Contact Energy Limited · NZX:CEN
Contact Energy — FY2022 Earnings Presentation
49 slides from Contact Energy's earnings presentation, August 2022
Slide 1: 2022 full year results presentation
2022 full year results presentation 1 Twelve months ended 30 June 2022
Slide 2: Disclaimer and important information
Disclaimer and important information While all reasonable care has been taken in compiling this presentation, neither Contact EBITDAF, free cash flow and operating free cash flow are financial measures that are nor any of its directors, employees, shareholders nor any other person gives any “non-GAA
Slide 3: Agenda
Agenda 1 FY22 highlights and market update / Mike Fuge, CEO 4 - 14 2 Financial results and outlook / Dorian Devers, CFO 15 - 28 3 Strategy update / Mike Fuge, CEO 29 - 33 3 4 Supporting materials 34 - 49 3
Slide 4: Strong performance despite volatile market conditions, investment ramps up
Summary of key financial performance measures Strong performance despite volatile market conditions, investment ramps up Twelve months ended Twelve months ended 30 June 2022 30 June 2021 (FY21) FY22 market (FY22) The operating conditions in FY22 were Contact has responded to the conditions by: EBITD
Slide 5: Our strategy to lead NZ's decarbonisation
Our strategy to lead NZ’s decarbonisation Strategic Grow Grow renewable Decarbonise Create outstanding theme demand development our portfolio customer experiences Objective Attract new industrial demand with Build renewable generation and Lead an orderly transition Create NZ's leading energy and ser
Slide 6: 18 months into strategy execution, we have seen solid progress
18 months into strategy execution, we have seen solid progress Complete / On-track Minor delay Major delay Strategic theme FY22 Achievements / progress Contact26 strategy targets³ Grow demand Southern Green Hydrogen RFP completed, Lock in major industrial user electrification • Senior in-house capab
Slide 7: Tauhara progress
Tauhara progress As expected in the current construction environment there continues to be cost pressures, but there are trade- off opportunities to further enhance capacity Tauhara development key metrics Estimated MW (net export to grid) 168MW Estimated forward capital expenditure (cash)¹ ~$390m E
Slide 8: National electricity demand
Market demand National electricity demand Electricity demand lower than FY21 Regional 4% National electricity demand (TWh) change (%) FY22 vs FY21 0% 0% -2% (3%) 41.2 40.9 41.3 41.4 41.2 41.6 40.7 Total national electricity demand 1% (9%) decreased by 0.9TWh (-2% from FY21): 5% • Demand from large i
Slide 9: Hydrology and impact on generation mix
Fuel supply Hydrology and impact on generation mix Improved hydro inflows and generation in FY22 saw a reduced reliance on gas and coal Generation by type (TWh) Generation from generator retailers National hydro storage -excludes embedded generation 4.0 1H21 2H22 1H22 2H22 40.4 40.1 39.7 3.5 Gas 5.3
Slide 10: Fuel supply and near-term price impact
Fuel supply and near-term price impact Factors that influence short-term prices, beyond hydrology, sharply higher over last 12 months Longer-term the market is reacting to these price signals and adding new capacity Aluminium prices higher Wholesale and futures electricity pricing ($/MWh) Short-term
Slide 11: Retail competition remains intense
Retail electricity market Retail competition remains intense Retailer’s long-term view of pricing rides through short-term wholesale input cost volatility Change in customer connections (000s) • Competition remains intense, not only from new and disruptive competitors, but reinvigorated incumbents T
Slide 12: Climate change and regulation
Climate change and regulation Bi-partisan support for the New Zealand regulatory framework is being adapted to deliver on this societal imperative. Potential electricity demand impact Potential renewable generation impact Potential wider electricity sector impact Net zero New First New Government Re
Slide 13: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing Spot and hedge market prices continue to be higher than Contact is exploring further renewable generation opportunities across geothermal, wind, solar long term averages due to coal prices, gas availability to reduce future impacts from the
Slide 14: Topical regulatory matters
Topical regulatory matters Key themes What Contact is doing The Government is assessing options to address Contact supports further analysis to address dry year risk. Multiple options exist that will require New Zealand’s dry year risk with 100% renewable careful evaluation, including interruptible
Slide 15: Financials
Financials Putting our energy where it matters.
