Contact Energy - CEN Chart

[Snoopy]

Snoopy - your question maybe something to do with this 'Working capital changes $20m unfavourable to FY21 tied to decrease in payables on FY21'

Seems they paid a lot of bills after year end .... maybe your $10m was included

With all that detail in the presentation and report no wonder you are in seventh heaven trying to come to grips with it

Winner, the audio explanation of the working capital changes (37minutes into PR2022) was: The staff bonus payment accrual was lower at the end of FY2022 than FY2021, the bonus costs were lower too, but they also shifted their remuneration structure. Anyone below senior manager has now had all of their at risk short term pay forwarded and paid out in their monthly salary which was cashflow negative from a company perspective.

CAPEX higher was explained as part of the additional $100m SIB capex that will be spent cumulatively over the next four years, including 'something mumbled' and projects that increase the resilience of renewable assets and get a few extra GWh out of Roxburgh

SNOOPY

[Snoopy]

http://nzx-prod-s7fsd7f98s.s3-websit...941/376502.pdf

Very bullish projections for FY 25 ....35 % growth in EBITAF !!

Jarden says Divvy can grow to excess of 50 Cents ...Not just a safe utility but a growth stock too

Should rise further as market pays more attention to future plans and projections

https://www.nzherald.co.nz/business/...DRVQS7J4M7SCI/

Some brief notes from the PR2022 webcast.

https://youtu.be/a7XB0gGH9Ho

Dividend for FY2023 announced to be 35cps. No increase in dividend until the 'build phase' is finished and a new agreement is signed with Tiwai. (From PR2022 at the 41 minute mark).

Long run marginal cost expectation for new developments is $100-$110/MWh (PR2022 at the 1 hour 45 second mark). This will be indicative of the average spot price going forwards. This is driven by a dramatic increase in Windfarm Energy costs, +30% over the last year (includes capital costs +10-20%, higher WACC due to rising interest rates, plus a complimentary increase in 'green firming costs', or hedging against times of low wind) (PR2022 1:07min)

Operating Cashflow is predicted to be stable because in times where there is a lot of water, Contact tend to inject more gas (into storage) and when the water isn't so plentiful, Contact use the gas, so volatility evens out (PR2022 at 1hr 17.5 minute mark)..

SNOOPY

[Snoopy]

Here is one for you real accountants to ponder.

If you look at slide 25 of PR2022 titled 'Cashflow and Capital Expenditure' you will see SIB (Stay in Business) capital expenditure at $75m this year, up from $61m last year. However if you go to the equivalent slide from last year (slide 24 of PR2021) you will find an extra graph that is missing from this years presentation, titled 'SIB Capital Expenditure Accounting'. On that chart, the SIB capital expenditure for FY2021 is shown as $75m, not $61m.

This got me thinking, why last year did Contact give these two different SIB capex numbers? Because it looks to me as though the real SIB Capex for FY2021 was $75m, and the $61m 'cashflow' SIB 'capex' figure was possibly caused by Contact not paying their bills on time, to make their cash position look better than it really was. This year I can find no mention of 'Accounting SIB Capex' in PR2022. I think this means Contact aren't telling us what the real SIB Capex bill was, and they are only 'declaring' that bit of the bill that was actually paid. Or am I being too cynical, and not understanding what those respective presentation slides are telling us?

I have been racking my brains trying to figure out the difference between:

a/ 'SIB (Stay In Business) capex AND
b/ 'SIB' cash capex.

1/ I wondered if it might relate to consequential servicing contracts out in the future which are signed and sealed but not 'paid for' until the servicing is delivered?

2/ Another option is that the piece not paid for might represent a 'project completion contingency'. IOW Contact is paying for some work to be done at an hourly rate, but a lump sum is retained so that if the upgrade does not work as planned, then there is a 'cash penalty' (via a forfeited deposit) for the project servicing supplier.

