Contact Energy Limited · NZX:CEN
Contact Energy — 1H FY2013 Earnings Presentation
46 slides from Contact Energy's earnings presentation, Feb 19, 2013
Slide 1: 2013 Interim Results Presentation
2013 Interim Results Presentation 19 February 2013 Six months ended 31 December 2012 Dennis Barnes, Chief Executive Officer Graham Cockroft, Chief Financial Officer
Slide 2: © Contact Energy Limited 19 February 2013 Results for the six months ended 31
© Contact Energy Limited 19 February 2013 Results for the six months ended 31 December 2012 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 19 February 2013 Results for the six months ended 31 December 2012 4
Slide 5: Solid results with improvement across all key financial metrics
Solid results with improvement across all key financial metrics Resumption of cash dividend 6 months ended 31 Dec 2012 EBITDAF1 $253m up 10% from $231m Profit for the period $88m up 29% from $68m Earnings per share (cents) 12.2 cps up 26% from 9.7cps Net items excluded from underlying earnings after
Slide 6: The business is better able to manage changes in the operating environment
The business is better able to manage changes in the operating environment • In a highly competitive retail market volumes remain stable, with sales margins lower as a result of sustained competition • Increasingly diverse fuel and asset portfolio responded as hydro volumes increased – base load the
Slide 7: Integrated Energy $22m favourable
Margin reductions more than offset by lower costs as a result of increasingly diverse asset and fuel position Integrated Energy segment EBITDAF: up EBITDAF movement $22m (11%) to $231m: 1H12 231 • Netback: unfavourable $5m (1%) Integrated Energy $22m Netback (5) favourable • Net purchase cost: favou
Slide 8: Operational review
Operational review Dennis Barnes
Slide 9: Netback – $5m lower (1%) to $453m
Netback – $5m lower (1%) to $453m Stable customer base; margins reduce through sustained competition • Netback down $1/MWh to $90/MWh Netback movement • C&I revenue down $5m 1H12 458 – Sales marginally down 11 GWh to 2,053 GWh C&I elec revenue (5) – Average tariffs down $2/MWh due to lower Mass mark
Slide 10: National demand remains suppressed; early signs of improvement
National demand remains suppressed; early signs of improvement 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 GWh GWh GWh % North Island 12,739 12,800 (61) (0%) South Island ex Tiwai 4,750 4,722 28 1% Tiwai 2,407 2,721 (314) (12%) Total national demand 19,896 20,243 (347) (2%) • Nati
Slide 11: Contact has consolidated its electricity, gas and LPG market share
Contact has consolidated its electricity, gas and LPG market share • Retail customer numbers remain stable Load split by customer type and island (sales ) 5,000 – Electricity customer numbers stable at 4,260 4,287 442,500; OLOT customers 177,000 (+17,000 from 30 June 2012) 4,000 817 871 29% 29% – Re
Slide 12: The forward price curve has fallen over the last 6 months
The forward price curve has fallen over the last 6 months as the current oversupply impact is forecast to continue Otahuhu forward prices Benmore forward prices 120 160 29-Jun-12 5-Feb-13 29-Jun-12 5-Feb-13 110 140 100 120 90 100 $/MWh 80 $/MWh 80 70 60 60 40 50 20 40 0 Q2 2012 Q4 2012 Q2 2013 Q4 20
Slide 13: Net purchase cost – favourable $27m (11%) to –$222m
Net purchase cost – favourable $27m (11%) to –$222m Diverse fuel and asset portfolio more than offsets impact of lower wholesale prices and price separation • Wholesale spot market down $19m – GWAP down $23/MWh to $56/MWh, exposed volumes down 20% – LWAP down $21/MWh; purchases down 61 GWh – Locatio
Slide 14: Wholesale price down $23/MWh to $56/MWh
Wholesale price down $23/MWh to $56/MWh due to generally higher storage levels and increased hydro generation Price and Storage Price separation and HVDC flows 1H13 450 3,000 $120 14 400 12 2,500 $100 350 10 7 Day Rolling Average Price ($MWh) 300 2,000 $80 8 HVDC Flow (GWh) Storage (GWh) Price ($/MW
Slide 15: Flexibility of portfolio allows management of variable operating conditions
Flexibility of portfolio allows management of variable operating conditions • More flexible fuel allows less thermal generation while hydro volumes increase Generation by source 6,000 – Hydro generation was up 251 GWh (16%) as higher rainfall resulted in increased tributary flows 5,176 4,959 5,000 3
Slide 16: Stratford Peakers, Whirinaki and Ahuroa gas storage operating as expected
Stratford Peakers, Whirinaki and Ahuroa gas storage operating as expected Peaker generation increased 35 GWh to 194 GWh in 1H13 • The peakers have increased Contact‟s ability to respond to market prices and manage portfolio risk, particularly during planned and unplanned outages of other plant – The
Slide 17: Contact is focusing on its operational costs
