2020 Full Year Results Presentation Twelve months ended 30 June 2020
Putting our energy where it matters Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 1 Disclaimer and important information
This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon assumptions at a point in time, and carry significant risks if relied upon.
Actual results may differ materially from those stated Furthermore, while all reasonable care has been taken in any forward-looking statement based on a number of in compiling this presentation, Contact accepts no important factors and risks. responsibility for any errors or omissions.
Although management may indicate and believe that the This presentation does not constitute investment advice. assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove Numbers in the presentation have not all been rounded inaccurate or incorrect and, therefore, there can be no and might not appear to add. assurance that the results contemplated in the forward- All logos and brands are property of their respective looking statements will be realised. owners. All company, product and service names used in EBITDAF, underlying profit, free cash flow and operating this presentation are for identification purposes only. free cash flow are non-GAAP (generally accepted All references to $ are New Zealand dollar. accounting practice) measures. Information regarding the usefulness, calculation and reconciliation of these measures is provided in the supporting material.
Contact EnergyContact / EnergyFY20 Full / FY20 Year FinalResults Results Presentation / 10 August / 10 2020 August 2020 2 PRESENTATION AGENDA
1 FY20 Highlights and Progress on Strategy / Mike Fuge, CEO 4-19
2 Operational Performance and Financial Results / Dorian Devers, CFO 20-31
3 Market Update and Outlook / Mike Fuge, CEO & Dorian Devers, CFO 32-44
4 Supporting Materials 45-59
ContactContact EnergyEnergy // FY20 FullFull YearYear ResultsResults PresentationPresentation // 1010 AugustAugust 20202020 3 FY20 highlights and progress on strategy
Mike Fuge, CEO
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 4 4 SUMMARY OF KEY FINANCIAL PERFORMANCE MEASURES
Twelve months ended Comparison against Twelve months ended 30 June 2020 continuing operations3 30 June 2019 Operating earnings (EBITDAF) were down by $54m when compared to (FY20) FY19 (FY19) continuing operations in FY19, a period which included: • Stronger hydro generation EBITDAF1 $451m ↓ -11% from $505m ↓ -13% from $518m • Higher wholesale prices
The operating conditions in FY20 were characterised by: Profit $125m ↓ -26% from $170m ↓ -64% from $345m • Rising costs of thermal generation which include gas, carbon and gas storage. Underlying profit1 $129m ↓ -22% from $166m ↓ -27% from $176m • Disciplined and active commodity risk management and a reduction in fixed priced sales. Dividend per share 39.0 cps - 39.0 cps • Transmission constraints during planned HVDC outage impacting market making. • Global pandemic. Operating free cash flow2 $290m ↓ -13% from $334m ↓ -15% from $341m
Despite the difficult operating conditions, Contact delivered strong Operating free cash flow cost control with other operating costs from continuing 40.4 cps ↓ -13% from 46.5 cps ↓ -15% from 47.5 cps per share2 operations down by $9m (4%) and SIB capital spend down by $7m (12%). Our high quality renewable generation assets and portfolio structure deliver strong cash flows. Stay-in-business (SIB) $51m - -12% from $58m ↓ 15% from $60m capital expenditure (cash) Economics of baseload thermal generation are looking challenged long-term; The Taranaki Combined Cycle (TCC) plant asset useful life 1 Refer to slides 54-55 for a definition and reconciliation of EBITDAF and underlying profit has been reassessed with depreciation accelerated, reducing profit in 2 Refer to slides 29 for a reconciliation of operating free cash flow FY20 vs prior comparative period. 3 Continuing operations excludes the discontinued Rockgas LPG business sold on 30 November 2018
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 5 FOCUS ON OPERATIONAL IMPROVEMENT
Maintaining financial discipline Safe and engaged employees Rewarding shareholders Other operating costs and SIB capex ($m) Total recordable injury frequency rate Distributions ($m) (Recordable injuries per million hours worked) 391 357 5.2 301 272 248 286 280 280 3.3 3.2 2.1 1.3 100 229
FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 186 165 165
136
Building customer advocacy Employee engagement (%) 107 107 Net promoter score - NPS (Promoters less detractors)
77% 68% 75% 74% 36 56% 115 115 26 93 Buyback 20 79 79 15 Final dividend 3 Interim dividend FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 6 FOCUS ON SUSTAINABILITY
Total generation emissions intensity Customers with impaired credit now accepted Gender diverse workforce
tCO2-e / MWh % of impaired credit customers accepted % of total workforce
19% 20% 0.175 21% 0.156 41% Female
0.136 52%
0.134 54% 56%
0.123 59% 63% 0.111 0.108 63% Science based
target
81% 80% (2026) 79%
Male
48%
46%
44%
41% 37% FY14 FY15 FY16 FY17 FY18 FY19 FY20 37%
22%
FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 Renewable generation Corporate Customer Generation % of total generation
82% 80% 79% 83% 83% Māori 69% 76% Pasifika Asian European 2% 2% 1% Other AMELA
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Undisclosed
FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20
NB. Individuals can choose to identify multiple ethnicities
7 Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 7 MARKET DEMAND
Regional change (%) (3%) National electricity demand (TWh) FY20 vs FY19
5% Demand flat. Indicates 0% underlying demand growth (3%) 0% once the impact of COVID is (1%) included 41.2 40.9 41.3 41.4 41.2 1% 0% (6%)
0% North Island 25.9 25.9 26.1 26.1 25.8
0% 0%
South Island 5% 10.2 10.0 10.1 10.1 10.3 0% (ex NZAS) NZAS curtailed the production from the 4th potline (50MW) from 3 April 2020. 2% NZAS 5.0 5.0 5.0 5.2 5.1 NZAS have given notice of termination of their remaining electricity contract FY16 FY17 FY18 FY19 FY20 8% (572MW), with closure expected on 31 August 2021. 1% 1% Source: EMI, Contact Source: EMI, Contact 2%
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 8 MARKET FUEL SUPPLY
Production from the major fields (PJ) Demand from key sectors (PJ)
-3
166 166 162 163 162 163 149 149 31 33 25 26 87 79 82 33 28 38 76 24 Maui Petrochemical Mangahewa Electricity Pohokura 65 61 56 Retail and other 62 Kupe 44 41 39 34 Turangi Kowhai 26 27 24 23 40 39 38 40 11 3 11 5 11 5 12 3 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20
Source: OATIS Source: OATIS, EMI, Contact estimate
Total production has recovered with increases from McKee Gas used in electricity generation in line with the last two years. Concerns around Mangahewa, and Maui. Pohokura performing well. future delivery have resulted in cautious management of hydro storage.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 9 FUEL SUPPLY
Generation by type (TWh) National hydro storage against mean storage (TWh) Generation from generator retailers Mean storage 1927 – 2020
4.5 5.1 5.3 Gas Despite high inflows in 4.0 1.6 1.7 Coal November and December 2019, hydro generation was 3.5 slightly down compared with FY19 following a 3-month 3.0 HVDC outage limiting the ability to generate from South 2.5 25.0 24.0 Hydro Island hydro catchments. 2.0 The increase in gas fired generation reflects a recovery 1.5 in gas volumes from the Jul Jan Jul Jan Jul Pohokura field following an 2018 2019 2019 2020 2020 1.6 1.9 Wind extended outage in late 2018. Production from the Maui and Mean Geothermal 7.3 7.3 Pohokura fields are still below Actual Wood historical levels. 0.2 0.3 Hydro generators stored more water than historically seen to cover potential 2020 winter exposure in an uncertain gas FY19 FY20 supply environment, while the HVDC outage limited South Island hydro during the first quarter of calendar 2020.