Lastly I went to Google and typed in "cash capex" which sent me here

https://www.terveystalo.com/en/compa...f-key-figures/

This lead me to the following definition:

3/ Cash capex = Acquisition and sale of property, plant and equipment, intangible assets and available-for-sale financial assets + acquisition and sale of subsidiaries and business operations, net of cash acquired, as presented in consolidated statement of cash flows

IOW if Contact bought something which had a cash component as part of the purchase. then that cash had to be 'netted off' to get 'Cash capex'. But with Contact simply upgrading equipment, this doesn't sound like a very likely concession to be applied in this instance.

My reference then goes on to say

4/ Total Capex = Total Cash Capex + non-cash capex, including hire purchase and financial leases and M&A

I could imagine this might apply at Contact Energy if a 'repair' job included leased componentry as part of the equipment installed. That could mean some of the SIB capital upgrade might manifest as a 'finance charge'.

------------

Now I have four ideas that could explain why there should be a distinction between 'capex' and 'cash capex'. But the underlying theme of my thoughts is that all of those possibilities point toward a cash settlement of the 'non cash balance' if not now (e.g. the finance charge) then eventually.

I admit that after years looking at accounts, I have a very low tolerance for companies making up new financial terms to improve the presentation of their financial position. I think Contact using 'cash SIB capex' rather than 'SIB capex' deserves a 'penalty' from the financial analyst judges. That penalty would consist of a multiplication factor that raises the quoted 'cash SIB capex' figure to the real 'SIB capex' figure it should be. I wonder what multiplication factor I should use? Hmmmm.

SNOOPY

[turnip]

Ormat is a supplier for Contact's Te Huka 3 plant. They describe it as a "maximum continuous performance 59MW geothermal power plant".

https://investor.ormat.com/news-even...a/default.aspx

[Snoopy]

I have got a bit slack with my overview of results, this post looking at FY2021. The FY2022 result will be released in 10 days. So I plan a rather more prompt review of that.

For those who came in late, a 'scenario analysis' is not an historical record of what happened. Instead it answers the question, what would happen if current dividend policy acted on the historical results of previous years. The purpose of this is to get a measure of how future results might change, if the weather events of the previous four years were superimposed on today's investment policy.

For this analysis I am using the most recent dividend policy (FY2021) of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise, my timeframe ia from FY2018 to FY2021 inclusive.

	FY2018	FY2019	FY2020[/TwwwD][TD]FY2021
Cashflows from Operating Activities (1,2)	$457m + $85m	$466m + $85m	$390m+$85m	$475m+$85m
less Stay in Business CAPEX	($78m)	($60m)	($52m)	($75m)
less Net Interest Expense	($84m)	($70m)	($55m)	($50m)
equals Operating Free Cashflow	$380m	$421m	$368m	$435m
Operating Free Cashflow (OFC) x 80%	$304m	$337m	$294m	$348m
Modelled Dividend per Share OFC80% (based on 806m shares on issue (3))	38cps	42cps	37cps	43cps
Operating Free Cashflow (OFC) x 90%	$342m	$379m	$331m	$392m
Modelled Dividend per Share OFC90% (based on 806m shares on issue (3))	42cps	47cps	41cps	49cps
EBITDAF-DA-I-T (Normalised NPAT) (4)	$131m + $45m	$175m +$45m	$127m + $45m	$183m + $45m
Normalised forecast 'eps' (based on 806m shares on issue)	21.8cps	27.3cps	21.3cps	28.3cps

(1) From slide 6 of PR2020: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. This has affected the 'Operating Cashflow' figure that I have used, which from FY2020 is different to that in the latter cashflow statements. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. By contrast both are reported in 'Operating Cashflows' in AR2020. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added.

(2a) FY2020 'Operating Cashflow' for FY2019 is listed as $466m in AR2019 and $401m in AR2020. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m (Figures relating to FY2019). Applying the same adjustment logic to FY2020, where the net interest paid was $49m, this explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(2b) FY2021 'Operating Cashflow' adjustment. The net interest figure paid over FY2021 was $43m. This explains why 'Operating Cashflows' for FY2021 are listed as $475m in my table, but only $432m in the FY2021 Integrated Report.