Contact is focusing on its operational costs across all areas of spend Other operating expenses 160 140 120 50 49 54 100 55 45 48 38 $m 80 60 40 82 79 80 75 73 72 71 20 0 1H10 2H10 1H11 2H11 1H12 2H12 1H13 Other opex Labour costs © Contact Energy Limited 19 February 2013 Results for the six months e
Slide 18: Contact continues to focus on health, safety and the environment
Contact continues to focus on health, safety and the environment Total Recordable Injury Frequency rate stable at 5.9 • The safety of our employees, contractors and visitors to any Contact site is the company‟s highest priority • 66% of staff and contractors trained in “leading towards zero harm” an
Slide 19: Financial performance
Financial performance Graham Cockroft
Slide 20: Underlying earnings per share up 17% and free cashflows up 45%
Underlying earnings per share up 17% and free cashflows up 45% 6 months ended 6 months ended variance 31 Dec 2012 31 Dec 2011 $m $m $m % Profit for the period 88 68 20 29% Earnings per share (cents) 12.2 9.7 2.5 26% Revenue 1,213 1,283 (70) (5%) EBITDAF 253 231 22 10% Underlying earnings after tax 9
Slide 21: Reconciliation of Statutory Profit to Underlying earnings after tax
Reconciliation of Statutory Profit to Underlying earnings after tax 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 $m $m $m % Profit for the period 88 68 20 29% Change in fair value of financial instruments 1 10 (9) (90%) Transition costs 3 1 2 200% Clutha asset impairment and land s
Slide 22: Contact's statutory profit movement
Profit for the period up 29% from $68m to $88m Underlying earnings after tax up 21% from $76m to $92m Contact's statutory profit movement 120 100 4 2 8 22 4 80 8 60 $m 92 87 40 76 68 20 0 1H12 Net items 1H12 UEAT EBITDAF Net financing Equity Tax 1H13 UEAT Net items 1H13 statutory excluded costs acco
Slide 23: Improved EBITDAF and working capital movements increased OCAT and free cash flow
Improved EBITDAF and working capital movements resulted in an increase in OCAT and free cash flow 6 months ended 6 months ended Variance Free Cash Flow 31 Dec 2012 31 Dec 2011 140 $m $m $m % EBITDAF 253 231 22 10% 120 Change in working capital (15) (48) 33 69% 100 Tax paid (39) (16) (23) (144%) $m O
Slide 24: Financing costs increased by $4m
Financing costs increased by $4m, reflecting the investment in Wairakei Investment Programme and Retail Transformation project 6 months ended 6 months ended 31 Dec 2012 31 Dec 2011 $m $m Interest income 2 1 Interest expenses (56) (51) Financing costs (54) (50) Financing costs capitalised 21 13 Weigh
Slide 25: Diversity of funding choices for 2014 refinancing
Diversity of funding choices for 2014 refinancing • Balance Sheet gearing level remains strong At 31 December 2012: – Net debt $1.5bn, up slightly on 31 December 2011 – Gearing ratio 29.3% – $450m total committed bank facilities* ($33m drawn) plus $92m available under export credit agency facility (
Slide 26: Contact has reverted to a fully imputed cash dividend
As signalled, Contact has reverted to a fully imputed cash dividend Interim dividend stable at 11 cps, a payout ratio of 87% of Underlying EPS 25 • 31 December 2012 total imputation credits available to be attached to a 20 dividend are 236m cents per share 12 12 15 • Available subscribed capital at
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, complet
Slide 29: 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 and operating to expectations Wairakei Bioreactor Project Downers August 2012 Commissioned and o
Slide 30: Contact's generation is increasingly renewable
Contact’s generation is increasingly renewable with flexibility around the future role of thermal - Average gap 96 GWh per month - TCC & Otahuhu B at full load can each generate 260 GWh per month Pink section represents lower hydro generation (relative to mean) in the FY12 “dry” financial year © Con
Slide 31: Progress continues on lowering cost of goods sold
Progress continues on lowering cost of goods sold • New maintenance agreements for Otahuhu and Taranaki combined-cycle gas-fired power stations deliver lower costs, defer commitments to major maintenance and provide time to determine future operating regime • Swaption ended 31 December 2012. First H
Slide 32: 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 CFDs 2015 fuel sources and load before CFDs 12,000 12,000 Swaption Gas TBC 10,000 10,000 Gas Gas 8,000 8,000 Storage C&I C&I 6,000 6,000 GWh GWh Geoth
Slide 33: Summary
Summary • Solid first half performance – Stable volume and customer numbers reflect competitive retail offerings – Margins lower as continued generation oversupply drives competition – Reducing cost of generation from diverse fuel and asset portfolio – Cost control • Cost base and structure of the b
Slide 34: Supporting material
Supporting material contact.
