Contact Energy Limited · NZX:CEN
Contact Energy — 1H21 Earnings Presentation
40 slides from Contact Energy's earnings presentation, Feb 15, 2021
Slide 1: 2021 Interim Results Presentation
2021 Interim Results Presentation Six months ended 31 December 2020
Slide 2: Disclaimer and important information
Disclaimer and important information This presentation may contain certain forward-looking statements with respect to the Although management may indicate and believe that the assumptions underlying the financial condition, results of operations and business of Contact. Forward-looking forward-looki
Slide 3: Presentation Agenda
PRESENTATION AGENDA 1 1H21 Highlights / Mike Fuge, CEO 4-12 2 Operational Performance and Financial Results / Dorian Devers, CFO 13-26 3 Supporting Materials 27-40 Contact Contact EnergyEnergy / FY21/ Interim FY21 Interim ResultsResults Presentation / 15 February / 15 February 2021 2021 3
Slide 4: 1H21 performance highlights
1H21 performance highlights Mike Fuge, CEO Contact Energy / FY21 Interim Results Presentation / 15 February 2021 4 4
Slide 5: Summary of key financial performance measures
SUMMARY OF KEY FINANCIAL PERFORMANCE MEASURES Six months ended Six months ended Operating earnings (EBITDAF1) were up by $25m when compared to 31 December 2020 31 December 2019 1H20. (1H21) (1H20) The operating conditions in 1H21 were characterised by significant EBITDAF1 $246m ↑ 11% from $221m unce
Slide 6: 1H21 Highlights
1H21 HIGHLIGHTS o Enterprise-wide programme management office set up identifying opportunities to improve performance • Transforming Ways of Working (TWOW) programme to redesign all aspects of our work at Contact • Consolidated physical office space • Converted a second bilateral bank facility into
Slide 7: Focus on Sustainability
FOCUS ON SUSTAINABILITY ESG performance dashboard Timeline Theme Current position Target Climate - 22% reduction on scope 1&2 - 1PJ of gas equivalent industrial heat displaced Change emissions achieved - Reduce scope 1 and 2 emissions by 34%, - 53% electric passenger fleet Scope 3 by 30% 2021 - 100%
Slide 8: Focus on Sustainability
FOCUS ON SUSTAINABILITY Total generation emissions intensity Customers with impaired credit now accepted Gender diverse workforce tCO2-e / MWh % of impaired credit customers accepted % of total workforce 0.226 42% 2,433 40% sign ups 0.158 0.138 0.145 52% 0.121 0.128 0.124 54% 0.119 35% 57% 57% 57% 6
Slide 9: Market Demand
MARKET DEMAND Regional change (%) (6%) National electricity demand (TWh) 1H21 vs 1H20 0% (3%) 21.3 21.2 21.0 21.4 21.3 20.8 0% Demand flat despite impact of COVID lockdown in Auckland 1% (2%) 3% 3% (3%) North Island 13.4 13.5 13.4 13.3 13.4 13.4 1% 2% 1% 4% South Island (ex NZAS) 5.4 5.0 5.3 5.0 5.3
Slide 10: Fuel Supply
FUEL SUPPLY National hydro storage (TWh) 1H20 1H21 Generation by type (TWh) Generation from generator retailers 4.5 Storage TWh 20.6 20.7 20.6 4.0 2.5 2.7 Hydro generation was down 2.9 Gas 3.5 by 4% when compared with 0.6 0.7 1.0 Coal 1H20. This was driven by 3.0 lower North Island inflows in the fi
Slide 11: Fuel Supply and Near-Term Price Impact
FUEL SUPPLY AND NEAR-TERM PRICE IMPACT Short-term external factors that Wholesale and futures electricity pricing ($/MWh) Aluminium prices sharply can influence the market Aluminium higher (+$277/t, up 16%). New 220 Changes since June 2020 term NZAS contract signed in Long-dated futures (>12 months)
Slide 12: Retail Electricity Market
RETAIL ELECTRICITY MARKET Change in customer connections (000s) 2yr ICP delta (1000s) Retail competition remains intense. Tier 1: -26k customers Tier 2: +85k customers 2yr % change Divergent views on the value of a customer: 120 ▪ Tier 1: Mercury reducing customers, Meridian growing market share 100
Slide 13: Operational performance and financial results
Operational performance and financial results Dorian Devers, CFO Contact Energy / FY21 Interim Results Presentation / 15 February 2021 13 20 13
Slide 14: 1H21 Results
