Contact Energy Limited · NZX:CEN
Contact Energy — FY2013 Earnings Presentation
45 slides from Contact Energy's earnings presentation, Aug 20, 2013
Slide 1: 2013 Full Year Results Presentation
2013 Full Year Results Presentation 20 August 2013 Year ended 30 June 2013 Dennis Barnes, Chief Executive Officer Graham Cockroft, Chief Financial Officer
Slide 2: © Contact Energy Limited 20 August 2013 Results for the year ended 30 June
© Contact Energy Limited 20 August 2013 Results for the year ended 30 June 2013 2
Slide 3: Disclaimer
Disclaimer 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 stat
Slide 4: Agenda
Agenda 1. Result highlights Dennis Barnes 2. Operational review Dennis Barnes 3. Financial performance Graham Cockroft 4. Strategy update Dennis Barnes Supplementary information © Contact Energy Limited 20 August 2013 Results for the year ended 30 June 2013 4
Slide 5: Contact continues to focus on health and safety
Contact continues to focus on health and safety Total recordable injury frequency rate (TRIFR) reduced to 4.0 • The health, safety and well-being of our people remain our number one priority • TRIFR down 31% on FY12 to 4.0 • Improved reporting leads to more learnings and less future injuries • Conta
Slide 6: Continued positive momentum in earnings
Continued positive momentum in earnings Dividend increased 2 cents per share Year ended 30 June 2013 EBITDAF1 $541m up 6% from $509m Profit for the year $199m up 5% from $190m Earnings per share (cents) 27.2 cps up 1% from 26.9cps Net items excluded from underlying earnings after tax ¹ ($3m) down fr
Slide 7: Diverse asset and fuel position and a focus on efficiency lift results
Diverse asset and fuel position and a focus on efficiency lift results • Improved safety performance reflects focus and training, proving zero harm is realistic and achievable • Retail netback increased by $3/MWh, primarily due to improved collections, reduced operating costs and the full recovery o
Slide 8: EBITDAF movement: FY13 v FY12
Lower energy procurement costs and retail performance improved through strong operational management EBITDAF Movement: FY13 v FY12 Integrated Energy segment EBITDAF: up $33m (7%) to $502m FY12 509 Integrated Energy $33 favourable • Netback: $12m favourable Netback 12 Net purchase 21 • Net purchase c
Slide 9: Operational review
Operational review Dennis Barnes
Slide 10: National electricity demand remains suppressed
National electricity demand remains suppressed • FY13 national electricity demand down National demand volumes 1% on FY12 40,000 35,000 – Tiwai demand down 397 GWh (8%) 30,000 – Norske Skog halved production 25,000 reducing demand by 50 MW from GWh January 2013 20,000 – Other large industrial demand
Slide 11: Forward price curve has fallen over the past year
The forward price curve has fallen over the past year and is expected to remain relatively flat in the current oversupplied market Otahuhu forward prices Benmore forward prices 120 130 Jun 2012 Jun 2013 Jun 2012 Jun 2013 110 120 110 100 100 90 90 $/MWh 80 $/MWh 80 70 70 60 60 50 50 40 40 Q2 2012 Q4
Slide 12: Netback – $12m higher (1%) to $909m
Netback – $12m higher (1%) to $909m A change in sales mix and gains in netback from operational improvements as network charges increase Retail Movement: FY13 v FY12 • Change in electricity sales mix; volume stable at 8,277 GWh FY12 897 – Mass market consumption down 121 GWh C&I elec revenue 13 – C&
Slide 13: Contact maintains market share in electricity, gas and LPG
Contact maintains market share in electricity, gas and LPG National load split stabilised • Electricity customer numbers stable; Load split by customer type and island (sales) OLOT customers 184,000 (+24,000 from 8,280 8,277 9,000 30 June 2012) 8,000 29% 29% – Industry switching activity remained hi
Slide 14: Net purchase cost favourable $21m (5%) to $407m
Net purchase cost favourable $21m (5%) to $407m Diverse fuel and asset portfolio manages volatility in market in final year of significant take-or-pay commitments Net Purchase Cost Movement • Wholesale spot market unfavourable $19m – GWAP down $21/MWh to $70/MWh, exposed (428) FY12 volumes down 46 G
Slide 15: Diversity of our generation assets helps manage variable conditions
Diversity of our generation assets helps manage variable operating conditions • Flexible fuel position allows economic substitution Generation by source 12,000 between hydro and thermal generation 10,077 10,552 623 – Hydro generation up 666 GWh (23%) due to 10,000 198 451 356 increased rainfall and
Slide 16: Contact will benefit from transmission network upgrades including Pole 3 HVDC