Slide 35: 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 segmen
Slide 36: 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 of $95 million are unchanged. – Change in fair value of financial instruments: Current period movement predominantly driven
Slide 37: Non-GAAP profit measures – underlying earnings
Non-GAAP profit measures – underlying earnings • Underlying earnings after tax are calculated by adjusting reported profit for the year for significant items that do not reflect the ongoing performance of the Group. • Significant items are determined in accordance with the three principles of consis
Slide 38: Explanation of reconciliation from reported profit to underlying earnings
Non-GAAP profit measures – explanation of reconciliation from reported profit to underlying earnings • 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. – Transition costs arising
Slide 39: Operating cashflow after tax (OCAT) and OCAT ratio
Operating cashflow 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 • Measur
Slide 40: 18 months operational statistics
18 months operational statistics The month ended The month ended The month ended The month ended The month ended The month ended Data Measure 31 July 2011 31 August 2011 30 September 2011 31 October 2011 30 November 2011 31 December 2011 Netback Mass market electricity sales GWh 414 431 390 350 332
Slide 41: 18 months operational statistics
18 months operational statistics The month ended The month ended The month ended The month ended The month ended The month ended Data Measure 31 January 2012 28 February 2012 31 March 2012 30 April 2012 31 May 2012 30 June 2012 Netback Mass market electricity sales GWh 294 268 318 317 357 411 Commer
Slide 42: 18 months operational statistics
18 months operational statistics The month ended The month ended The month ended The month ended The month ended The month ended Data Measure 31 July 2012 31 August 2012 30 September 2012 31 October 2012 30 November 2012 31 December 2012 Netback Mass market electricity sales GWh 465 428 365 340 304
Slide 43: Financial results summary
Financial results summary Key financial information 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 $m $m $m % Revenue and other income 1,213 1,283 (70) (5%) (1) Operating expenses (960) (1,052) 92 9% EBITDAF (2) 253 231 22 10% Depreciation and amortisation (95) (95) - 0% Change in fa
Slide 44: Integrated Energy segment result
Integrated Energy segment result Integrated Energy segment 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 $m $m $m % Mass market electricity 515 494 21 4% Commercial & industrial electricity 258 263 (5) (2%) Retail gas 39 38 1 3% Steam 11 11 - 0% Total revenue 823 806 17 2% Net purch
Slide 45: Net purchase cost
Net purchase cost Net purchase cost 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 $m $m $m % Wholesale electricity revenue 297 393 (96) (24%) Wholesale gas revenue 15 12 3 25% Total wholesale revenue 312 405 (93) (23%) Electricity purchases (274) (372) 98 26% Other purchase costs (1
Slide 46: Other segment result
Other segment result Other segment 6 months ended 6 months ended Variance 31 Dec 2012 31 Dec 2011 $m $m $m % LPG revenue 65 62 3 5% Meter leases revenue 7 7 - 0% Meter leases revenue - internal 17 17 - 0% Other revenue 5 2 3 130% Total other segment revenue 94 88 6 7% LPG purchases (48) (44) (4) (9%