant items from reported profit. Significant items are determined based on principles approved by the
Slide 42: Reconciliation between Profit and Underlying profit
Reconciliation between Profit and Underlying profit For personal use only » The only adjustment from reported profit to underlying profit for 1H19 was the: » Change in the fair value of financial instruments: Movements in the valuation of interest rate and electricity price derivatives that are not
Slide 43: Wholesale segment 1H19 1H18
Wholesale segment 1H19 1H18 Six months ended 31 December 2018 Six months ended 31 December 2017 For personal use only Volume GWAP Volume GWAP Reference to segment note Note: this table has not been rounded and might not add GWh $/MWh $m GWh $/MWh $m Electricity sales to Customer 2,017 78.9 159 2,069