Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 FY2019 Earnings Presentation
50 slides from Meridian Energy's earnings presentation, February 2019
Slide 1: Meridian Energy Limited 2019 Interim Results Presentation
MERIDIAN ENERGY LIMITED 2019 INTERIM RESULTS PRESENTATION MERIDIAN ENERGY LIMITED 2019 INTERIM RESULTS PRESENTATION
Slide 2: Highlights
HIGHLIGHTS 18% in interim EBITDAF increase 5.70 cents per ordinary dividend, a 6% increase share 5% in NZ customer numbers increase Meridian Energy Limited 2019 Interim Results Presentation 2
Slide 3: Market Update
MARKET UPDATE Meridian Energy Limited 2019 Interim Results Presentation 3
Slide 4: New Zealand Wholesale Prices
NEW ZEALAND WHOLESALE PRICES Higher spot and forward wholesale prices OTAHUHU DAILY AVERAGE SPOT PRICE $/MWh Higher wholesale prices since October 600 1H FY19 1H FY18 2018 500 That marked national storage dropping 400 below average for the first time since 300 February 2018 And commencement of highe
Slide 5: New Zealand Demand
NEW ZEALAND DEMAND REGIONAL ELECTRICITY DEMAND 2018 V 2017 Flat demand in 2018 Despite lower irrigation volumes in 2018 -1% 2018 was the second equal warmest year on record, average temperatures above +2% 2017 +1% Underlying demand growth of 1% excluding -2% +2% irrigation -2% 0% -2% Different, posi
Slide 6: Tiwai Point Aluminium Smelter
TIWAI POINT ALUMINIUM SMELTER 4th potline restarted TIWAI POINT AVERAGE DAILY LOAD MW Official opening in early December 620 New cells have been cut in since October 610 600 2018 590 Tiwai contracts with Meridian now total 580 622MW 570 4th potline contract is for 50MW and 560 550 represents: 540 a
Slide 7: Australian Wholesale Prices
AUSTRALIAN WHOLESALE PRICES Lower LGC prices AUSTRALIAN LGC PRICES $A/MWH Spot CY19 CY20 LGC markets fell during 1H FY19 with: 100 1H FY19 Developers looking to lock in contracts, 90 putting downward pressure on prices 80 70 Retailers under surrendering in front 60 years and meeting carried over 50
Slide 8: Policy and Regulation Update
POLICY AND REGULATION UPDATE Meridian Energy Limited 2019 Interim Results Presentation 8
Slide 9: New Zealand Policy and Regulation
NEW ZEALAND POLICY AND REGULATION Climate change policy DEMAND FORECASTS TWh 90 NZ Historical Demand Interim Climate Change Commission Transpower - NZ Inc established to provide analysis on: 80 Transpower - Mobilise How surrender obligations work if MBIE - High 70 MBIE - Low agricultural emissions e
Slide 10: New Zealand Policy and Regulation
NEW ZEALAND POLICY AND REGULATION Electricity price review Second phase of the review is underway Preliminary options paper is due in February 2019 That paper will test solutions suggested by stakeholders and panel experts Final findings and recommendations will then be developed Sep 18 Oct 18 Nov 1
Slide 11: New Zealand Policy and Regulation
NEW ZEALAND POLICY AND REGULATION Transmission pricing TRANSPOWER HVDC REVENUE $M Since June 2018 the EA has been preparing 180 new TPM guidelines, including a new CBA 160 Update from EA in December 2018: 140 120 TPM review is a top priority 100 Existing interconnection and HVDC 80 60 charges will b
Slide 12: Australian Policy and Regulation
AUSTRALIAN POLICY AND REGULATION Thwaites Review (Victoria) A Victorian Default Offer (VDO) will be created from 1 July 2019 to replace current standing offers The VDO will contain a cost for customer acquisition and retention, unlike the previously Basic Service Offer originally proposed by the Thw
Slide 13: UK Policy and Regulation
UK POLICY AND REGULATION Price caps Legislation passed requiring Ofgem to cap standard variable and default energy tariffs Cap (ceiling) is in place from the end of 2018 until 2020 Ofgem will then recommend if the cap should remain up to 2023 Recent wholesale price increases have led to Ofgem announ
