Contact Energy Limited · NZX:CEN
Contact Energy — FY2012 Earnings Presentation
41 slides from Contact Energy's earnings presentation, Aug 14, 2012
Slide 1: 2012 Full Year Results Presentation
2012 Full Year Results Presentation 14 August 2012 Year ended 30 June 2012 Dennis Barnes, Chief Executive Officer Graham Cockroft, Chief Financial Officer
Slide 2: 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 3: Agenda
Agenda 1. Result Highlights Dennis Barnes 2. Operational Overview Dennis Barnes 3. Group Financials Graham Cockroft 4. Strategy Update Dennis Barnes Supplementary Information © Contact Energy Limited 14 August 2012 Results for year ended 30 June 2012 3
Slide 4: Successful year for Contact Energy
Successful year for Contact Energy Investment in flexibility shows results • Significant improvement in earnings – EBITDAF up $67m (15%) to $509m – Profit for the year up $40m (27%) to $190m – Underlying earnings after tax up $25m (17%) to $176m – Final distribution 12 cents per share via Profit Dis
Slide 5: EBITDAF up $67m (15%) to $509m
EBITDAF up $67m (15%) to $509m Operational discipline and increasing flexibility provides strong result Key financial information Year ended Year ended Variance 30 June 2012 30 June 2011 $m $m $m % Electricity segment EBITDAF 468.2 405.1 63.1 16% Other segment EBITDAF 40.5 36.3 4.2 12% EBITDAF 508.7
Slide 6: Higher wholesale prices offset by reduced hydro volumes
Higher wholesale prices offset by reduced hydro volumes Improvement in generation costs and Commercial and Industrial customer margins Electricity Segment EBITDAF movement: FY11 - FY12 • Spot price response to below mean storage largely offset by 25% reduction in FY11 405 hydro generation being repl
Slide 7: Operational Overview
Operational Overview Dennis Barnes Results for year ended 30 June 2012 7
Slide 8: Competitive focus on retaining and gaining customers successful
Competitive focus on retaining and gaining customers successful Net Electricity Customer Change Actual Electricity Market Churn 50% 4,000 45% Contact Industry 2,000 40% 0 35% OLOT discount Transition to new 30% -2,000 increased offerings 25% -4,000 20% 15% -6,000 10% -8,000 Whatsmynumber 5% -10,000
Slide 9: Diverse portfolio provided risk management of record low hydro inflows
Diverse portfolio provided risk management of record low hydro inflows • Water is a valuable resource and in Generation by source periods of scarcity Contact is able to 12,000 manage its own risk and provide support 11,000 10,653 10,260 to the industry with thermal capacity 10,000 – Hydro generation
Slide 10: Stratford Peaker and Ahuroa gas storage operating as expected
Stratford Peaker and Ahuroa gas storage operating as expected • Peaker fully operational, 356 GWh generated (20% capacity factor) – Providing a combination of risk management capacity and merchant generation • Whirinaki acquisition providing cover as intended – Ran seven times (0.2 GWh), successfull
Slide 11: Leveraging portfolio flexibility and capacity delivers benefits
Leveraging portfolio flexibility and capacity delivers benefits • Increased North Island reserves capacity Load split by customer type and island (sales) reduced annual reserve costs 9,000 8,280 8,254 8,000 7,703 1,593 1,911 7,000 • Frequency keeping services contributed to 799 29% 33% 46% 2,526 6,0
Slide 12: Gas book improving
Gas book improving • Take-or-pay volumes remaining for CY12 is 17 PJ • Full entitlement (24.65 PJ) of ROFR gas for CY14 confirmed • Take-or-pay volume for CY12 and CY13 has been reduced through gas portfolio rebalancing that will see the volume returned in CY14 and CY15 PJs CY12 CY13 CY14 CY15 OMV a
Slide 13: The Wairakei Investment Programme continues to progress
The Wairakei Investment Programme continues to progress; will add 114 MW of additional renewable generation Project Contractor Due Date Status Wairakei Steamfield Project Hawkins August 2011 Commissioned Wairakei Bioreactor Project Downers August 2012 Commissioned on schedule and operating to expect
Slide 14: Contact continues to aspire to Zero Harm
Contact continues to aspire to Zero Harm TRIFR slightly improved at 5.8 Total recordable injury frequency rate (12 month rolling average) • The safety of our employees, 10 contractors and visitors to any Contact site is the company’s 8 highest priority 6.3 5.9 5.8 6 4.7 4 1 1 2 2 2 2 3 1 3 1 3 2 2 2