Source: EMI Source: NZX
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 10 FUEL SUPPLY AND SHORT-TERM PRICE IMPACT
Short-term external factors that Wholesale and futures electricity pricing ($/MWh) can influence the market NZAS running below their contracted volumes. 7July 2020 closure 220 announced by 31 August 2021. 200 Long-dated futures (>12 months) 180 Short-dated futures (<12 months) Aluminium Methanol pricing at Coal prices only ~$2-4/GJ gas 160 Monthly average spot price reducing equivalent, economics of 140 Short-term Methanol challenging wholesale 120 electricity 100 Long-term prices average 80 spot price = $83.86/MWh 60
Thermal fuel cost will 40 COVID-19 impacts continue to remain on demand being felt elevated. 20 throughout mass 0 market and C&I Gas availability Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun channels improved over the 10 11 12 13 14 15 16 17 18 19 20 second half of FY20.
Long-term pricing is linked to the long-run marginal costs of new renewable projects Both long-dated and short-dated prices remain well above long-term averages, reflecting to meet demand plus costs associated with firming renewable intermittency higher thermal fuel costs. Source: EMI wholesale pricing
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 11 MARKET
Change in customer connections (000s)
139% Tier 1: -15k customers Tier 2: +128k customers 126% 50 Retail competition remains intense. 40 Divergent views on the value of a customer: 30 . Tier 1: Mercury reducing customer numbers, Meridian 20 growing market share 4% 10 -2% -2% -11% -11% . Electric Kiwi continuing growth trajectory 36% -19% 0 . Reducing market share of main players continues, Tier 2 11% 4% -10 market share now at 15% (from 12% June 2018). -20 . New connections in line with prior year -30 -40 -50 Genesis Contact Mercury Meridian Trustpower Nova Pulse Flick Electric Vocus Other 2yr ICP delta (1000s) Kiwi 2yr % change Source: EMI
Retail tariff changes (c/ kWh)
0% Despite sharply higher wholesale prices over the last two years, tariffs flat 28.7 29.0 29.1 29.1 Lines (c/kWh) reflecting intense competition and diverging views of long-term wholesale 12.4 12.7 12.5 12.3 Energy & Other (c/kWh) prices.
12 months 16.4 16.3 16.5 16.8 Regulatory reset of Electricity Distributors WACC, has led to network cost ended: Mar-17 Mar-18 Mar-19 Mar-20 reductions since 1 April 2020.
Source: MBIE
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 12 REGULATORY
The Electricity Authority ( EA) reached a preliminary conclusion that a UTS occurred in December 2019 during significant flooding in the lower South Island. The cost of providing market making services needs to be borne by all beneficiaries including generators, While Contact was not found responsible, Contact disagrees with the EA’s initial purchasers and financial participants. Contact welcomes assessment of market conditions and generators offer behavior. the EA’s Hedge Market Enhancement workstream and believe a Commercial scheme that is sized appropriately through a competitive process will be the most sustainable and beneficial to consumers.
In January, Contact agreed new ASX trading arrangements that increased market making volume and maintain narrow bid/offer spreads. This was consistent with the EA’s request for Contact and other large gentailers to voluntarily provide market making to ensure Safety first Economically rational market liquidity. Safety of our assets, people and the Generators need to offer their communities in which we operate is generation to be able to recover The EA is also continuing consultation on enduring paramount. Contact sought to limit marginal the economic cost running during the flood event to maintain market making measures. stable lake levels and ensure steady flows to avoid flooding downstream of Roxburgh. Marginal running can exacerbate changes in lake levels and river flow.
Submissions close on 18 August, with cross submissions due on 9 September.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 13 DELIVERING PORTFOLIO STRATEGY
Optimise the Customer and Wholesale businesses to deliver strong cash flows.
Customer Wholesale
Disciplined and transparent approach to operating and capital expenditure. Continuing to investigate ways to optimise our portfolio of assets.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 14 DELIVERING CUSTOMER STRATEGY
Technology Brand Leverage advances in Brand and reputation technology to drive efficiency repositioned from a strong with automated customer operational retailer to a smart experiences. customer solutions provider.
Operating model Simple and lean operating model centred on the customer experience, reinventing key customer experiences and processes. Capable employees identifying and driving performance initiatives with ownership and accountability.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 15 DELIVERING CUSTOMER STRATEGY: UPDATE
Technology Brand Optimisation through ‘clouding’ and digital Winning brand recognition and awareness collaboration Operating model Targeting reductions in cost to serve
Top rated energy app >26,000 broadband in New Zealand, with usage increasing connections 90% on prior year Robotic Process Automation (RPA) implementation With >19% of customers now across 26 key processes taking more than one product or Cloud based systems and software service enabling seamless remote working 130k customers now on zero Prompt Payment Award winning Brand for all staff through the Discount (PPD) plans, Charge Energy Global Awards: Best Covid-19 lockdown following the launch of our Simplicity plans Established Brand, and Readers Digest Digital self service interactions up Quality Service Awards: sector Gold 450% Cost reductions Award Through bill and consumption views, with $4m reduction in ICT opex from ongoing Strong NPS growth payments, account management & platform improvements support. Q4 NPS increased from +26 in FY19 to +36 in FY20 Lower customer complaints than market 12% share of all market deadlock complaints relative to our connection market share of ~19%
Net bad debt write offs reduced by 25% on prior year
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 16 DELIVERING WHOLESALE STRATEGY
Thermal generation Customer solutions Develop options to enable the Leveraging capability to expand C&I products economic substitution of and services; Contact’s thermal generation underpinned by our investment in Simply Energy. assets with renewables. Partner with customers on mutually beneficial Improve the economic return decarbonisation opportunities. on our flexible thermal assets in a volatile market. Renewable development Potential to develop Tauhara, New Zealand’s lowest-cost firmed scale renewable generation option: Prepare a range of development strategies to accommodate the project in a changing market. Resource proven, project ready for execution as soon as market conditions allow.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 17 RENEWABLE DEVELOPMENT
The Tauhara development is ready for execution when market conditions allow.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 18 COVID-19 RESPONSE
o Enterprise-wide programme management office set up identifying opportunities to improve performance • Reduced controllable operating and capital costs o Increased liquidity by $200m for 18 months at short notice to pre-emptively protect against a potential credit market closure
o Support provided to employees o Support provided to the community
o Credit collection well managed in line with Nga Tikanga, our moral compass o Customer advocacy improved, with NPS higher
o New ways of working programme accelerated • Enabled by technology investment and move to cloud-based applications