Slide 16: Key themes from the financial results
Key themes from the financial results Mean year EBITDAF Visible leadership in Long-run electricity prices continues to rise decarbonising our industry adjusting to reflect inflation Demand outlook continues Around 50% of Tauhara Strong focus on to firm output signed as long-term delivering returns o
Slide 17: Profit of $182m, down $5m
FY22 results Profit of $182m, down $5m EBITDAF down $16m, as higher renewable generation offset by rising unit thermal fuel costs and lower wholesale prices than the prior year Profit ($m) EBITDAF ($m) -16 6 10 553 41 26 -6 9 537 6 187 182 16 7 3 Other FY21 Renewables Volume Price Gas, carbon Locati
Slide 18: EBITDAF down by $16m
FY22 results EBITDAF down by $16m Business performance by segment Wholesale EBITDAF ($m) Retail EBITDAF ($m) Corporate / unallocated costs ($m) -39 +21 16 Price recovery 65 87 56 1 548 527 42 Electricity, network cost inflation 60 17 0 4 3 5 -28 FY21 Generation Total Trading, FY22 FY21 Electricity E
Slide 19: Generation costs
FY22 results: Wholesale business Generation costs Costs down $42m ($3.8/MWh) on higher renewable generation reducing thermal and acquired generation Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) Hydro generation up 242GWh on FY21 (+7%), 9,040 40GWh (+1%) above
Slide 20: Wholesale contracted revenue
FY22 results: Wholesale business Wholesale contracted revenue Diversified mix of long-term and ASX linked sales channels Contracted +65 revenue ($m) 885 • Fixed price variable volume electricity sales to the Retail segment and C&I 33 customers ended 208GWh lower than FY21 (-$19m), this was offset by
Slide 21: Wholesale trading and merchant revenue
FY22 results: Wholesale business Wholesale trading and merchant revenue Trading EBITDAF ($m) Long / short position (GWh) • 294GWh decrease in merchant sales volumes. 919 The price received for this “long” generation was down by $40.7/MWh 88 on FY21. 625 1 • Inter-island separation 164 $178.3/MWh inc
Slide 22: Retail business performance
FY22 results: Retail business Retail business performance Managing through elevated wholesale input costs while growing market share through multi-product strategy EBITDAF ($m) Continue to smooth the impact of higher electricity FY21 FY22 Variance costs for customers: Revenue & Tariff1 ($m) $m $m Ta
Slide 23: Greenhouse gas reporting
FY22 results: Carbon performance Greenhouse gas reporting Lower carbon emissions reflects higher renewable generation and lower thermal and acquired generation, on target to achieve 2026 SBTi commitments kT of C02e emitted Performance Total scope 1,2 and 3 emissions were 418 kT lower in FY22. -26% 1
Slide 24: Operating costs flat despite acquisitions, strong performance and cost pressures
FY22 results Operating costs flat despite acquisitions, strong performance and cost pressures Other operating costs Other operating • All costs associated with meters are now reflected in cost movement Portfolio, performance and non-recurring Underlying Invest in Cost of Goods (Network, Meters and L
Slide 25: Cash flow and capital expenditure
FY22 results Cash flow and capital expenditure Underlying cash conversion for FY22 impacted by lower EBITDAF, higher tax paid and higher SIB capex Return on invested capital (ROIC*) 12 months 12 months 5.6% Comparison 5.3% ended 30 ended 30 June 5.0% against FY21 June 2022 2021 ROIC (average)** 3.7%
Slide 26: Strong balance sheet