Slide 15: Group Financials
Group Financials Graham Cockroft Results for year ended 30 June 2012 15
Slide 16: Profit for the year up $40m (27%)
Profit for the year up $40m (27%). Underlying earnings adjustments largely driven by the change in fair value of financial instruments and exit of investment in Oakey Power Holdings Pty Limited Year ended Year ended Variance 30 June 2012 30 June 2011 $m $m $m % Profit for the year 190.4 150.3 40.1 2
Slide 17: Underlying earnings after tax: up $25m (17%) to $176m
Underlying earnings after tax: up $25m (17%) to $176m Full-year distribution stable at 23 cents per share Year ended Year ended Variance 30 June 2012 30 June 2011 $m $m $m % EBITDAF 508.7 441.4 67.3 15% Depreciation and amortisation (193.1) (166.3) (26.8) (16%) Equity accounted earnings of associate
Slide 18: FY12 Segment overview
FY12 Segment overview Electricity segment EBITDAF: up $63m (16%) EBITDAF by segment to $468m: 550 509 • Hedged generation: Up $37m (11%) with 500 41 10 441 benefits from lower gas and carbon unit costs 450 74 36 offset by reduced hydro volumes 400 28 • Exposed generation: Up $44m (147%) due to 350 3
Slide 19: FY12 Hedged Generation – Up $37m (11%) to $384m
FY12 Hedged Generation – Up $37m (11%) to $384m Benefits from reduced gas and carbon costs and CfD sales offset by reduced hydro volumes Breakdown of hedged generation costs • Hedged generation volume increased 314 GWh 70 – CfD volume up 251 GWh as industry 60 Hedged generation price components ($/M
Slide 20: FY12 Exposed Generation – Up $44m (147%) to $74m
FY12 Exposed Generation – Up $44m (147%) to $74m Due to higher wholesale prices • Exposed price up $35/MWh to $98/MWh. Breakdown of exposed generation contribution per MWh Average peaker price $116/MWh • Exposed volume up 80 GWh to 1,313 GWh 100 Exposed generation GWAP components ($/MWh) 90 • Unit g
Slide 21: Spot prices in FY12 were $42/MWh higher at $92/MWh
Spot prices in FY12 were $42/MWh higher at $92/MWh Prolonged periods of below mean storage driven by record low inflows in the South Island, muted by significant oversupply caused by five years of limited demand growth Price and storage 500 5,000 400 4,000 Price ($/MWh) Storage (GWh) 300 3,000 200 2
Slide 22: FY12 Retail Electricity – Down $18m (64%) to $10m
FY12 Retail Electricity – Down $18m (64%) to $10m Due to reduced mass market margins and unfavourable location costs more than offsetting the benefits of margin increases and growth in Commercial and Industrial • Commercial and Industrial growth on all metrics Breakdown of retail contribution 200 –
Slide 23: FY12 'Other' segment contribution up $4m (11%) to $41m
FY12 ‘Other’ segment contribution up $4m (11%) to $41m driven by improved LPG volumes and margin • LPG EBITDAF up $5m to $12m Other Segment EBITDAF – Volumes up 514 tonnes to 65,715 tonnes EBITDAF FY11 36 – Margin improved $70 per tonne with NZ dollar LPG 5.0 purchase contracts agreed and reduced ca
Slide 24: Capital structure
Capital structure • Diverse funding portfolio expanded in FY12 Funding Sources as at 30 June 2012 – First tranche of the USPP of US$75 million 5% (NZ$135 million) matures in February 2013 and has moved into current liabilities 10% 23% – Successful $200m capital bond tapped NZ 5% retail market demand
Slide 25: Strategy Update
Strategy Update Dennis Barnes Results for year ended 30 June 2012 25
Slide 26: Contact Energy – strategic priorities
Contact Energy – strategic priorities Lower average cost of Positioned for growth generation and increased – Tauhara – next most portfolio flexibility competitive generation 166 MW Te Mihi development in New Peakers Zealand Whirinaki – Diverse range of Gas storage development options Swapt
Slide 27: Little sign of demand growth; further increases in supply to come
Little sign of demand growth; further increases in supply to come • Lack of demand growth since 2008 continues Demand Annual demand Growth rate June demand GWh % p.a. GWh 2012 2011 2010 1 year 2 year North Island 24,879 24,896 24,550 (0.1%) 0.7% South Island excluding Tiwai 9,267 9,287 9,609 (0.2%)
Slide 28: Reshaping contracted gas volumes from 2H14