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 19 Operational performance and financial results
Dorian Devers, CFO
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 20 20 FY20 RESULTS
Profit ($m) EBITDAF ($m)
-54 505 345 30 17 451 5 5 10 13 -10 1 2 3 4 5
175 FY19 on Renewables Pricing Natural gas Market Fixed costs FY20 continuing constraint making inc. opex Price operations Volume
170 1 2 3 4 5 54 10 125 17 Lower hydro FY19 Gas Market Strong 15 15 year on year supported availability makers operating (impacted by stressed issues in forced into cost control transmission market 1H20, positions, and lower constraints) during lower driving transmission partially unplanned electricity earnings costs. offset by gas field sales volatility strong outage. volumes. FY19 profit Discontinued Profit on EBITDAF Depreciation Net interest Tax Significant FY20 profit geothermal operation continuing and costs items generation operations amortisation
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 21 FY20 RESULTS
Wholesale EBITDAF ($m) Customer EBITDAF ($m) Corporate / unallocated ($m)
-38 -17 +1 67 5 Networks 0
44 48 Electricity 19 50 5 464 2 -14
-26 -25 34
426 Price recovery of cost inflation
Electricity gross margin (-$14m)
FY19 Generation Total Trading, FY20 FY19 Electricity Cost Gas Gross Opex FY20 FY19 FY20 costs contracted merchant price inflation Margin (including revenue revenue acquired and losses generation)
Refer to slides 23 - 25 Refer to slide 26
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 22 FY20 RESULTS: WHOLESALE BUSINESS
Electricity generated or acquired (GWh) Electricity generated or acquired costs ($m) Hydro generation down 479GWh on FY19 (-11%), 4% below that expected in a mean year. Geothermal volumes were 9,625 -44 77GWh up on prior year and 33GWh on an Acquired 634 348 348 average year as Contact processed more 8,858 fluid in advance of FY21 outages. 335 Thermal 1,504 Acquired 68 68 304 304 • Renewable generation costs were down 1,439 38 38 by $10m. Transmission costs down by 17 $6m, other operating costs down $5m. 21 22 Gas storage Geothermal carbon costs were up $1m. 24 Carbon costs Thermal generation costs were down due to lower thermal generation in the year. Thermal 161 96 Hydro 4,231 157 3,752 90 Gas and diesel • Gas and carbon unit costs up from $75/MWh in FY19 to $76/MWh (+1%). • Fixed costs, led by the new gas storage 48 Electricity and gas 40 contract (since October 18), were up by transmission and levies $6m on the prior comparative period (net of other operating costs). Renewable 118 108 98 89 Other operating costs An easing of gas supply restrictions over Geothermal 3,256 3,333 FY20 saw risk management costs significantly lower (down $30m) with Generation Cost Generation Cost acquired generation volume down by 53%. type type type type
FY19 FY20 FY19 FY20
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 23 FY20 RESULTS: WHOLESALE BUSINESS
Contracted revenue ($m)
-48 737 • Fixed price variable volume electricity sales to the 12 Customer segment and C&I customers ended 896GWh Other net income 26 689 Steam sales 2 lower than FY19 (-$75m), this was partially offset by 26 higher prices (+$22m) to the Customer business, CFD sales 136 1,844GWh +240GWh reflecting higher wholesale prices over the three $73.9/MWh 152 -$1.0/MWh preceding years.
• CFD sales were up by 240GWh with increased sales to support NZAS, which was up by 23GWh on FY19, 3,019GWh C&I netback 248 -848GWh electricity sales from gas tolling (gas price, not market 176 $82.1/MWh -$0.9/MWh linked) and CFD sales committed to part way through 1H19 before forward prices rose. Only 274GWh of CFD sales have been committed since October 2018.
• Steam revenue was in line with FY19 with a reduction in volume but increased tariffs on rising carbon costs.
Customer sales 314 3,789GWh 332 -48GWh • Other income down by $10m as volatile wholesale $83.0/MWh +$5.8/MWh markets reduced market making revenue ($9m)
FY19 FY20
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 24 FY20 RESULTS: WHOLESALE BUSINESS
Trading EBITDAF ($m) Long / short position (GWh) Merchant generation • 98GWh decrease in merchant sales volumes -34 Spot sales and buy 75 CFD settlement (-$10m). The price received for this “long” generation 973 41 Spot purchases and was down by $38.2/MWh sell CFD settlement 139 $142.3/MWh (-$37m). 974 862 91 Pool purchases • Strong risk management 876 0 0 $104.1/MWh saw limited price exposure -64 -51 to unhedged spot market 8,569 7,904 purchases during higher FY19 FY20 wholesale price periods. 4,246 • The relative reduction fixed Trading revenue 4,118 price sales and lower Merchant sales: short-term sales channel available when the -7,918 wholesale prices saw spot prices exceed the opportunity cost of Contact generation. absolute LWAP/GWAP 5.5% 6.0% improve by $13m. Pool purchase: short-term opportunistic purchases from -8,569 ($7.4 / MWh) +$1.0 / MWh the spot electricity market when better value than -1 alternatives (adjusted for volatility and volume). ($45.9/MWh)
LWAP / GWAP losses: locational price differences -2 ($115.8/MWh) between where electricity is generated and purchased. FY19 FY20
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 25 FY20 RESULTS: CUSTOMER BUSINESS
EBITDAF ($m) Electricity tariff changes reflect the FY19 FY20 Variance regulatory pressures and the Revenue & Tariff1 ($m) -17 competitive environment: $m $m Tariff $m Tariff 50 67 • 16k customers migrated to fit-for- Other income 4 5 Electricity gross revenue 858 859 243.7 1 0.8 purpose plans. Gas net price 35 37 • End to further Prompt Payment PPD not taken 12 10 Discounts - 19% reduction in PPD not taken. Incentives paid (7) (6) 447 • Free electricity to charities during Electricity Net revenue (cash) 863 862 244.8 (1) 0.7 net price $125.3/MWh $1.5/MWh COVID ($0.7m). 442 • Only ~20% of customers received Capitalised incentives 9 7 a price increase in FY19, resulting Broadband in limited flow through. Amortised incentives (8) (8) 0 0 Smooth the impact of higher -314 Net revenue (P&L) 864 861 244.5 (3) 0.0 electricity costs for customers, which Electricity costs are up by 6% on FY19. ($89.0/MWh) -332 -$5.3/MWh Gas revenue 73 74 88.8 1 3.8 • Combination of targeted retail Gas costs -18 price rises and a reduction in Broadband revenue 7 17 70.1 10 (27.5) -3 Carbon costs -24 network costs from 1 April 2020 -4 Other operating Other income 4 5 1 -81 has seen gross margins recover. expenses -79 Total revenue 948 957 9 Retail gas tariffs will need to rise to Contract Asset (closing) 16 13 (3) reflect rising gas and carbon costs. FY19 FY20
1. Tariff is $/MWh for electricity, Gas $/GJ and $ per month per customer connection for broadband Net price is Revenue less Networks, Meters and Levies. $/MWh is at the ICP
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 26 FY20 RESULTS
Other operating cost movement ($m) Underlying movement $5m from procurement savings with ICT delivering Portfolio, performance and non-recurring Underlying Invest in movement adjacencies reductions from insourcing activity and relocation of 212 1 servers into the cloud. 1 $1m change in meter read provider. 7
-7 4 COVID 2 2 $2m from reduced marketing 196 • Reassessed the tone of customer 6 2 engagement during COVID. -4 $1m from reduced field services and travel. ($1m) from an increase in provision for bad debts. FY19 Asset Disposal Incentives Covid Net Cost Savings Broadband FY20 LPG LPG services retained AGS* Inflation Other operating cost trajectory Reduction of 6% CAGR since FY16. Other operating cost ($m) Delivered $6m of underlying -6% operating cost improvement exceeding our FY20 247 243 target of between $200m – $205m. 223 212 196
.