1H21 RESULTS Profit ($m) EBITDAF ($m) +25 246 221 7 1 1 7 24 2 -6 +19 Price Volume 4 2 78 6 2 1H20 Renewables Pricing Natural gas Other Fixed costs 1H21 25 EBITDAF constraint income inc. opex EBITDAF and carbon 59 1 2 3 4 5 Lower Strong Price Market Lower geothermal channel impact of making electric
Slide 15: 1H21 Results
1H21 RESULTS Wholesale EBITDAF ($m) Customer EBITDAF ($m) Corporate / unallocated costs ($m) +25 0 0 229 2 0 30 7 27 30 2 1 1 204 2 5 -13 -13 Electricity gross margin Price recovery Electricity and network, levies and meters cost inflation 1H20 Generation Total Trading, 1H21 costs contracted merchan
Slide 16: 1H21 Results: Wholesale Business
1H21 RESULTS: WHOLESALE BUSINESS Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) 4,617 4,615 +2 Hydro generation up 98GWh on 1H20 (+5%), in line with Acquired 208 189 that expected in a mean year. Geothermal volumes were 171 171 173 173 124GWh down on prior year
Slide 17: 1H21 Results: Wholesale Business Contracted revenue
1H21 RESULTS: WHOLESALE BUSINESS Contracted revenue ($m) +27 • Fixed price variable volume electricity sales to the 379 Customer segment and C&I customers ended 3 352 17 248GWh lower than 1H20 (-$20m), this was Steam sales 17 partially offset by higher prices (+$15m) 1,198GWh +218GWh predominantly t
Slide 18: 1H21 Results: Wholesale Business Trading EBITDAF
1H21 RESULTS: WHOLESALE BUSINESS Trading EBITDAF ($m) Long / short position (GWh) Merchant generation 0 449 476 • 27GWh increase in Spot sales and buy 23 merchant sales volumes. 23 CFD settlement The price received for this Spot purchases and “long” generation was up by 56 $108.8/MWh sell CFD settle
Slide 19: 1H21 Results: Customer Business
1H21 RESULTS: CUSTOMER BUSINESS EBITDAF ($m) 1H20 1H21 Variance 0 Revenue & Tariff1 ($m) 30 Electricity tariff changes balance the $m $m Tariff $m Tariff 30 regulatory pressures, the competitive Electricity gross revenue 448.8 445.7 245.8 (3.1) 4.6 environment and rising input costs: • End to furthe
Slide 20: 1H21 Results: Other operating cost movement
1H21 RESULTS Other operating cost movement ($m) Underlying movement Underlying Invest in $2.3m from transformative ways of working Portfolio, performance and non-recurring movement growth (TWOW) and lower advertising spend. 1.0 • Travel has reduced by $1.1m from TWOW and 104.2 changing COVID levels.
Slide 21: 1H21 Results: EBITDAF assumptions and reconciliation
1H21 RESULTS 1H assumptions that deliver expected & normalised EBITDAF of $480m over a financial year EBITDAF reconciliation to 1H21 1 Channel choices maximise long term value¹ x 2 Net price² driven by best commercial practices = Total Normalised & Expected 246 CFDs 725GWh x $64/MWh = $46m C&I 1,675
Slide 22: 1H21 Results: Cash flow and capital expenditure
1H21 RESULTS SIB capital expenditure – accounting ($m) 6 months 6 months 80 ended ended Comparison 60 31 December 31 December against 1H20 2020 2019 40 EBITDAF $246m $221m ↑ $25m 20 Working capital changes $22m $5m ↑ $17m 0 1H16 1H17 1H18 1H19 1H20 1H21 Tax paid ($58m) ($56m) ↓ ($2m) Interest paid,
Slide 23: 1H21 Results: Net debt and borrowing maturities
1H21 RESULTS Closing net debt ($m) Borrowing maturities ($m) Net debt to EBITDAF (x) Face value of borrowings less cash Average tenor of 2.7 years as at 31 December 2020 Includes S&P adjustments (prior to FY20 AGS was treated as a 482 lease) 1,626 1,539 3.2 3.2 23 1,445 3.1 41 38 302 3.1 2.3 2.4 968
Slide 24: Guidance
GUIDANCE FY21 1H21 result Guidance commentary Other operating costs $200 – 210m* $104m No change Stay in business capital $55 – 60m $31m No change expenditure Cash spend (‘Totex’) $255 – 270m $135m No change Depreciation and $215 – 225m $114m No change amortisation Net interest (accounting) $45 – 50
Slide 25: Climate Change and Regulation
CLIMATE CHANGE AND REGULATION Potential electricity demand impact Potential renewable generation impact Potential wider electricity The New Zealand regulatory framework is being sector impact adapted to deliver on this societal imperative. Govt 100% Coal Net zero Climate Transport renewable phase ou
Slide 26: Questions
Questions Contact Energy / FY21 Interim Results Presentation / 15 February 2021 26 48 26
