Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2011 Earnings Presentation
43 slides from Meridian Energy's earnings presentation, Aug 23, 2011
Slide 1: Annual Result Presentation
Annual Result Presentation For The Year Ended 30 June 2011 MERIDIAN ENERGY LIMITED 2011 ANNUAL RESULTS – 30 JUNE 2011 23 AUGUST 2011 23 August 2011 PAGE 1
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking stat
Slide 3: About Meridian
About Meridian • Integrated renewable electricity generator and retailer – New Zealand’s largest generator – Servicing 272,776 ICPs through our two brands, Meridian Retail (239,216) and Powershop (33,560) • International wind and solar generation facilities West Wind, Wellington 62 turbines, 143MW w
Slide 4: The Year in Numbers
The Year in Numbers Financial & Investment Operational $659.9m EBITDAF (3% increase) 272,776 ICPs (7% increase) • 35% increase in North Island $683.6m dividends paid • 104% growth in Powershop 64MW of new renewable generation commissioned 28% Improvement in lost-time injury frequency rate 420MW Maca
Slide 5: Major Events
Major Events • Canterbury Earthquakes • Sale of Tekapo power stations • Continued flat market demand • Active retail market – high competition and Christchurch home to 50% of our staff and 37% of Meridian’s customer base churn • High inflows across the country • Government announcement of proposed m
Slide 6: Sustainably Improving Our Earnings
Sustainably Improving Our Earnings Ensuring Meridian is a high-performing investment that can fund its growth plans Continuing a strong record of shareholder returns Group Underlying Net Profit After Tax* $ Millions • 7.2% Total Shareholder Return (TSR) this year 2011 Financial year ended 30 June 21
Slide 7: Growing Value Through the Development of Renewables
Growing Value Through the Development of Renewables Continuing to grow a portfolio of value enhancing renewable energy options A strong pipeline of viable New Zealand options (wind, hydro, irrigation) – Te Uku completed – Central Wind investment ready First tower section at Macarthur wind farm – Puk
Slide 8: Lifting Our Customer Game
Lifting Our Customer Game Delivering a valuable, differentiated offer to our customers Improving the Retail segment’s contribution – 7% increase in active Installation Control Points (ICPs) during the year – Rebalancing of our customer portfolio from South Island to North Island – Leveraging Powersh
Slide 9: People and Health and Safety
People and Health and Safety • Canterbury earthquakes significantly impacted Meridian employees – approx 50% of our employees are located in Christchurch • Relocated staff from Manchester Street office, which was significantly damaged – Meridian is committed to staying in Christchurch Tim Lusk signs
Slide 10: Financial Highlights
Financial Highlights $ million’s 2011 2010 % Change 2.8% EBITDAF growth Total Operating Revenue 2,053.0 2,061.9 (0.4%) Energy Related, Transmission & Distribution Expenses (1,155.0) (1,169.6) 1.2% NPAT includes Employee & Other Operating Expenditure (238.1) (250.6) 5.0% $157.4m gain (net of tax) on
Slide 11: Key Influences on EBITDAF
Key Influences on EBITDAF Employee & Other Uncontracted Purchase to Sales International Transmission & Operating EBITDAF 2010 NZAS Settlement Contracted Sales Generation Price Ratio Other Revenue Levies Expenses EBITDAF 2011 700 21.5 $ Millions 28.1 62.4 17.9 13.2 12.4 3.8 10.1 600 659.9 641.7 500 M
Slide 12: EBITDAF
EBITDAF • A strong performance despite the impact of low average wholesale prices, soft demand growth and Canterbury earthquakes – Flexibility of our portfolio has enabled us to supplement revenues with short-term half hour and financial contracts – Canterbury earthquakes reduced net revenues by app
Slide 13: Storage, Inflows and Price
Storage, Inflows and Price • Hydro storage above average throughout the year, combined with flat demand, resulted in an average wholesale electricity price of $41.57 MWh – down 14% • Receding inflows and a dry outlook, combined with thermal plant outages, resulted in unusually high average wholesale
Slide 14: Leveraging the Flexibility of Our Portfolio
Leveraging the Flexibility of Our Portfolio • The fine tuning of our portfolio over recent years provides the flexibility to optimise earnings while maintaining an appropriate level of risk under various market and hydrology scenarios • Utilising this flexibility during a year of relatively low aver
Slide 15: Operating Expenditure