Reshaping contracted gas volumes from 2H14 will allow Contact to flexibly match its retail sales Current mean conditions fuel sources and load before CFD's 2015 fuel sources and load before CFD's 12,000 12,000 Swaption Gas TBC 10,000 10,000 Gas Gas 8,000 8,000 Storage TOU TOU TBC 6,000 6,000 GWh GWh
Slide 29: Significant growth capex finishes in FY13 with completion of Te Mihi
Significant growth capex finishes in FY13 with completion of Te Mihi, which in turn releases free cash flow in FY14 Capital Expenditure - Projected • Stay in business capex 700 includes plant related 600 expenditure 500 • Geothermal capex Cost $ 'm 400 beyond 2012/13 is resource related 300 – Ohaaki
Slide 30: Summary
Summary Financial performance • Diverse and increasingly flexible portfolio delivering measurable benefits • Sales volume and margin increased. A more competitive offering for customers • National demand remains stagnant, dryer conditions ease oversupply Improving operational performance • Gas cost
Slide 31: Supporting Material
Supporting Material Results for year ended 30 June 2012 31
Slide 32: Record low hydro inflows and generation
Record low hydro inflows and generation FY12 hydro generation and storage inflows 4,500 900 4,000 800 Hydro generation (GWh) 3,500 700 Hawea Inflows (GWh) 3,000 600 2,500 500 2,000 400 1,500 300 1,000 200 500 100 0 - FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Hawea inflows
Slide 33: Forward gas contracting position
Forward gas contracting position Contact's contracted quantity ROFR (ToP) OMV (ToP) Gas Swap ROFR (max) OMV (max) 50 45 3 2 40 4 4 35 30 16 17 PJ / year 25 4 3 20 Take-or-pay Take-or-pay 36* PJ 32* PJ 15 Take-or- 10 21 21 21 pay 24 PJ 5 3 0 CY12 CY13 CY14 CY15 * Includes gas swap sale of 1 PJ in CY1
Slide 34: AGS Working Volume
Revised estimate of working capacity indicates mid-point of approximately 3 PJ of capacity remain for the first cycle. Current gas inventory 11.9 PJ AGS Working Volume Working Volume Initial estimate of maximum working volume Revised estimate of maximum working volume Estimated working volume after
Slide 35: Gas Position
Gas Position No direct gas take-or-pay costs; increased flexibility; lower average cost of gas • Underlying generation gas costs decreased $0.97/GJ, no direct take-or-pay costs during 1H12 • Injections into storage mitigated 2.2 PJ (equivalent to $17m in costs) and extractions totalled 0.6 PJ. Curre
Slide 36: Financial Results Summary
Financial Results Summary Key financial information Year ended Year ended Variance 30 June 2012 30 June 2011 $m $m $m % Revenue and other income 2,700.7 2,230.8 469.9 21% Operating expenses (1) (2,192.0) (1,789.4) (402.6) (22%) EBITDAF (2) 508.7 441.4 67.3 15% Depreciation and amortisation (193.1) (
Slide 37: Electricity segment result
Electricity segment result Electricity Segment 12 Months Ended 12 Months Ended Variance 30 June 2012 30 June 2011 $m $m $m % Wholesale Electricity Revenue 970.5 505.7 464.8 92% Retail Electricity Revenue 1,480.4 1,443.6 36.8 3% Steam revenue 20.4 19.7 0.7 4% Total Electricity Revenue 2,471.4 1,969.0
Slide 38: Other segment result
Other segment result Other segment Year ended Year ended Variance 30 June 2012 30 June 2011 $m $m $m % Wholesale gas revenue 22.4 50.9 (28.5) (56%) Retail gas revenue 69.4 72.4 (3.0) (4%) LPG revenue 116.5 117.0 (0.5) (0%) Meter leases revenue 13.5 12.7 0.8 6% (1) Meter leases revenue - internal 28.
Slide 39: Hedged Generation
Hedged Generation Up $37m (11%) with benefits from lower gas and carbon unit costs offset by reduced hydro volumes Hedged segment contribution Units FY12 FY11 Var Var (%) Hedged generation GWh 9,340 9,026 314 3% Transfer price $ / MWh 88.21 88.21 - - Hedged generation at GWAP transfer price $ 'm 823
Slide 40: Exposed generation
Exposed generation Up $44m (148%) due to increased volumes and higher wholesale prices Exposed segment contribution Units FY12 FY11 Var Var (%) Exposed generation volume GWh 1,313 1,233 80 6% Exposed GWAP $ / MWh 98.35 62.87 35.5 56% Revenue $ 'm 129.1 77.5 51.6 67% Expenses Gas Purchases and Transm
Slide 41: Retail: Down $18m (64%) due to lower mass market volumes
Retail: Down $18m (64%) due to lower mass market volumes; increasing network costs and line losses more than offsetting the benefits of price increases and growth in Commercial and Industrial sales Retail electricity contribution Units FY12 FY11 Var Var (%) Sales GWh (ICP) 8,280 8,254 26 0% Revenue