FY16 FY17 FY18 FY19 FY20
*Ahuroa Gas Storage
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 27 FY20 RESULTS
FY assumptions that deliver expected & normalised EBITDAF of $480m EBITDAF reconciliation to FY20
Channel choices maximise Net price² driven by Total 1 long term value¹ x 2 best commercial practices = 480 Normalised & Expected CFDs 1,450GWh x $64/MWh = $93m C&I 3,350GWh x $83/MWh = $278m Lower renewables Retail 3,800GWh x $117/MWh = $445m Higher thermal generation required to offset below mean 7 hydrology (148GWh) at expected thermal SRMC Other income³ $50m $866m Natural gas constraint unit cost Natural gas availability restricted thermal 18 14 availability Hydrology & Asset Access to and price of fuel* drives generation and increased the cost of gas and Total 3 availability optimise generation x 4 financials & risk position = reduced the sales volume to fixed price channels Pricing Hydro mean 3,900GWh x $0/MWh = -$0m Management of fuel supply risk meant unable to 5 Geothermal average 3,300GWh $1/MWh -$3m x = re-contract & re-price C&I Thermal 1,800GWh x $66/MWh⁴ = -$119m Acquired 100GWh x $100/MWh = -$10m Other income 3 -$132m
Trading delivers value to more Digitalisation & continuous 5 than offset locational losses improvement optimise fixed costs 6 Fixed costs 17 Other operating cost control (-$10m), Length⁵ $55m Transmission/Storage -$70m transmission costs lower Location losses⁶ -$36m Operating expenses -$203m Actual Total $19m Total -$273m 451
1. All volumes are at the Grid Exit Point (GXP) 3. Steam sales, retail gas gross margin, other income 5. Length of 500GWh p.a. assumed 2. Net price is equal to tariff less pass-through 4. Gas price of $6/GJ, carbon price of $20/unit and thermal portfolio heat rate (9.25GJ/MWh) 6. Locational losses of 5.6% on spot purchases and settlement costs (network, meters and levies) /MWh of CFDs sold at a wholesale price of $75/MWh
* Fuel is natural gas and carbon costs Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 28 FY20 RESULTS
SIB capital expenditure – accounting ($m) 12 months 12 months Comparison ended ended against FY19 30 June 2020 30 June 2019 150 128 102 EBITDAF $451m $518m ↓ ($67m) 100 78 60 52 Working capital changes $7m ($7m) ↑ $14m 50
Tax paid ($70m) ($47m) ↓ ($23m) 0 FY16 FY17 FY18 FY19 FY20 Interest paid, net of interest capitalised ($49m) ($65m) ↑ $16m Sources and uses of cash ($m) FY20 SIB capital expenditure ($51m) ($60m) ↑ $9m
Non-cash items included in EBITDAF $2m $4m ↑ $2m 336 336 Growth investment Significant items - ($2m) ↑ $2m 49 4 Investment 3 in associates Operating free cash flow $290m $341m ↓ ($51m) Acquisition of Energyclub Operating free cash flow per share 40.4 cps 47.5 cps ↓ (7.1 cps) OFCF 290 Proceeds from sale of assets/operations - $390m ↓ ($390m) 280 Dividends paid Free cash flow $290m $731m ↓ ($441m)
Cash change • EBITDAF down $67m with continuing operations down $54m with $13m from Rockgas (discontinued) 3 Debt movement • Working capital changes $14m favourable as debtors balance reduced in line with fixed-priced sales 43 • Capital expenditure (cash) on continuing operations of $51m in FY20, $9m less than FY19 Sources Uses
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 29 FY20 RESULTS
Closing net debt ($m) Borrowing maturities ($m) Net debt to EBITDAF (x) Face value of borrowings less cash Average tenor of 3.0 years as at 30 June 2020 Includes S&P adjustments (prior to FY20 AGS was treated as a lease) 1,698 3.4 3.2 3.2 1,626 1,539 3.1 25 23 1,445 41 38 482 2.4 3.1 3.1 3.0 2.3 968 1,014 2.7 25 22 302 2.5 2.4 1,677 325 1,608 1,504 1,410 210 131 167 990 1,036 50 143 77 64 60 99 150 153 70 100 7 100 7 136 7 88 -4 -5 -6 -3 -47 -44 7 7 7 11 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 - FY15 FY16 FY17 FY18 FY19 FY20 FY29 Undrawn bank facilities USPP Lease obligations Borrowings Cash on hand Drawn bank facilities NEXI Smoothed Snapshot Domestic
Interest rate (%) • Face value borrowings net of cash (excl. leases) increased by $46m to $1,036m from 30 June 2019. This was due to Weighted average net interest¹ on average borrowings investments in associates and growth capex exceeding operating free cash flow. net of cash • Net debt has reduced by $684m since the end of FY15. Gearing was 31.4% at 30 June 2020, up from 28.3% at 30 June 6.17% 2019. 5.61% 5.32% 5.14% 5.75% 5.25% • $70m USPP maturity in December 2020 is expected to be funded through existing facilities. • Weighted average interest rate reduced by 50bp compared to FY19. A greater portion of funding was financed at low floating rate debt in FY20. FY15 FY16 FY17 FY18 FY19 FY20 • Contact continues to target a credit rating of BBB (net debt / EBITDAF <2.8x). 1,399 1,647 1,570 1,468 1,075 1,022 • New sustainability linked loan was executed in December 2019, aligning capital structure with strategic ESG ambitions. Average borrowings net of cash ($m) • $200m syndicated loan was established in April 2019 to provide additional liquidity buffer during COVID-19.
1. Net interest includes all interest on borrowings, bank commitment fees and deferred financing costs. Unwind of leases and provisions not included. Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 30 DISTRIBUTIONS
Ordinary dividends (cps) Dividend for FY20 of 39 cents per share Declared 39 39 • Final dividend of 23 cents per share (Final FY19 23 cents per share) 32 is imputed to 65% or 15 cents per share for qualifying shareholders. This represents a pay-out of 97% of FY20 operating free cash flow per share. 26 26 23 23 • Record date of 27 August 2020; payment date of 15 September 19 2020. 15 15 • The NZD/AUD exchange rate used for the payment of Australian dollar dividends will be set on 1 September 2020.