FY22 results: Key balance sheet metrics Strong balance sheet Green debt portfolio with capacity to support the Contact26 strategy Closing net debt ($m) Borrowing maturities ($m) Face value of borrowings less cash Average tenor of 7.4 years as at 30 June 2022 372 • Face value of borrowings (excl. lea
Slide 27: Dividend for FY22 in line with performance
Dividend for FY22 in line with performance Ordinary dividends ($m) Declared Dividend for FY22 of 35 cents per share 280 280 272 273 229 • Final dividend of 21 cents per share is imputed to 90% or 19 cents per share for qualifying shareholders. 115 115 109 109 This represents a pay-out of 84% of FY22
Slide 28: Normalised and expected FY23 EBITDAF assumptions
ASSUMPTIONS FOR NORMALISED EARNINGS Normalised and expected FY23 EBITDAF assumptions CFDs C&I FY assumptions that deliver expected & normalised EBITDAF for FY23 550 350 1 Channel choices maximise long term value¹ x 2 Net price² driven by best commercial practices = Total 650 $125/ $130/ MWh 950 MWh
Slide 29: Progress on Strategy
Progress on Strategy 29
Slide 30: Te Huka investment
Te Huka investment Contact is investing to deliver renewable energy Te Huka development key metrics Estimated MW (net export to grid) 51.4MW Estimated forward capital expenditure (cash)¹ ~$272m Estimated plant capacity factor/ annual generation 95% / ~430GWh p.a. Low carbon resource* 0.03T of C02e/M
Slide 31: Market leading development pipeline
Market leading development pipeline In line with core markets and capability Geothermal generation potential (TWh p.a.) Potential geothermal development projects 0.2 Current generation (p.a.) 2.8 3.3 0.3 Tauhara Te Huka Tauhara 1.4 (168MW) (51.4MW) GeoFutures (under construction) (168MW) Tauhara Inv
Slide 32: Contact indicative EBITDAF after completion of announced investment programme
Contact indicative EBITDAF after completion of announced investment programme +183 720 41 15 57 88 537 550 13 Long-term channel netbacks remain below wholesale 1.825 TWh p.a. of new base load geothermal from Tauhara and market expectations Te Huka expected to be generating by 2025 FY22 actual FY23 u
Slide 33: Our operational plan: What you can expect in the next 12 months
Our operational plan: What you can expect in the next 12 months Strategic theme FY23 Decision of hydrogen export Western Energy – invest in new coil tubing Enable the build of data centres drilling Grow Demand Commence boiler electrification Tauhara build (cont.) Progress GeoFutures development to F
Slide 34: Questions
Questions 34
Slide 35: Supporting materials
Supporting materials 35
Slide 36: Normalised and expected EBITDAF assumptions
FY22 results Normalised and expected EBITDAF assumptions With reconciliation to actual performance FY22 assumptions that deliver expected & normalised EBITDAF of $520m over a financial year EBITDAF reconciliation to FY22 1 Channel choices maximise long term value¹ x 2 Net price² driven by best comme
Slide 37: Guidance below EBITDAF
Guidance below EBITDAF FY22 FY22 result FY23 guidance Commentary guidance Sustainable SIB capex remains $65m p.a. An additional $100m SIB capex Stay in business capital expenditure $88-98m $75m $88-$98m above this level is expected between FY22-27 to support higher asset (cash) availability and outp
Slide 38: Integrated portfolio performance
Integrated portfolio performance Operating earnings (EBITDAF) 1 Electricity sales Actual Forecast Actual Forecast Actual Forecast Continuing operations ($m) (i) Long-term channels (ii) Market channels 553 141 550 131 133 537 Price 108 110 103 105 106 ($/MWh) 505 EBITDAF 5.08 5.15 4.94 Price 93 446 4
Slide 39: Return on invested capital