Contact will benefit from transmission network upgrades including the commissioning of the Pole 3 HVDC connection, particularly in wet conditions $250 Price separation and HVDC flows FY13 15 7 Day Rolling Average HVDC Flow (GWh) $200 10 7 Day Rolling Average Price ($/MWh) $150 5 $100 0 $50 -5 $- -10
Slide 17: Contact is focused on capturing efficiencies and controlling costs
Contact is focused on capturing efficiencies and controlling costs • Programme of organisational change to Other Operating Expenses drive cost reductions and operational 300 efficiencies continuing: 250 – Organisation structure redesign – Procurement savings 200 98 104 105 – ICT application rational
Slide 18: Wind developments impairment
In light of the current market outlook for new generation, Contact has determined the carrying value of its wind developments is not supportable, resulting in an impairment • Contact has completed a full assessment of its generation development opportunities • Contact has decided to exit the Hauāuru
Slide 19: Financial performance
Financial performance Graham Cockroft
Slide 20: Underlying earnings per share up 11% and free cash flow up 14%
Underlying earnings per share up 11% and free cash flow up 14% Year ended Year ended Variance 30 June 2013 30 June 2012 $m $m $m % Profit for the year 199 190 9 5% Earnings per share (cents) 27.2 26.9 0.3 1% Revenue 2,504 2,683 (179) (7%) EBITDAF 541 509 32 6% Underlying EBIT 346 318 28 9% Underlyin
Slide 21: Reconciliation of statutory profit to underlying earnings after tax
Reconciliation of statutory profit to underlying earnings after tax Year ended Year ended Variance 30 June 2013 30 June 2012 $m $m $m % Profit for the year 199 190 9 5% Change in fair value of financial instruments (11) 11 (22) (200%) Gas meter assets sale (26) - (26) (100%) Decommissioned New Plymo
Slide 22: Profit for the period up 5% from $190m to $199m
Profit for the period up 5% from $190m to $199m Underlying earnings after tax up 15% from $176m to $202m Contact's statutory profit movement - FY12 to FY13 250 2 6 2 8 200 3 32 14 150 $m 100 202 199 190 176 50 0 FY12 statutory Net items FY12 UEAT EBITDAF Depreciation & Net financing Equity Tax FY13
Slide 23: Improved EBITDAF and working capital resulted in increase in OCAT and free cash flow
Improved EBITDAF and working capital movements resulted in an increase in OCAT and free cash flow Year ended Year ended Variance Free Cash Flow 30 June 2013 30 June 2012 $m $m $m % 350 EBITDAF 541 509 32 6% 300 Change in working capital (32) (52) 20 38% 250 Tax paid (46) (21) (25) (119%) Other 6 4 2
Slide 24: Financing costs increased by $6m
Financing costs increased by $6m reflective of higher average debt, partially offset by a reduction in the average cost of funds Year ended Year ended Variance 30 June 2013 30 June 2012 $m $m $m % Interest income 2 3 (1) (33%) Interest expense (112) (107) (5) (5%) Financing costs (110) (104) (6) (6%
Slide 25: Capital funding
Capital funding • Balance sheet gearing level remains strong Contact Energy - Funding Sources At 30 June 2013: 5% Bank Debt $450M 10% – Net debt $1.4bn, down slightly on 30 June 23% USPP $452M 2012 10% Retail Bond $550M – Gearing ratio 28% Wholesale Bond $200M – $450m total committed bank facilities
Slide 26: Final dividend increased to cents per share
Final dividend increased to 14 cents per share FY13 dividend 25 cents per share, a pay-out ratio of 91% of underlying EPS 30 • 30 June 2013 total imputation credits available to be attached to a dividend 25 are 223m • Available subscribed capital at 30 cents per share 20 June 2013 in excess of $1bn
Slide 27: Strategy update
Strategy update Dennis Barnes
Slide 28: Significant growth capex finishes in FY14 with completion of Te Mihi
Significant growth capex finishes in FY14 with the completion of Te Mihi, which in turn releases free cash flow in FY14 • Lower average cost of generation Capital Expenditure - projected 600 and increased portfolio flexibility – 166 MW Te Mihi geothermal power 500 Whirinaki purchase station 400 Reso
Slide 29: Wairakei Investment Programme continues to progress
The Wairakei Investment Programme continues to progress; will add net 114 MW of renewable generation • Contact has completed all non-power station activity to support the Wairakei Investment Programme – Bioreactor, transmission connection, resources and steamfield works tested to full capacity • Te
Slide 30: Retail Transformation project go-live scheduled for late 2013
Retail Transformation project ‘go-live’ is scheduled for late 2013 Finance Generation Retail 2011 2012 2013 Ability to create more sophisticated products including non- energy products Mass market Single view of customer information allowing tailored offerings and increased cross selling More custom
Slide 31: Market continues to evolve as economics for large thermal generators become marginal