16 16 13 11 11
FY16 FY17 FY18 FY19 FY20
54% 61% 76% 82% 97%
% pay-out of operating free cash flow per share
Final dividend Interim dividend
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 31 Market update and outlook
Mike Fuge, CEO & Dorian Devers, CFO
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 32 32 TIWAI POINT ALUMINIUM SMELTER
• Reduced return on thermal assets and lower natural gas demand • Heavy industry Suppliers Joined up thinking is required: • Premature decline of the oil and gas sector
Risk of a disorderly exit needs to be fully understood • Impact on the Southland and Taranaki economy, loss of regional jobs • Carbon leakage from low carbon aluminum Competitive short-term electricity contract Government • Inefficient capital investment decisions negotiated to facilitate a staged exit • Loss of tax revenue; current account impact
Fair transmission pricing
• Large closing costs with uncertain remediation Communities timeline • Uncertainty from 14 month termination Working with the Southland community to & employees understand the terms of a just transition • Infrastructure and supply chain to support NZAS • Retooling and reskilling – time and investment
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 33 TIWAI POINT ALUMINIUM SMELTER
NZAS consumes 13% of national demand, 572MW baseload contract, located in the lower South Island. Proposed phased exit to limit spill Transmission constrained at times until May 2022 leading up to 0.6 TWh of spill p.a. for Contact. July 2020 31 Aug 2021 31 May 2022 Only 9 months of spill HVDC currently runs at an average of ~275MW over a year: o Physical capacity 1,200MW, practical capacity with current reserve arrangements 950MW o Post LSI* upgrade and with effective lake management there is Notice given Planned exit LSI transmission HVDC capacity for all of Tiwai linked generation to flow North to terminate upgrade complete o Base load thermal will limit South Island generation and lead to electricity unnecessary spill contract
Currently ~$1bn being invested in wind in the NI which will further limit SI hydro coming across the HVDC.
The key bottleneck is caused by the actual NI demand less must run NI renewables and the reserves.
*Lower South Island
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 34 TIWAI POINT ALUMINIUM SMELTER
Hydrology Daily demand shape Wind generation Annual Hydrology (2000 - 2019) Daily demand (MWh) Wind generation (MW by trading period June 2020) 62% 400 300
Winter 200 Summer Min 22.7 TWh | Mean 25.3 TWh | Max 27.7 TWh 100
0 Multiple variables will impact actual HVDC South 01-Jun 08-Jun 15-Jun 22-Jun 29-Jun to North Flow up +950MW
Seasonal demand Take-or-pay gas contracts North Island reserves Seasonal demand (TWh) Kupe delivered energy (TJ/day) Increase reserves will increase HVDC capacity beyond 950MW
+16.7% 70 74 71 77 61 62 9.5 11.1
FY18 - Q3 FY19 - Q1 Jan-20 Mar-20 May-20 Jul-20 Monthly average
*at time North Island demand less than must run NI generation
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 35 TIWAI POINT ALUMINIUM SMELTER
o Thermal generation will become increasingly volatile and therefore require flexible gas and/or coal. o On a national level 5.6 TWh of thermal generation is currently required. This would reduce to ~0.6 TWh under mean hydrological conditions once the HVDC is invested in. o Additional North Island generation is not required without demand.
26.4 TWh
8.2
3.0 3.2 3.0 1.0 8.0 TWh 2.4 5.6 3.2 2.4 1.2 1.2 TWh 0.6 0.6 North GeothermalMust-Run Wind Residual Cogen Residual Mean SI Today NZAS Thermal NZAS Mean NZAS Mean Year Island hydro mean NI Demand Hydro volume required volume Year volume Thermal Demand Hydro HVDC redirected from redirected Thermal redirected post Transfer - 1 May - 2 post - 3 transmission 2022 HVDC
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 36 TIWAI POINT ALUMINIUM SMELTER
North Island Winter Capacity Margin (MW) North Island demand duration curve (MW) Transpower’s North Island Winter Capacity Margin (WCM) Security Generation capacity to meet the market. Standard (April 2020) is still exceeded post NZAS without any CCGTs.
1,100 6,000 5,500 Thermal – inflexible gas Transpower’s North TCC 5,000 Thermal – diesel Island Winter Capacity 373 Margin Range E3P 4,500 Thermal – coal Thermal – flexible gas 111 725 4,000 630-780 MW 250 86 3,500 25 North Island hydro controllable 363 100 3,000 2,500 Amounts to ~ 100 600 GWh of 50 2,000 HVDC Tiwai volume -736 1,500 spilt at HVDC North Island “must run”: Wind, Hydro (run-of-river), Cogen 1,000 500 Geothermal “must run” 0 2020 North Island CCGT Battery and New wind (Turitea Post NZAS capacity 0 10 20 30 40 50 60 70 80 90 100 capacity above demand response + Waipipi) & forecast demand geothermal (Nga Wha) Notes 1. Based on Low Demand growth scenario Using Transpower’s contribution to winter capacity margin calculations. 2. Wind: 25% of the installed capacity 3. North Island WCM Security Standard is 630-780 MW
There appears no role for any baseload thermal generation post NZAS exit.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 37 TIWAI POINT ALUMINIUM SMELTER
Fuel flexibility/ Efficiency / Dry year Assessment of Daily Plant type Fuel type economic operating / Reserves value post NZAS shape dispatch costs seasonal exit
Open cycle Diesel +++ --- - +++ +++ More important role +++ + ++ +++ ++ Critical in managing Gas with storage volatility Peaker Gas with take-or- -- ++ + - + Baseload thermal not pay/inflexible/integrated required ++ -- +++ ++ ++ Value of flexibility Coal diminished by coal stigma and age of plant Rankine cycle Gas with take-or- -- - + - ++ Baseload thermal not pay/inflexible/integrated required
+ +++ ++ + -- Dry year cover and Combined Gas with storage cycle supports market outages plant Gas with take-or- -- +++ - ++ + Baseload thermal not pay/inflexible/integrated required
There appears no role for baseload thermal generation post NZAS exit.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 38 TIWAI POINT ALUMINIUM SMELTER
Organisational capability to deliver competitive advantage. Strengths
Flexible thermal fuel, with asset Track-record Contract position Unique optionality for TCC of delivering with limited short- expertise to Strong Low-cost to support control operational term price drive customer Flexible renewable of wholesale cost exposure decarbonisation proposition portfolio assets outcomes improvement
Fixed prices Alternative Leverage Thermal portfolio Control NI Optimise assets Cost and sales contracts electricity optionality reserves to Low capex extension of capital customer the Wairakei Limits near-term Short gas book. reduction demand growth propositions increase geothermal field. exposure to lower Access to flexible fuel – Dairy electrification real. Broadband bundle HVDC flow Reviewing the merits of programme near-term prices. gas storage, includes first Increase holding in. is valued by Virtual peaker – bringing forward hydro Will continue to right to further expansion. Simply Energy to 100%. customers and grow DemandFlex refurbishment support Contact’s Whirinaki well placed increases loyalty. business from 7MW programme. strong balance to offer reserves. to >50MW. Optimising geothermal sheet. Battery investment. fuelling spend.