Slide 14: Business Update
BUSINESS UPDATE Meridian Energy Limited 2019 Interim Results Presentation 14
Slide 15: New Zealand Customers
NEW ZEALAND CUSTOMERS Continued growth CUSTOMER SALES CUSTOMER SALES AVERAGE NUMBERS VOLUME PRICE1 2% growth in customer numbers (GWH) ($/MWH) Growth in residential (6%) and small 1H FY19 medium business sales volumes (4%) Residential 198,689 762 Lower agri sales reflect irrigation demand Small medi
Slide 16: New Zealand Generation
NEW ZEALAND GENERATION Average generation levels at higher prices NEW ZEALAND GENERATION GWH 92% of average inflows in the six months to 8,000 6,902 Hydro 6,858 Wind 7,029 Total December 2018 with good winter storage 7,000 739 771 733 5,937 6,546 621 Higher average prices received for 6,000 5,000 64
Slide 17: Australian Customers and Generation
AUSTRALIAN CUSTOMERS AND GENERATION Customer growth AUSTRALIAN ELECTRICITY CUSTOMERS CONNECTIONS 2% growth in customer numbers 120,000 3% reduction in retail sales volume in 1H 100,000 FY19 80,000 Momentum in Victorian gas sales with 60,000 12,500 customers and 142TJ of sales 97,547 97,241 99,368 vo
Slide 18: United Kingdom
UNITED KINGDOM Merger abandoned Proposed merger between npower (our franchisee) and SSE’s domestic retail business was abandoned in December 2018 Key issues appear to be intense retail competition and increased regulation npower will move into E.ON as part of E.ON’s acquisition of Innogy (npower’s p
Slide 19: Financial Update
FINANCIAL UPDATE Meridian Energy Limited 2019 Interim Results Presentation 19
Slide 20: Dividends
DIVIDENDS 6% growth in interim ordinary dividend INTERIM DIVIDEND DECLARED CPS Interim ordinary dividend declared of 5.70 12 Ordinary dividend Special dividend Total cps, 86% imputed 8.14 Capital management interim special 9 7.54 7.77 7.82 6.20 dividend of 2.44 cps, unimputed 6 2.44 2.44 2.44 2.44 1
Slide 21: Earnings
EARNINGS Record interim EBITDAF, 18% up on 1H FY18 NZ ENERGY MARGIN $M Higher residential and business sales 1,200 Interim Final half-year Total volumes at stable average price 1,000 900 939 940 944 Lower corporate sales volumes at higher 800 prices 445 465 455 492 Lower irrigation sales 600 Higher
Slide 22: Australia
AUSTRALIA 14% increase in EBITDAF GSP hydro generation, impacted by AUSTRALIAN EBITDAF $NZ M drought conditions Interim Final half-year Total 60 Firming retail electricity price 50 Victorian gas earnings 44 40 36 8 Sharp reduction in LGC prices 6 Hedging benefits from these will be felt in 30 2H FY1
Slide 23: Costs
COSTS 6% increase in operating costs OPERATING COSTS $M Refurbishment spend on Te Āpiti wind farm 1H FY19 1H FY18 160 and the Ōhau hydro stations 135 140 127 Maintaining a similar level of promotional 120 spend to 1H FY18, supporting NZ customer 100 acquisition 80 Higher Australian customer service
Slide 24: Below EBITDAF
BELOW EBITDAF 39% increase in NPAT NET PROFIT AFTER TAX $M $3M (2%) increase in depreciation Interim Final half-year Total 300 No impairments in 1H FY19, compared with 247 1H FY18 impairments of $2M (Central Wind 200 201 consent) 200 185 130 No asset sale gains in 1H FY19 compared 81 75 92 with 1H F
Slide 25: Debt and Funding
DEBT AND FUNDING Recent USD 300M Private Placement DEBT MATURITY PROFILE AS AT 31 DEC 2018 $M Total borrowings as at 31 December 2018 of 600 Drawn debt maturing (face value) Available facilities maturing $1,561M 500 Up $195M from 31 December 2017 400 50 Committed bank facilities of $725M of 300 35 w
Slide 26: Closing Comments
CLOSING COMMENTS Good current catchment storage Strong January 2019 generation and wholesale prices, with irrigation and air conditioning load driving demand NZ electricity price review preliminary options paper is imminent Followed by consultation in early 2019, final report to the Minister will fo