Return on invested capital Focus on improving returns on invested capital through the medium term capex programme Return on invested capital Net operating profit after tax (NOPAT) 7 227 219 198 203 188 163 EBITDAF 501 481 518 553 537 6 446 5.6% 5.3% -12 0 2 0 0 0 5.0% Significant items 5 -208 -220 -
Slide 40: Greenhouse gas emissions
Carbon reporting Greenhouse gas emissions Indicator Unit Target FY19 FY20 FY21 FY22 Direct GHG emissions (Scope 1) tC02e 985,905 920,403 1,044,744 786,842 45% reduction of 2018 - Stationary combustion tC02e Scope 1 and 2 emissions 984,903 920,403 1,044,537 786,544 by 2026 (Absolute - Mobile combusti
Slide 41: Generation and sales position
Operational data Generation and sales position Contact generation output sold to the national grid (GWh) Hydro generation (GWh) Inflows stored include uncontrolled storage lakes 9,002 8,614 8,908 3,752 8,537 8,445 8,404 8,269 4,083 Thermal 3,979 3,698 3,940 1,614 1,421 generation 1,742 1,812 1,360 1
Slide 42: Plant and fuel performance
Plant and fuel performance Geothermal fuel performance Plant availability Geothermal fuel extracted at Wairākei vs consented (GWh) Hydro Geothermal +5% Net Availabilit Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue 99% capacity y factor output capacity (%) facto
Slide 43: Fuel storage movements
Operational data Fuel storage movements Hawea storage (GWh) Gas storage (PJ) Closing storage Closing storage 5.6 4.7 7.7 Gas Injected 0.8 0.5 257 90 6.1 260 5.0 152 113 5.8 2.4 166 4.4 5.0 0.8 175 2.2 244 0.6 1.7 190 159 351 324 1.5 294 229 299 Inflows 252 Opening Storage 7.5 7.8 257 260 6.1 175 166
Slide 44: Contracted and stored gas
Operational data Contracted and stored gas Contracted gas volumes (PJ) Gas storage monthly injections and extractions (PJ) Uses of gas (PJ) 18.6 18.4 16.9 1.1 16.6 16.6 Net extraction 4.1 1.9 15.5 (injection) 2.3 14.6 3.1 6.5 4.5 1.1 2.0 6.9 3.1 5.5 5.3 10.3 9.8 9.4 9.3 4.5 Purchases 8.1 8.1 3.4 4.5
Slide 45: Reconciliation between Profit and EBITDAF
Non-GAAP profit measure Reconciliation between Profit and EBITDAF EBITDAF is Contact’s earnings before interest, tax, depreciation and amortisation, and The adjustments from EBITDAF to reported profit and changes in fair value of financial instruments. movements on FY21 are as follows: • Depreciatio
Slide 46: Historical financial information
Historic performance Historical financial information Unit FY18 FY19 FY20 FY21 FY22 Revenue $m 2,275 2,519 2,073 2,573 2,387 Expenses $m 1,794 2,001 1,622 2,020 1,850 EBITDAF $m 481 518 446 553 537 Profit $m 132 345 125 187 182 Operating free cash flow $m 305 301 341 290 325 Operating free cash flow
Slide 47: Wholesale segment
Segmental performance Wholesale segment FY22 FY21 Reference number for Twelve months ended 30 June 2022 Twelve months ended 30 June 2021 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 s
Slide 48: Wholesale segment key
Segment note to operational performance Wholesale segment key Reference to detailed operating segment Wholesale segment Comment performance C&I electricity – fixed price 2 Spot sales are regarded as a pass-through and not reflected in performance C&I electricity – pass through 2-pass through reporti
Slide 49: Retail segment
Historic performance Retail segment Residential electricity unit FY19 FY20 FY21 FY22 Residential gas unit FY19 FY20 FY21 FY22 Average connections # 353,105 355,073 357,117 373,347 Average connections # 61,711 61,591 60,701 64,649 Sales volumes GWh 2,491 2,532 2,520 2,644 Sales volumes TJ 1,605 1,577