Refer to slide 40 Refer to slide 41 Mitigations Transpower proceeding with transmission upgrades at pace.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 39 TIWAI POINT ALUMINIUM SMELTER
Virtual generator I Demand Flex platform – 7MW reserve and virtual peaking Hawea 286 GWh storage, ~500 GWh p.a. throughput
AGS contract and gas peakers 0-200 MW First rights on further AGS expansion
Virtual generator II Huntly swaption – 100 MW Whirinaki peaker plant 155 MW peaker
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 40 Contact performance model
Simply Energy Digital investment Executable generation development to meet the market Execution capability provides delivery confidence
Decarbonisation New Demand Optimise sales Grow the market by picking Ensuring an understanding Leverage our NI generation the projects which most of all potential new portfolio and fuel position likely to be executable applications for electricity
Operating model Procurement Operational Ways of working
Simplify the organisation excellence increasing both Professionalise service delivery Best in class operations which Cultural change supporting effectiveness & efficiency providing business support. maximise asset availability uptime transformation
41 41 FOCUS
Constructive engagement to promote an orderly exit NZAS
Effective risk management. Monetise flexible thermal advantage. Manage wholesale Gas contracts will allows for greater participation in contracting market fixed price sales. volatility
Near Recover rising wholesale input costs. Delivering Investment in digital and data to further reduce Redesign customer journeys to capture multi-product costs and develop new, innovative propositions. scale efficiencies. term value Capture Continued focus on controllable cost reduction. scale Maintain the optionality to develop Tauhara as soon as efficiencies appropriate Investigate low capital options to extend Wairakei generation Post NZAS Implement mitigations to compete hard recovery post NZAS exit
Medium Partner with customers on Transformation Optimise operating model, drive procurement, embed the benefits Decarbonisation mutually beneficial programme from transformative ways of working term decarbonisation opportunities.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 42 BASIS FOR DISTRIBUTIONS
Disciplined management and application of cash flows to maximise the returns for shareholders. o This includes an evaluation of the capital required to pursue mitigation/growth opportunities and ongoing investment in the business o Forecast uncertainty reduces confidence in o The maintenance of an appropriate gearing level and distribution of profit and excess capital to the expected earnings over the medium term investors in an efficient manner o Mitigation options need to be fully developed
o Decisions around the optimal asset portfolio need to be made including geothermal life This provides time to refine expectations to include: extension (Wairakei re-consenting) and TCC o Potential changes to the current NZAS exit timeline refurbishment o Shorter term impacts on market pricing o Capital risk management linked to increased uncertainty o Value of mitigations and implementation costs o Maintaining balance sheet strength is an important mitigation (maintenance of BBB credit rating) o Means net debt/EBITDA ratio below 2.8x.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 43 GUIDANCE
FY20 Guidance Result FY21 Guidance Guidance commentary
Other operating costs $200 – 205m $196m $190 – 205m*
Stay in business capital $55 – 60m $51m $55 – 60m Targeting further reduction in controllable costs expenditure Cash spend (‘Totex’) $255 – 265m $247m $250 – 265m
Depreciation and amortisation $213 – 223m $220m $250 – 260m TCC likely to be fully depreciated by 2022.
Net interest (accounting) $55 – 60m $55m $55 – 60m Interest on Tauhara spend no longer capitalised to PP&E Cash interest (in operating cash $50 – 55m $49m $50 – 55m flow) Cash taxation $70 – 75m $70m $75 – 85m
No guidance FY21 dividend target updated as soon as Target ordinary dividend per share 39 cps 39 cps issued appropriate
Geothermal volumes 3,300GWh 3,333GWh 3,050GWh Statutory 4-yearly Te Mihi outage in 1H21
* Excludes any additional abnormal impacts due to COVID-19
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 4447 Questions
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 45 4548 Supporting materials
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 46 4649 OPERATIONAL DATA
Contact generation output sold to the national grid (GWh) Electricity and generation sales position (GWh)
9,514 -768 9,255 9,627 9,627 9,002 8,908 8,614 83 2 8,537 8,444 Pool purchase 634 974 8,859 8,859 2,321 Direct generation 1 1,614 1,421 335 79 Thermal Acquired generation 862 Merchant sales generation 2,865 1,742 1,812 1,360 1,844
2,085 CFD gross sales
4,091 4,231 4,119 3,752 3,562 3,479 3,019 Hydro 4,058 2,171 Sales to C&I generation Spot generation 8,908 8,444
3,789 3,741 Sales to Customer 3,074 3,297 3,233 3,323 3,256 3,333 Geothermal generation 2,332
FY14 FY15 FY16 FY17 FY18 FY19 FY20 Generation Sales Generation Sales FY19 FY20
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 47 GEOTHERMAL PERFORMANCE
Geothermal fuel extracted at Wairakei vs consented Wairakei, Poihipi and Te Mihi conversion effectiveness (GWh) (MWh per kT extracted)
+1% +1% 95 +3% 101% 100% 90 99% 97% 99% 85 94% 31.1 30.1 30.1 30.5 30.1 80 29.3 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
% of geothermal fluid extracted Wairakei mass extracted
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 48 OPERATIONAL DATA
Geothermal generation (GWh) Hydro generation (GWh) Thermal generation (GWh)
1,903 3,752 1,834 3,297 3,323 3,333 3 3,233 3,257 4,231 1,708 1 90 198 198 4,091 92 196 189 186 0 211 280 340 94 226 337 336 310 3,562 1,503 3,479 221 5 1,439 411 335 83 3 407 403 388 79 528 195 495 195 506 207 4,817 1,062 991 1,045 4,527 291 1,075 1,121 4,303 3,799 3,567 334
1,020 1,071 1,013 871 1,372 1,382 1,415 1,282 1,184 -100 -28 -37-51 553 -112 -209 -148 -975 -90 -148 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
Whirinaki Stratford Peakers Te Huka Poihipi Te Mihi Total inflows Inflows stored Spill Direct generation TCC Ohaaki Wairakei Te Rapa - spot Otahuhu Geothermal generation was 76GWh higher than Hydro generation was 148GWh below mean (FY 3,900GWh) in FY19 as an increase in Te Mihi and Wairakei FY20, 756GWh below FY19 but 245GWh higher than a dry FY18. Thermal generation volumes were 64GWh lower in FY20 on lower sales generation to extract consented geothermal take in During December the Clutha catchment was in flood conditions and restricted availability of gas in H1 of this year, which reduced the ability advance of the FY21 statutory Te Mihi outage throughout the period. We could not process all of the to run baseload thermal at TCC with the Stratford peakers. Gas availability water through our hydro stations and had to spill it. in H2 allowed for TCC to run more and flexibility with Stratford peakers.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 49 OPERATIONAL DATA
Hydro Geothermal
Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue capacity (%) factor output capacity (%) factor output (MW) (%) (GWh) ($/MWh) ($m) (MW) (%) (GWh) ($/MWh) ($m) FY17 784 92% 52% 3,562 47 169 FY17 429 91% 86% 3,233 55 177 FY18 784 95% 51% 3,479 78 271 FY18 425 96% 89% 3,323 80 267 FY19 784 97% 62% 4,231 123 521 FY19 425 92% 87% 3,256 133 434 FY20 784 92% 54% 3,752 90 338 FY20 425 95% 89% 3,333 99 330