The market is continuing to evolve as the economics for large thermal generators become increasingly marginal National generation by fuel source • Average thermal capacity factor over the past 45 five years has been 42% compared with 53% in 40 the five years prior as expensive gas supply has been di
Slide 32: Return to bi-pole HVDC operation will be positive for Contact
A return to bi-pole HVDC operation will be positive for Contact, particularly during periods of high South Island hydro generation SI Hydro Generation v Island Price Difference Pole 1 Decommissioned Pole 3 Commissioned $80 1,800 $60 1,700 1,600 $40 1,500 NI - SI price difference ($/MWh) SI Hydro Gen
Slide 33: Contact continues to position its thermal portfolio for an uncertain future
Contact continues to position its thermal portfolio for an uncertain future • New maintenance agreements for Otahuhu and Taranaki CCGTs deliver lower costs, defer commitments to major maintenance and provide time to determine future operating regime • Gas transmission contract revised for Vector pip
Slide 34: Summary
Summary • Steady full year result – Significant improvement in health and safety performance – Stable volume and customer numbers reflect competitive offerings in a competitive market – Reducing cost of generation from diverse fuel and asset portfolio – Significant progress on aligning the company’s
Slide 35: Supporting material
Supporting material contact.
Slide 36: Non-GAAP profit measures – EBITDAF
Non-GAAP profit measures – EBITDAF • EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in fair value of financial instruments and other significant items • Management and directors monitor EBITDAF as a key indicator of Contact’s performance at segment
Slide 37: Explanation of reconciliation between EBITDAF and profit for the period
Explanation of reconciliation between EBITDAF and profit for the period • The adjustments from EBITDAF to reported profit are as follows: – Depreciation and amortisation: Costs increased by $2m (1%) the net increase is attributed to the accelerated depreciation of electricity meters due to the smart
Slide 38: Explanation of reconciliation between EBITDAF and profit for the period
Explanation of reconciliation between EBITDAF and profit for the period – Tax expense represents an effective tax rate of 24% (FY12: 26%). The deviation from the corporate tax rate of 28% is due to the gains on the land sales at Clutha, Wairakei and New Plymouth being non-assessable for tax purposes
Slide 39: Non-GAAP profit measures – underlying earnings after tax
Non-GAAP profit measures – underlying earnings after tax • Management and directors monitor underlying earnings as a basis for determining dividends and believe it assists investors to understand the ongoing performance of the business • Underlying earnings is a non-GAAP profit measure not included
Slide 40: Explanation of reconciliation from reported profit to underlying earnings
Non-GAAP profit measures – explanation of reconciliation from reported profit to underlying earnings after tax • 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 – Contact sold its
Slide 41: Operating cash flow after tax (OCAT) and OCAT ratio
Operating cash flow after tax (OCAT) and OCAT ratio • Contact uses OCAT and OCAT ratio as an internal measure 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
Slide 42: Financial results summary
Financial results summary Key financial information Year ended Year ended Variance 30 June 2013 30 June 2012 $m $m $m % Revenue and other income 2,526 2,701 (175) (6%) (1) Operating expenses (1,985) (2,192) 207 9% (2) EBITDAF 541 509 32 6% Depreciation and amortisation (195) (193) (2) (1%) Change in
Slide 43: Integrated Energy segment result
Integrated Energy segment result Integrated Energy Segment Year Ended Year Ended Variance 30 June 2013 30 June 2012 $m $m $m % Mass market electricity 974 945 29 3% Commercial and Industrial electricity 558 545 13 2% Retail gas 69 70 (1) (1%) Steam 19 20 (1) (5%) Total Revenue 1,620 1,580 40 3% Net
Slide 44: Net purchase cost
Net purchase cost Net Purchase Cost Year Ended Year Ended Variance 30 June 2013 30 June 2012 $m $m $m % Wholesale electricity revenue 742 963 (221) (23%) Wholesale gas revenue 23 22 1 5% Total wholesale revenue 765 985 (220) (22%) Electricity purchases (657) (853) 196 23% Other purchase costs (21) (
Slide 45: Other segment result
Other segment result Other Segment Year Ended Year Ended Variance 30 June 2013 30 June 2012 $m $m $m % LPG revenue 119 118 1 1% Meter leases revenue 14 13 1 8% Meter leases revenue - internal 33 33 - 0% Other revenue 8 5 3 60% Total other segment revenue 174 169 5 3% LPG purchases (87) (83) (4) (5%)