(3) Following the capital raising completed on 12-03-2021, and the subsequent dividend paid on 30-03-2021 (with the DRP operating) on all shares issued (including those raised in the March 2021 capital raising), the number of shares on issue to jumped to 776,122,070 shares at the EOFY2021 balance date. I expect the DRP will further increase the number of shares on issue in the future, I predict at a rate of 2.5% per year (compounding). This will see the total number of shares after four years to increase as follows:

	No.Shares
Year 0 (EOFY2021)	776,122.070
Year 1	795,525,122
Year 2	815,413,250
Year 3	835,798,581
Total/4 = Average	805,714,716

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 5.0% borrowing rate, this will increase the annual interest bill by:

$180m x 0.05 = $9m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$9m) = $45m

Tauhara Discount Factor for Future Earnings

This incremental increase in NPAT should perhaps be discounted back because it will not occur for three years time, at the point where Tauhara comes on line. For future discounting of profits, I use a 5.0% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.05)^3 = 0.8638

$45m x 0.8638 = $39m

Back on the horse twice this month, now the FY2022 result has been released.

This 'scenario analysis' is not an historical record of what happened. Instead it answers the question, what would happen if current dividend policy acted on the historical results of previous years. The purpose of this is to get a measure of how future results might change, if the weather events of the previous four years were superimposed on today's investment policy.

For this analysis I am using the most recent dividend policy (FY2021) of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise, my timeframe is from FY2019 to FY2022 inclusive.

	FY2019	FY2020	FY2021	FY2022
Cashflows from Operating Activities (1,2)	$466m + $85m	$390m+$85m	$475m+$85m	$428m+$85m
less Stay in Business CAPEX	($60m)	($52m)	($75m)	($85m) (Note 5)
less Net Interest Expense	($70m)	($55m)	($50m)	($36m)
equals Operating Free Cashflow	$380m	$421m	$368m	$392m
Operating Free Cashflow (OFC) x 80%	$304m	$337m	$294m	$314m
Modelled Dividend per Share OFC80% (based on 808m shares on issue (3))	38cps	42cps	36cps	39cps
Operating Free Cashflow (OFC) x 90%	$342m	$379m	$331m	$353m
Modelled Dividend per Share OFC90% (based on 808m shares on issue (3))	42cps	47cps	41cps	44cps
EBITDAF-DA-I-T (Normalised NPAT) (4)	$175m +$45m	$127m + $45m	$183m + $45m	$172m + $45m
Normalised forecast 'eps' (based on 808m shares on issue)	27.2cps	21.3cps	28.2cps	26.9cps

Notes

(1) From slide 6 of PR2020: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. This has affected the 'Operating Cashflow' figure that I have used, which from FY2020 is different to that in the latter cashflow statements. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. By contrast both are reported in 'Operating Cashflows' in AR2020. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added.

(2a) FY2020 'Operating Cashflow' for FY2019 is listed as $466m in AR2019 and $401m in AR2020. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m (Figures relating to FY2019). Applying the same adjustment logic to FY2020, where the net interest paid was $49m, this explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(2b) FY2021 'Operating Cashflow' adjustment. The net interest figure paid over FY2021 was $43m. This explains why 'Operating Cashflows' for FY2021 are listed as $475m in my table, but only $432m in the FY2021 Integrated Report.

(2c) FY2022 'Operating Cashflow' adjustment. The net interest figure paid over FY2022 was $28m. This explains why 'Operating Cashflows' for FY2021 are listed as $428m in my table, but only $400m in the FY2021 Integrated Report.

(3) Following the capital raising completed on 12-03-2021, and the subsequent dividend paid on 30-03-2021 (with the DRP operating) on all shares issued (including those raised in the March 2021 capital raising), the number of shares on issue to jumped to 778,794,640 shares at the EOFY2022 balance date. I expect the DRP will further increase the number of shares on issue in the future, I predict at a rate of 2.5% per year (compounding). This will see the total number of shares after four years to increase as follows:

	No.Shares
Year 0 (EOFY2022)	778,794,640
Year 1	798,264,506
Year 2	818,221,119
Year 3	838,676,647
Total/4 = Average	808,489,228

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 5.0% borrowing rate, this will increase the annual interest bill by:

$180m x 0.05 = $9m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$9m) = $45m

(5) AR2022 Note A3 states Stay In Business (SIB) capital cashflow of $75m over FY2022. I have applied a 20% surcharge on this value to get an estimate of $85m for the total stay in business capital charge applicable to FY2022. Unlike previous years, overall SIB capex was not disclosed for FY2022 (except from AR2022 p60 'SIB Capex more than FY2021').


