Contact Energy Limited · NZX:CEN
Contact Energy — H1 2017 Earnings Presentation
39 slides from Contact Energy's earnings presentation, Feb 13, 2017
Slide 1: 2017 Interim Results Presentation
2017 Interim Results Presentation Six months ended 31 December 2016 13 February 2017
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward-looking statements EBITDAF, underlying profit and free cash flow are non-GAAP (generally regarding a variety of items. Such forward-looking statements are based accepted accounting practice) measures. Information regarding the upon curr
Slide 3: Agenda
Agenda Strategy » Optimise the Customer and Generation businesses to deliver strong cash flows • Deliver value by providing customers with choice, certainty and control • A low cost, long life and flexible generation portfolio with a continuous improvement programme focusing on safety, reliability a
Slide 4: Statutory profit of $96m
Statutory profit of $96m Underlying profit per share up 15%; EBITDAF up 3% » Contact changed the accounting treatment 6 months ended Comparison against 1H16 for the costs incurred in operating the Ahuroa Gas Storage (AGS) facility. While 31 December 2016 there are no cash implications, this change E
Slide 5: Market dynamics and strategy
Market dynamics and strategy Dennis Barnes 1H17 Results 13 February 2017 Presentation Contact Energy Limited
Slide 6: National electricity demand down 2% compared to 1H16, on warmer wetter weather
National electricity demand down 2% compared to 1H16, on warmer wetter weather Regional changes in demand 1H17 vs 1H16 12 month change in electricity consumption Source: Transpower / Contact Source: MBIE 2% Residential 12 months ended 30 September 2015 12 months ended 30 September 2016 (1%) 2% Comme
Slide 7: Retail electricity market trends
Retail electricity market trends Year on year quarterly change in residential electricity prices Electricity pricing up in a competitive retail market Source: MBIE Quarterly Survey of Domestic Electricity Prices 8% » Price increases from Tier 1 retailers implemented Lines component Energy and other
Slide 8: Looking forward, the transparency of performance will drive our focus
Looking forward, the transparency of performance will drive our focus New reporting segments Cash flow statement » Capturing customer inspired value will require innovation Generation Customer and discipline » A transfer price has been introduced between the Balance sheet Customer and Generation bus
Slide 9: The Customer business is evolving from an Essential Services business to a Living Services business
The Customer business is evolving from an Essential Services business to a Living Services business Deliver value by providing customers with choice, certainty and control Insight Products Sales Service Energy as a Service Sustain Customer 3.0 Lowest Cost to Serve Cloud and partner based transformat
Slide 10: Operational improvement momentum is continuing
Operational improvement momentum is continuing Net promoter score continues to improve quarter-on-quarter 1H15 2H15 1H16 2H16 1H17 Source: Contact, relational NPS Change in customer numbers -7,300 -1,600 -9,800 +5,380 -3,100 20 Average time to answer 220 268 222 141 128 (seconds) 15 Churn (variance
Slide 11: The Generation business is on a continuous improvement path
The Generation business is on a continuous improvement path Low cost, long life and flexible generation portfolio A continuous improvement programme focusing on safety, reliability and resource utilisation » Strong earnings performance from core » Safety and operational reliability 01 renewable busi
Slide 12: 1H17 performance
1H17 performance Graham Cockroft 1H17 Results 13 February 2017 Presentation Contact Energy Limited
Slide 13: 1H17 performance highlights
1H17 performance highlights Financial performance compared to 1H16 $261m $96m $4m EBITDAF up 3% from $254m on improved Profit for the period, $212m higher due to Or 3% reduction in other operating operational performance 1H16 impairments expenses, down $7m (5%) on a like for like basis 2% $1/MWh $21
Slide 14: Statutory profit $96m