Slide 27: Questions
QUESTIONS Meridian Energy Limited 2019 Interim Results Presentation 27
Slide 28: Financial Performance in Detail
FINANCIAL PERFORMANCE IN DETAIL Meridian Energy Limited 2019 Interim Results Presentation 28
Slide 29: Operating Cash Flows
OPERATING CASH FLOWS $100M (62%) increase OPERATING CASHFLOW $M Interim Final half-year Total Record level of interim operating cash flow 500 440 452 470 427 Driven by higher 1H FY19 EBITDAF 400 Includes reversal of timing differences that 223 246 267 300 265 weighed on FY18 full year cash flow 200
Slide 30: Segment Results
SEGMENT RESULTS $M WHOLESALE RETAIL AUSTRALIA OTHER/ INTER- UNALLOCATED SEGMENT SIX MONTHS ENDED 31 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H DECEMBER FY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19 FY18 Energy margin 430 360 80 92 66 57 - - - - Other revenue 2 2 6 5 1 - 13 8 (9) (5) Energy transmission expense (6
Slide 31: Australian Segment
AUSTRALIAN SEGMENT FY18 energy margin reclassified For treatment of financial ENERGY MARGIN ($M) 1H FY18 CHANGES 1H FY18 FY18 trading REPORTED RESTATED RESTATED Contracted sales 49 12 61 123 Cost to supply customers (37) (10) (47) (100) Net cost of acquired generation - (14) (14) (25) Generation spo
Slide 32: New Zealand Retail
NEW ZEALAND RETAIL Customers NEW ZEALAND CUSTOMER NUMBERS ICP (000) Meridian North Island Meridian South Island 2% increase in customers since June 2018 350 Powershop Total 291 297 300 276 275 277 Residential, Business, Agri segment 250 56 56 59 66 69 5% decrease in overall volumes 200 119 119 116 6
Slide 33: New Zealand Hydrology
NEW ZEALAND HYDROLOGY Inflows MERIDIAN'S COMBINED CATCHMENT INFLOWS GWh 8,000 Inflows for 1H FY19 were 92% of historical 7,000 average 6,000 January 2019 inflows were 99% of average 5,000 4,000 Storage 3,000 Meridian’s Waitaki catchment storage at 31 2,000 1,000 December 2018 was 98% of historical a
Slide 34: New Zealand Generation
NEW ZEALAND GENERATION Volume NEW ZEALAND GENERATION GWH 1H FY19 generation was 10% higher than 1H 8,000 6,902 Hydro 6,858 Wind 7,029 Total FY18 7,000 739 771 733 5,937 6,546 621 Reflected higher hydro and lower wind 6,000 5,000 648 generation 4,000 3,000 6,163 6,087 6,296 5,925 5,289 2,000 Price 1,
Slide 35: Australian Retail
AUSTRALIAN RETAIL Customers AUSTRALIAN ELECTRICITY CUSTOMERS CONNECTIONS 2% growth in customer numbers since 120,000 June 2018 100,000 12,500 gas customers in Victoria by 31 80,000 December 2018 60,000 Sales volume 97,547 97,241 99,368 40,000 77,970 3% decrease in sales volumes 48,208 20,000 142TJ o
Slide 36: Australian Generation
AUSTRALIAN GENERATION Volume AUSTRALIAN GENERATION GWH 1H FY19 generation was 37% higher than 1H 600 Wind Hydro Total FY18 500 419 1H FY19 includes 123GWh of seasonal 400 generation from the GSP hydro assets 300 123 1H FY19 wind generation was 3% lower 200 441 437 than 1H FY18 309 305 296 100 0 2014
Slide 37: 1H FY19 EBITDAF
1H FY19 EBITDAF MOVEMENT IN EBITDAF $M 500 New Zealand Energy Margin +$58M (13%) +9 +3 400 +10 -2 -8 -1 +58 300 -16 +259 -297 200 389 329 100 +45 0 EBITDAF 31 Retail Wholesale Costs to Net cost of Generation Virtual asset Other Australian Other Transmission Employee & EBITDAF 31 Dec 2017 contracted
Slide 38: 1H FY19 EBITDAF to NPAT
1H FY19 EBITDAF TO NPAT 1H FY19 EBITDAF TO NPAT RECONCILIATION XXXX $M 450 400 350 -137 300 250 389 -7 -43 200 -58 +7 +5 150 -4 144 152 100 EBITDAF Depreciation Premiums paid Net finance Tax Underlying Net change in Premiums paid Tax NPAT and on electricity costs NPAT fair value of on electricity am