Tauhara Discount Factor for Future Earnings

This incremental increase in NPAT should perhaps be discounted back because it will not occur for two years time, at the point where Tauhara comes on line. For future discounting of profits, I use a 5.0% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.05)^2 = 0.9070

$45m x 0.9070 = $41m

SNOOPY

[Snoopy]

For those who aren't satisfied with doing the crossword this weekend, here is a number puzzle conundrum for you.

I am thinking about that Contact dividend that will hit my bank account on September 27th, so decided to look back at what happened last year (FY2021).

In AR2021 p89 in section B3 on 'Distributions', the following text appears.

"On 13th August 2021, the board resolved to pay a 65% imputed final dividend of 21cps on 15th September 2021"

Now if I go to the 16th August 2021 'Template Result Announcement' (Part 3 of the link below)

https://stocknessmonster.com/announc...en.nzx-377286/

a final dividend of 21cps is declared with imputation credits of 5.44444444cps of imputation credits attached. That works out at an imputation rate of:

5.444444 / (21+5.444444) = 20.59%

If I then look at my actual dividend statement (issued 15-09-2021), it says that "your dividend has been partly imputed to 21%". Now 20.59% rounds up to 21% if you only require two significant figures. So all appears well so far. But 28% would represent a 'fully imputed dividend'. So a dividend imputed to only 20.59% represents a:

20.59/28 = 73.5% or 21/28 = 75% imputed dividend rate (depending on how you treat the significant figures).

That is different to the 65% dividend imputation rate promised in the annual report, which was released to the market on the same day. So have I made a late night mathematical/interpretive blunder? Or is there a genuine anomaly here?

SNOOPY

[troyvdh]

An anomaly ...absolutely.Well there might be if could be bothered reading it....cheers troy.

[Doug]

For those who aren't satisfied with doing the crossword this weekend, here is a number puzzle conundrum for you.

I am thinking about that Contact dividend that will hit my bank account on September 27th, so decided to look back at what happened last year (FY2021).

In AR2021 p89 in section B3 on 'Distributions', the following text appears.

"On 13th August 2021, the board resolved to pay a 65% imputed final dividend of 21cps on 15th September 2021"

Now if I go to the 16th August 2021 'Template Result Announcement' (Part 3 of the link below)

https://stocknessmonster.com/announc...en.nzx-377286/

a final dividend of 21cps is declared with imputation credits of 5.44444444cps of imputation credits attached. That works out at an imputation rate of:

5.444444 / (21+5.444444) = 20.59%

If I then look at my actual dividend statement (issued 15-09-2021), it says that "your dividend has been partly imputed to 21%". Now 20.59% rounds up to 21% if you only require two significant figures. So all appears well so far. But 28% would represent a 'fully imputed dividend'. So a dividend imputed to only 20.59% represents a:

20.59/28 = 73.5% or 21/28 = 75% imputed dividend rate (depending on how you treat the significant figures).

That is different to the 65% dividend imputation rate promised in the annual report, which was released to the market on the same day. So have I made a late night mathematical/interpretive blunder? Or is there a genuine anomaly here?

SNOOPY

The first option I think. Full imputation would have been 8.1666667 so 5.444444/8.16666667 is about 67%

[Snoopy]

An anomaly ...absolutely.Well there might be if could be bothered reading it....cheers troy.

I don't blame you. I can't think of anything I would like less to read at 10:27pm at night than my post!

SNOOPY

[winner69]

Snoops - if anything you've made an interpretive blunder

Doug seems to be on the ball