Statutory profit $96m Underlying profit up 12% from $73m in 1H16 to $82m Contact’s statutory profit 120 100 (1) 14 80 7 (2) 5 60 96 40 189 73 82 20 0 $m -20 -40 -60 (116) -80 -100 -120 1H16 statutory profit Net items excluded 1H16 EBITDAF Depreciation & Net interest costs Tax 1H17 underlying Net ite
Slide 15: Transfers of value between the two segments appropriately reflect market conditions
Transfers of value between the two segments appropriately reflect market conditions Inter-segment electricity transfer price » The fixed price, variable volume transfer price between the Customer and Generation segments is set in a manner similar to transactions with independent retailers. On this b
Slide 16: EBITDAF up 3% on operational performance improvement
EBITDAF up 3% on operational performance improvement Customer segment EBITDAF Movement » Customer EBITDAF was $6m (12%) higher than 1H16 • Netback down $5m (1%) to $371m on lower mass market sales volumes, partially offset by an increase in sales to lower margin C&I customers 1H16 254 • Electricity
Slide 17: Customer EBITDAF up $6m on lower electricity purchase costs
Customer EBITDAF up $6m on lower 4,001 GWh electricity purchase costs Electricity sales volume; down 1% as lower mass market sales were offset by an increase in C&I sales Netback reduction on lower mass market sales volumes and C&I pricing; offset by reduction in electricity purchase costs » 1H17 sa
Slide 18: Generation EBITDAF up $1m to $204m
Generation EBITDAF up $1m to $204m 84% Renewable generation up from 78% in 1H16 $10m (7%) improvement in cost of energy was offset by a $9m reduction in electricity sales revenue from the Customer business » Wholesale spot market revenue down $14m 4,156 GWh • Merchant sales volumes were 145 GWh, 329
Slide 19: Focus continues on the reduction of both operating and capital expenditure
Focus continues on the reduction of both operating and capital expenditure Other operating expenses Capital expenditure » 1H17 other operating expenses were down $4m, 3% lower » 1H17 capex $63m, $8m lower than 1H16 than 1H16 » The reduction in thermal generation in the period has • Labour costs down
Slide 20: Free cash flow down 31%
Free cash flow down 31% Due to higher tax paid and unfavourable working capital movements » Free cash flow measures the cash generating performance of the business and represents cash available to reduce debt, fund distributions to shareholders and fund capital expenditure for growth » Tax paid incr
Slide 21: Our financial framework
Our financial framework » Our focus is on free cash flow generation and ensuring a robust balance sheet Distributions » Ordinary dividend equal to Free cash flow Balance Sheet 100% underlying profit » Special dividend where » Operating cash » Investment grade imputation credits available flow credit
Slide 22: Financial framework prioritises a robust balance sheet, with strong free cash flow directed to debt repayment
Financial framework prioritises a robust balance sheet, with strong free cash flow currently directed to debt repayment Debt reduced by $21m in 1H17 Uses of free cash flow » Face value of net borrowings reduced by $21m to $1,610m as surplus cash was applied to the debt repayment » Gearing remained s
Slide 23: Summary
Summary Dennis Barnes 1H17 Results 13 February 2017 Presentation Contact Energy Limited
Slide 24: Summary
Summary Strategy » Optimise the Customer and Generation businesses to deliver strong cash flows • Deliver value by providing customers with choice, certainty and control • A low cost, long life and flexible generation portfolio with a continuous improvement programme focusing on safety, reliability
Slide 25: Outlook
Outlook » In a competitive market, turning improving operational performance into value remains the focus » Growing capability in retail supported by systems investment may provide opportunities to expand our offering and/or consolidate » Transition to new technologies likely to be slow but will del
Slide 26: Supporting material
Supporting material 1H17 Results 13 February 2017 Presentation Contact Energy Limited
Slide 27: Electricity market conditions
Electricity market conditions Price and national storage levels Otahuhu futures settlement price (ASX settlement 140 4000 90 31/12/2015 30/06/2016 31/12/2016 80 120 3500 70 7 day average price ($/MWh) 3000 100 60 2500 National storage (GWh) 50 80 40 2000 60 30 1500 20 40 1000 10 20 - 500 CY16 CY17 C