Slide 27: Supporting materials
Supporting materials Contact Energy / FY21 Interim Results Presentation / 15 February 2021 27 49 27
Slide 28: ASX Futures
ASX FUTURES ASX electricity forward pricing ($/MWh) 158 160 BEN OTA 146 146 141 130 126 129 121 119 119 119 117 117 111 112 110 110 109 104 107 104 102 102 103 98 95 92 93 91 87 81 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024
Slide 29: Operational Data
OPERATIONAL DATA Contact generation output sold to the national grid (GWh) Electricity and generation sales position (GWh) 4,738 4,812 -3 4,669 4,533 4,327 4,359 4,378 4,618 4,618 4,615 4,615 4,310 1,166 Pool purchase 208 1 189 0 Thermal 1,036 836 Direct generation 50 449 48 476 1,522 685 825 870 Me
Slide 30: Geothermal Performance
GEOTHERMAL PERFORMANCE Geothermal fuel extracted at Wairakei vs consented Wairakei, Poihipi and Te Mihi conversion effectiveness (GWh) (MWh per kT extracted) -5% 0% 50 101% -1% 100% 98% 32.3 45 97% 30.8 31.0 30.3 30.6 30.7 30.3 94% 95% 40 88% 35 30 25 20 15 10 5 0 1H15 1H16 1H17 1H18 1H19 1H20 1H21
Slide 31: Operational Data
OPERATIONAL DATA Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh) 1,726 1,886 1,090 1,623 1,652 1,649 0 1,016 99 54 98 1,552 92 95 1,524 1,984 2 161 116 50 918 94 155 171 104 2,073 887 165 2,045 875 3 159 2,010 133 4 1 48 209 165 51 50 203 181 1,635 211 117 208 736 114 199
Slide 32: Operational Data
OPERATIONAL DATA 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) 1H17 784 91% 60% 2,073 42 87 1H17 429 89% 82% 1,552 50
Slide 33: Operational Data
OPERATIONAL DATA Hawea strorage (GWh) Gas storage (GWh equivalent) Using the FY20 thermal efficiency (9.04 TJ/GWh) CLOSING STORAGE CLOSING STORAGE 770 833 257 90 164 623 Gas injected 152 93 208 152 175 675 244 556 27 53 Inflows 159 351 495 85 294 550 103 60 248 277 174 299 231 252 153 216 257 152 15
Slide 34: Fuel Outlook
FUEL OUTLOOK Portfolio requirements for thermal generation (TWh) Gas supply and demand CAL21 (PJ) Hydro variation >> 14.0 -3.3 2.0 Balance from storage 11.2 Expected further -0.3 1.0 spot market purchases 8.0 -2.9 -2.9 Mean Thermal 4.0 1.5 -1.0 0.5 -0.3 0.2 11.0 Contracted Co-generation 4.3 Expected
Slide 35: Operational Data
OPERATIONAL DATA Contracted gas volumes (PJ) Ahuroa gas storage monthly Sources and uses of gas (PJ) injections and extractions (PJ) Closing storage 18.6 18.4 7.0 18.0 0.0 5.6 7.6 16.6 16.6 16.5 0.6 5.0 2.6 5.0 4.0 0.0 0.5 6.9 Purchases 11.1 4.5 6.1 4.1 10.0 1.2 4.7 9.3 9.4 7.6 10.9 7.3 9.8 4.5 0.0
Slide 36: Non-GAAP Profit Measure
NON-GAAP PROFIT MEASURE • EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, and The adjustments from EBITDAF to reported profit and change in fair value of financial instruments. movements on 1H20 are as follows: • EBITDAF is commonly used in the electricity
Slide 37: Historic Performance
HISTORIC PERFORMANCE Unit 1H17 1H18 1H19 1H20 1H21 Revenue $m 1,037 1,190 1,363 1,110 1,141 Expenses $m 773 954 1,072 889 895 EBITDAF $m 264 236 291 221 246 Profit/(loss) $m 96 58 276 59 78 Operating free cash flow $m 134 141 203 120 157 Operating free cash flow per share cps 18.7 19.7 28.3 16.8 21.
Slide 38: Segmental Performance
SEGMENTAL PERFORMANCE 1H21 1H20 Reference number for Six months ended 31 December 2020 Six months ended 31 December 2019 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 sales to Customer
Slide 39: Segment Note to Operational Performance
SEGMENT NOTE TO OPERATIONAL PERFORMANCE Reference to detailed operating Wholesale segment Comment segment performance C&I electricity – Fixed Price 2 Spot sales are regarded as a pass-through and not reflected in C&I electricity – Spot 2-spot performance reporting, any margin included in C&I netback
Slide 40: Historic Performance
HISTORIC PERFORMANCE Residential electricity unit 1H18 1H19 1H20 1H21 Residential gas unit 1H18 1H19 1H20 1H21 Average connections # 361,412 352,159 355,216 357,756 Average connections # 60,870 61,332 61,959 60,563 Sales volumes GWh 1,343 1,335 1,328 1,349 Sales volumes TJ 946 936 911 954 Average us