Taranaki combined cycle (TCC) Peakers (including Whirinaki) Te Rapa (spot generation only)
Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue Net Availability Capacity Electricity Pool revenue (%) (%) (%) capacity factor output ($/MWh) ($m) capacity factor output capacity factor output (MW) (%) (GWh) (MW) (%) (GWh) ($/MWh) ($m) (MW) (%) (GWh) ($/MWh) ($m) FY17 377 90% 31% 1,021 64 65 FY17 360 95% 16% 495 73 36 FY17 41 98% 63% 226 58 13 FY18 377 68% 32% 1,071 102 110 FY18 360 87% 17% 530 116 62 FY18 41 87% 59% 211 94 20 FY19 377 63% 31% 1,031 115 117 FY19 360 79% 7% 212 192 41 FY19 41 96% 54% 195 160 31 FY20 377 88% 26% 870 120 104 FY20 360 88% 9% 295 162 48 FY20 41 98% 73% 184 106 21
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 50 OPERATIONAL DATA
Hawea strorage (GWh) Gas storage (GWh equivalent) Using the FY20 thermal efficiency (9.04 TJ/GWh)
257 90 CLOSING STORAGE CLOSING STORAGE 152 770 833 152 244 Gas injected 164 623 27 53 159 351 208 93 294 103 610 Inflows 277 174 495 231 550 60 252 170 153 216 257 152 159 152 Opening storage 104 103 Opening storage 862 833 27 53 770 623 550 -140 -146 495 Releases -228 -246 -299 -282 -302 -412 -98 -111 -145 -188 Gas extracted -256 -303
1H17 2H17 1H18 2H18 1H19 2H19 1H20 2H20 1H18 2H18 1H19 2H19 1H20 2H20
Source: NZX hydro
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 51 FUEL OUTLOOK
Portfolio requirements for thermal generation (TWh) Gas supply and demand FY21 (PJ) Thermal plant fuel cost ($/MWh)
8.5 +8% 81 17.5 17.5 76 77 Hydro variation >> 3.3 62 -3.3 59 3.7 Carbon
0.3 Mean Thermal 8.0
Gas
2.9 -2.9 -65% 2.0 Contracted FY17 FY18 FY19 FY20 FY21 (f) 1.0 -1.0 1.0 Co-generation 4.5 0.3 0.7 The increasing price of natural gas and carbon will support wholesale prices in the medium Expected Geothermal Co- Hydro in Maximum "Extreme Mean "Mean" to Minimum term. 2020 generation "extreme thermal dry" to thermal "wet" year thermal Retail 3.0 generation dry" year* required "mean" required swing required Swap return • Access to gas storage and flexible gas (inc. Maximum year swing contracting means Contact is well positioned losses) thermal Storage net 1.2 movement post NZAS exit required 0.8 Mean year FY21 position demand
* Hydro generation in FY12
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 52 OPERATIONAL DATA
Contracted gas volumes (PJ) Ahuroa gas storage monthly Sources and uses of gas (PJ) injections and extractions (PJ) Closing storage 7.7 10.9 18.6 18.4 7.5 18.0 4.5 16.7 16.6 16.5 4.0 6.1 1.7 6.9 6.0 Purchases 18.3 19.5 4.1 14.3 4.7 20.4 0.72 17.3 7.6 0.58 0.62 4.5 0.50 16.5 6.3 0.34 0.25 4.4 0.19 0.21 4.0 0.01 0.16 0.16 4.5 4.5 0.03 Opening storage 11.1 -0.02-0.01 0.00 10.8 -0.11 -0.07 -0.06 7.8 7.5 3.4 -0.02 -0.17 4.5 1.2 -0.22 -0.23 4.5 -0.3 -0.3 Net extraction -3.0 -3.1 3.1 -0.47 5.0 8.0 8.0 -0.74 -13.3 6.9 Generation -16.1 -17.1 6.5 -13.9 4.1 4.5 -17.2 2.3 -3.2 -0.1 Customer sales -2.2 CY16 CY17 CY18 CY19 CY20 CY21 CY22 Wholesale sales 0.0 -2.8 -3.1 Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- -0.3 19 19 19 19 19 19 20 20 20 20 20 20 -2.4 -0.5 Short-term gas Maui - contingent -0.1 Genesis Maui - notified Gas injected Gas extracted FY16 FY17 FY18 FY19 FY20 Swap Pohokura
Storage balance at 30 June 2020 was 6.1PJ
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 53 NON-GAAP PROFIT MEASURE
• EBITDAF is Contact’s earnings before net interest expense, tax, depreciation, amortisation, change in The adjustments from EBITDAF to reported profit and fair value of financial instruments and other significant items. movements on FY19 are as follows:
• EBITDAF is commonly used in the electricity industry so provides a comparable measure of Contact’s • Depreciation and amortisation: Increased by $15m (7%) on performance. FY19 primarily resulting from the change in estimate for the expected useful life of TCC to 2022 (previously 2028) which • Reconciliation of statutory profit back to EBITDAF: has resulted in accelerated depreciation from 1 July 2019.
Variance on prior year 12 months ended 12 months ended • Net interest expense: Reduced by $15m (21%) over FY20 30 June 2020 30 June 2019 on reduced average borrowings and a lower interest rate as $m % well as the capitalisation of interest relating to the Tauhara geothermal project ($6m). Profit 125 345 (220) (64%) • Tax expense for the period was $26m down following Depreciation and amortisation 220 205 15 7% operating earnings and higher depreciation partially offset by lower net interest expense. Tax expense for FY20 represents Significant items (gross of tax) 5 (174) 179 (103)% an effective tax rate of 27%. The effective tax rate for FY19 was 17% on total earnings as the gain on the sale of Net interest expense 55 70 (15) (21%) Rockgas was not subject to income tax. Tax expense 46 72 (26) (36%) • Other significant items are detailed on EBITDAF 451 518 (67) (13%) the following page.
• Depreciation and amortisation, change in fair value of financial instruments, net interest and tax expense are explained in the following slide
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 54 NON-GAAP PROFIT MEASURE
Variance on The only adjustment from profit to underlying profit for FY20 12 months ended 12 months ended prior year was: 30 June 2020 30 June 2019 • Increase in Holiday Act provision to reflect the recent High $m % Court ruling following the Metro Glass vs MBIE case and estimated impact (net of tax). Profit 125 345 (220) (64%) • Final tax payment relating to the sale of the Otahuhu Change in fair value of financial instruments - (2) 2 (100%) Power Station in FY16.
Gain on sale of Rockgas Limited (LPG) - (165) 165 (100%)
Gain on sale of Ahuroa gas storage - (5) 5 (100%)
Remediation for Holidays Act non-compliance (5) (2) (3) 150%
Tax on items excluded from underlying profit 1 5 (4) (80%)
Underlying profit 129 176 (47) (27%)
• Underlying profit provides a consistent measure of Contact’s ongoing performance. • Underlying profit excludes the effect of significant items from profit. Significant items are determined based on principles approved by the Board of Directors. • Other significant items are determined in accordance with the principles of consistency, relevance and clarity. Items considered for classification as other significant items include impairment or reversal of impairment of assets; business integration, restructure, acquisition and disposal costs; and transactions or events outside of Contact’s ongoing operations that have a significant impact on reported profit. • Reconciliation of statutory profit for the year to underlying profit.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 55 HISTORIC PERFORMANCE
Unit FY16 FY17 FY18 FY19 FY20
Revenue $m 2,163 2,079 2,275 2,519 2,073
Expenses $m 1,640 1,578 1,794 2,001 1,622
EBITDAF $m 523 501 481 518 451
Profit/(loss) $m -66 151 132 345 125
Underlying profit $m 157 142 130 176 129
Underlying profit per share cps 21.7 19.9 18.1 24.6 18.0
Operating free cash flow $m 352 305 301 341 290
Operating free cash flow per share cps 48.5 42.6 42 47.5 40.4
Dividends declared1 cps 26 26 32 39 39
Total assets $m 5,652 5,455 5,311 4,954 4,896
Total liabilities $m 2,829 2,677 2,584 2,172 2,275
Total equity $m 2,823 2,778 2,727 2,782 2,621
Gearing ratio % 38 36 35 28 31
1 On 10 August 2020, the Board resolved to pay a 65% imputed final dividend of 23 cents per share on 15 September 2020. On 7 August 2020, Contact had $7 million of imputation credits available for use in future periods.