Slide 28: Plant availability improved in 1H17
Plant availability improved in 1H17 Generation by sources Plant reliability and generation revenue Gross Plant availability Capacity Electricity Pool revenue 6,000 $60 output factor output 1H17 1H16 5,000 $50 (MW) (%) (%) (%) (GWh) ($/MWh) ($m) 4,000 $40 $/MWh Hydro 752 91% 84% 60% 2,073 42 87 GWh 3
Slide 29: No change in contracted gas volumes with support provided by gas storage
No change in contracted gas volumes with support provided by gas storage Contracted gas volumes Ahuroa gas storage monthly injections and extractions 2.5 30 Genesis Swap Maui Other 25 2.0 20 1.5 Extractions (PJ) 15 1.0 10 0.5 5 0.0 0 CY15 CY16 CY17 CY18 CY19 CY20 -0.5 Jul Aug Sep Oct Nov Dec 1H17 ne
Slide 30: Contact's balance sheet is supported by a robust funding portfolio
Contact’s balance sheet is supported by a robust funding portfolio Funding maturity profile Funding sources 450 9% NEXI USPP Domestic bonds Bank 4% 400 30% 350 300 250 28% $m 200 150 100 29% 50 - FY17 FY18 FY19 FY20 FY21 FY22 FY23 - FY27 FY28 - FY32 Bank Debt Domestic bonds USPP NEXI CP Maturity » C
Slide 31: Non-GAAP profit measure - EBITDAF
Non-GAAP profit measure - EBITDAF » 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 comparable measure of Contact
Slide 32: Explanation of reconciliation between EBITDAF and profit
Explanation of reconciliation between EBITDAF and profit » The adjustments from EBITDAF to reported profit/(loss) are as follows: • Depreciation and amortisation: Costs increased by $2m (2%) due to accelerated depreciation on geothermal wells being decommissioned in FY17 • Change in fair value of fi
Slide 33: Non-GAAP profit measure – underlying profit
Non-GAAP profit measure – underlying profit » Underlying profit provides a consistent measure of Contact’s ongoing performance » Underlying profit excludes the effect of significant items from reported profit / (loss). Significant items are determined based on principles approved by the Board of Dir
Slide 34: Explanation of reconciliation from reported profit to underlying profit
Explanation of reconciliation from reported profit to underlying profit » The adjustments from reported profit / (loss) to underlying profit are as follows: • Change in fair value of financial instruments: Movements in the valuation of interest rate and electricity price derivatives that are not acc
Slide 35: Costs to operate AGS, reconciliation of accounting treatment change
Costs to operate AGS, reconciliation of accounting treatment change » Contact changed the accounting treatment for the costs incurred in operating the Ahuroa Gas Storage (AGS) facility. While there are no cash implications, this change reduced 1H17 EBITDAF by $2m with other operating costs $3m highe
Slide 36: Customer segment
Customer segment Customer segment 6 months ended 6 months ended Variance $m 31 December 2016 31 December 2015 $m % Mass market electricity 466 481 (15) (3%) Commercial and industrial electricity 251 249 2 1% Gas 36 35 1 3% LPG 64 63 1 2% Other income 1 2 (1) (50%) Total revenue and other income 818
Slide 37: Generation segment
Generation segment Generation segment 6 months ended 6 months ended Variance $m 31 December 2016 31 December 2015 $m % Wholesale electricity 217 276 (59) (21%) Inter-segment electricity sales 328 337 (9) (3%) Gas - 1 (1) (100%) Steam 14 16 (2) (13%) Te Mihi compensation - 2 (2) (100%) Total revenue
Slide 38: Customer and Generation segments reconciliation to previously reported operating statistics
Customer and Generation segments reconciliation to previously reported operating statistics 6 months ended 31 December 2016 6 months ended 31 December 2015 12 months ended 30 June 2016 $m GWh $/MWh $m GWh $/MWh $m GWh $/MWh Customer EBITDAF Mass market electricity sales 466 1,942 240.25 481 2,052 23
Slide 39: Monthly operating statistics restated to include reporting segment changes
Monthly operating statistics restated to include reporting segment changes Measure Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Customer Mass market electricity sales GWh 418 404 359 309 283 278 251 245 279 284 321 360