Slide 39: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN ENERGY MARGIN A non-GAAP financial measure Revenues received from sales to customers net of distribution costs (fees to distribution network representing energy sales revenue less companies that cover the costs of distribution of energy related expenses and energy electrici
Slide 40: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN LWAP:GWAP 1H FY19 1.11 1H FY19 1H FY18 1.08 1H FY18 VOLUME1 VWAP2 $M VOLUME1 VWAP2 $M Residential/SMB contracted sales 1,936 $116.4 225 2,027 $117.6 238 Corporate contracted sales 1,063 $81.8 87 1,114 $80.6 90 Retail contracted sales 2,999 $104.1 312 3,141 $104.5 328 NZAS s
Slide 41: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN NEW ZEALAND ENERGY MARGIN $M Contracted sales revenue Net cost of acquired generation $561M $76M 1,400 249 1,200 1,000 312 -942 800 600 +6 150 -71 -3 -3 400 812 510 200 0 Generation Retail Wholesale Cost to supply Acquired Cost of Future Virtual asset Other market Energy Ma
Slide 42: New Zealand Energy Margin Movement
NEW ZEALAND ENERGY MARGIN MOVEMENT NEW ZEALAND ENERGY MARGIN $M Contracted sales revenue Net cost of acquired generation 800 +$42M +$45M +58 700 -16 600 -297 +259 +10 +35 +11 500 -1 -1 400 300 510 510 452 200 100 0 Energy Margin Generation Retail Wholesale Cost to supply Acquired Cost of Future cont
Slide 43: Other Revenue
OTHER REVENUE SIX MONTHS ENDED 31 DECEMBER 2018 2017 $M Retail service revenue (field services revenue etc) 4 3 Dam Safety Intelligence 1 1 Flux UK 6 4 Other 2 2 Total other revenue 13 10 Meridian Energy Limited 2019 Interim Results Presentation 43
Slide 44: Fair Value Movements
FAIR VALUE MOVEMENTS On electricity and other hedges and NET CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS treasury instruments $M Meridian uses derivative instruments to 50 manage interest rate, foreign exchange and 5 electricity price risk 0 -21 -26 -33 As forward prices and rates on these -83 ins
Slide 45: Income Statement
INCOME STATEMENT SIX MONTHS ENDED 31 DECEMBER 2018 2017 $M New Zealand energy margin 510 452 Australia energy margin 66 57 Other revenue 13 10 Energy transmission expense (65) (63) Employee and other operating expenses (135) (127) EBITDAF 389 329 Depreciation and amortisation (137) (134) Impairment
Slide 46: Underlying NPAT Reconciliation
UNDERLYING NPAT RECONCILIATION SIX MONTHS ENDED 31 DECEMBER 2018 2017 $M Net profit after tax 152 109 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges (20) 2 Net change in fair value of treasury instruments 15 2 Premiums paid on electricity options
Slide 47: Cash Flow Statement
CASH FLOW STATEMENT SIX MONTHS ENDED 31 DECEMBER 2018 2017 $M Receipts from customers 1,695 1,374 Interest and dividends received - - Payments to suppliers and employees (1,310) (1,101) Interest and income tax paid (123) (111) Operating cash flows 262 162 Sale of property, plant and equipment - 12 S
Slide 48: Balance Sheet
BALANCE SHEET SIX MONTHS ENDED 31 DECEMBER 2018 2017 $M Cash and cash equivalents 78 108 Trade receivables 259 304 Customer contract assets 20 19 Other current assets 141 122 Total current assets 498 553 Property, plant and equipment 7,809 7,871 Intangible assets 59 58 Other non-curent assets 200 21
Slide 49: Glossary
GLOSSARY Acquired generation volumes buy-side electricity derivatives excluding the buy-side of virtual asset swaps Average generation price the volume weighted average price received for Meridian’s physical generation Average retail contracted sales price volume weighted average electricity price r
Slide 50: Disclaimer
DISCLAIMER THE INFORMATION IN THIS PRESENTATION WAS PREPARED BY MERIDIAN ENERGY WITH DUE CARE AND ATTENTION. HOWEVER, THE INFORMATION IS SUPPLIED IN SUMMARY FORM AND IS THEREFORE NOT NECESSARILY COMPLETE, AND NO REPRESENTATION IS MADE AS TO THE ACCURACY, COMPLETENESS OR RELIABILITY OF THE INFORMATIO