1. Figures have been restated for the adoption of NZ IFRS 15 Revenue from Contracts with Customers and NZ IFRS 16 Leases 2. Figures above reflect the combined result and position for continuing and discontinued operations and certain 2018 amounts have been reclassified to conform to the current year’s presentation
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 56 SEGMENTAL PERFORMANCE
FY20 FY19 Reference number for Twelve months ended 30 June 2020 Twelve months ended 30 June 2019 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 sales to Customer 3,741 88.8 332 3,789 83.0 314 1 Electricity sales to Fixed C&I (netback) 2,092 80.3 168 2,936 81.6 240 Electricity sales – Direct 79 105.1 8 83 99.2 8 2 Electricity sales to C&I 2,171 81.2 176 3,019 82.1 248 CfDs – Tiwai support 828 805 CfDs - Long term sales 581 569 3 CfDs - Short term sales 676 471 Electricity sales - CFDs 2,085 72.9 152 1,844 73.9 136 Total contracted electricity sales 7,997 82.6 661 8,652 80.7 699 Steam sales 544 47.6 26 558 47.3 26 4 Other income 0 10 5 Net income on gas sales 1 1 6 Net income on electricity related services 2 0 7 Net other income 2 12 Total contracted revenue (1) 8,540 80.6 689 9,210 80.0 737
8 Generation costs 8,523 (31.2) (266) 8,991 (31.1) (279) Acquired generation cost 335 (113.9) (38) 634 (107.7) (68) 9 Generation costs (including acquired generation) (2) 8,858 (34.3) (304) 9,625 (36.1) (348)
Spot electricity revenue 8,444 99.7 842 8,908 128.6 1,146 10 Settlement on acquired generation 335 115.4 39 634 146.1 93 11 Spot revenue and settlement on acquired generation (GWAP) 8,779 100.3 880 9,542 129.8 1,238 Spot electricity cost (5,833) (109.0) (636) (6,725) (137.6) (925) 12 Settlement on CFDs sold (2,085) (97.8) (204) (1,844) (129.2) (238) 13 Spot purchases and settlement on CFDs sold (LWAP) (7,918) (106.0) (840) (8,569) (135.8) (1,163) Trading, merchant revenue and losses (3) 41 75
Wholesale EBITDAF (1+2+3) 426 464
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 57 SEGMENT NOTE TO OPERATIONAL PERFORMANCE
Reference to detailed operating Wholesale segment Comment segment performance
C&I electricity – Fixed Price 2 Spot sales are regarded as a pass-through and not reflected in C&I electricity – Spot 2-spot performance reporting, any margin included in C&I netback Wholesale electricity, net of hedging 3 + 10 + 13 Electricity related services revenue 7
Inter-segment electricity sales 1 Revenue Revenue from wholesale gas sales, purchase cost in gas and Gas 6 diesel purchases Steam 4 Other income 5
Electricity purchases, net of hedging 9 + 11 + 12
Electricity purchases – Spot 2-spot Spot sales are regarded as a pass-through
Electricity related services cost 7 Gas and diesel purchases 8 (less costs identified relating to 6) Includes wholesale gas sales purchases (if any) Gas storage costs 8
Carbon emissions 8
Costs Generation transmission and reserve costs 8 Gas networks, transmission and meter costs – Fixed Price 2
Gas networks, transmission and meter costs – Spot 2-spot Spot sales are regarded as a pass-through
Gas networks, transmission and meter costs 8 C&I operating costs are included in the calculation of netback Other operating expenses 8 (less costs identified relating to 2) (2) and are excluded from generation operating costs
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 58 HISTORIC PERFORMANCE
Residential electricity unit FY17 FY18 FY19 FY20 Residential gas unit FY17 FY18 FY19 FY20 Average connections # 362,570 359,171 353,105 355,073 Average connections # 59,809 60,905 61,711 61,591 Sales volumes GWh 2,628 2,549 2,491 2,532 Sales volumes TJ 1,581 1,600 1,605 1,577 Average usage per ICP 7.2 7.1 7.1 7.1 Average usage per ICP 26.4 26.3 26 25.6 Tariff $/MWh 248 250.1 251.7 250.4 Tariff $/GJ 32 31.6 31.5 33.1 Network, meters and levies $/MWh -119.8 -122.4 -122.1 -118.8 Network, meters and levies $/GJ -19.5 -19.6 -18.4 -17.9 Energy costs $/MWh -85.7 -86.7 -89.5 -94.8 Energy costs $/GJ -5.8 -5.6 -5.9 -7.9 Gross margin $/MWh 42.5 41 40.2 36.8 Carbon costs $/GJ -0.3 -0.7 -1 -1.4 Gross margin $ per ICP 308 291 283 262 Gross margin $/GJ 6.4 5.8 6.3 5.9 Gross margin $m 112 104 100 93 Gross margin $ per ICP 168 152 165 151 Gross margin $m 10 9 10 9
SME electricity unit FY17 FY18 FY19 FY20 SME gas unit FY17 FY18 FY19 FY20 Average connections # 56,292 57,309 55,020 55,033 Average connections # 2,981 3,677 3,901 3,947 Sales volumes GWh 1,074 1,099 1,042 991 Sales volumes TJ 883 1,300 1,492 1,425 Average usage per ICP 19.1 19.2 18.9 18.0 Average usage per ICP 296.3 353.5 382.6 360.9 Tariff $/MWh 224.1 224.1 226.8 229.3 Tariff $/GJ 17.5 15.5 15.1 15.5 Network, meters and levies $/MWh -106.6 -108 -111.9 -114.5 Network, meters and levies $/GJ -5.3 -4.5 -5.5 -6.0 Energy costs $/MWh -83.8 -84.8 -87.7 -93.0 Energy costs $/GJ -5.8 -5.6 -5.9 -7.9 Gross margin $/MWh 33.7 31.3 27.2 21.8 Carbon costs $/GJ -0.3 -0.7 -1 -1.4 Gross margin $ per ICP 643 599 516 392 Gross margin $/GJ 6.1 4.8 2.8 0.2 Gross margin $m 36 34 28 22 Gross margin $ per ICP 1,817 1,689 1,068 72 Gross margin $m 5 6 4 0 Customer EBITDAF Electricity Gross margin $m 148 139 128 115 Gas Gross Margin $m 15 15 14 9 Broadband Gross Margin $m - 0 1 0 Total Gross Margin $m 163 154 144 125 Other income $m 4 4 4 5 Other operating costs $m -105 -82 -82 -79 Customer EBITDAF $m 62 76 67 50 Corporate allocation (50%)¹ $m -12 -13 -12 Retailing EBITDAF $m 62 64 54 38 EBITDAF margins (% of revenue) % 6% 7% 5% 4% 1. Prior to FY18, corporate costs were fully allocated to the reporting segments.
Contact Energy / FY20 Full Year Results Presentation / 10 August 2020 59