Operating Expenditure • Employee and other operating expenditure declined $12.5m (5%) from 2010 – Focus upon cost control and improved commercial practices • Improvement achieved despite – Increasing scale of our international operations – Retail competition driving up retention and acquisition cost
Slide 16: Impacts Below EBITDAF
Impacts Below EBITDAF Impacts Below EBITDAF 700.0 3.4 600.0 11.0 224.3 89.3 174.1 14.1 500.0 $ millions 659.9 107.6 400.0 606.3 595.3 506.0 491.9 81.2 300.0 435.6 435.6 384.3 303.1 303.1 200.0 EBITDAF Gain on Sale of Impairments Derivative Fair Value Treasury Fair Value Net Finance Costs Taxation NP
Slide 17: Fair Value Movements
Fair Value Movements • To manage our risk and ensure certainty of return we enter into financial instruments; these are marked to market at the end of each reporting period • A number of factors drive fair value movements across our financial instruments including forward interest rates, foreign exc
Slide 18: Shareholder Returns
Shareholder Returns Meridian Group Cash Dividend Paid - $ Millions Underlying Return on Equity 2011 2011 18.5% Financial year ended 30 June 683.6 Financial year ended 30 June 2010 353.5 2010 19.8% 2009 30.0 2009 15.6% 2008 297.9 2008 9.5% 2007 367.9 2007 14.6% • $683.6m dividends returned to the Sha
Slide 19: Funding
Funding • Maintain Standard & Poor’s A2, BBB+ (stable outlook) credit rating • Cash and undrawn debt facilities of $774m (cash $368m) as at 30 June 2011 • ANZ Bank appointed lead arranger and underwriter of project finance facility for Macarthur wind farm development in Australia Debt Maturity Profi
Slide 20: Investments
Investments • 2011investment largely completing the construction and commissioning of the 64MW Te Uku wind farm and commencing construction of the 420MW Macarthur wind farm • Forecast 2012 investment dominated by construction of the Macarthur wind farm, due for completion during 2013 – Our investmen
Slide 21: Segment Performance
Segment Performance
Slide 22: Retail Segment Performance
Retail Segment Performance $ millions 2011 2010 % Change Lower average Retail Revenue 1,038.5 993.7 4.5% wholesale electricity Energy Related Expenses (438.8) (459.4) 4.5% purchase price Distribution (347.5) (327.4) (6.2%) Employee and Other Operating Expenses (66.7) (69.2) 3.6% 1.7% increase in sal
Slide 23: Customer Growth
Customer Growth • ICP growth of 7% from last year, market share at 14% • Powershop increased its customer base by 104% in the year • Customer segment and regional mix changing, 35% increase of North Island ICPs – Increased retail market competition – Rebalancing following electricity industry reform
Slide 24: Improving Satisfaction Metrics
Improving Satisfaction Metrics Consumer NZ - Customer Satisfaction • Powershop continues to lead the 0% 20% 40% 60% 80% 100% Consumer NZ customer satisfaction Powershop 96% 4% survey improving 4 points to 96% Energy Online 84% • Meridian Retail in the same survey has EDNZ 81% moved from a mid-pack p
Slide 25: Our Response to the Canterbury Earthquakes
Our Response to the Canterbury Earthquakes • Christchurch office housing our retail operations was left uninhabitable requiring relocation of staff • Calls made to all medically dependent customers • Generators, medical help and water organised for some of our customers • Transistor radios were give
Slide 26: Wholesale Segment Performance
Wholesale Segment Performance $ millions 2011 2010 % Change 14% reduction in Wholesale Revenue 952.3 1,031.3 (7.7%) average wholesale Wholesale Electricity Expenses (246.9) (270.9) 8.9% prices Transmission Expenses (102.4) (98.4) (4.1%) Other Wholesale Electricity Expenses (24.2) (22.4) (8.0%) Trans
Slide 27: New Zealand Generation
New Zealand Generation • Flat demand growth combined with the sale of Tekapo power stations on 1 June 2011 (average annual generation 1,000GWh) resulted in production falling by 210GWh from last year • Te Uku, a 28 turbine 64MW wind farm, was fully commissioned in April 2011 with first power in Nove
Slide 28: Plant Performance
Plant Performance • International cost benchmark study (Generation Knowledge Service Hydro) recognised Meridian’s hydro stations at or near top in their class • Forced outage factor at 0.18%, a 19-year low, combined with availability improvements, reflects quality of our maintenance programme • 5-ye
Slide 29: Future Generation Development
Future Generation Development • We expect medium to long-term demand growth to return to historical levels, supporting new investment • Meridian has a pipeline of commercially attractive wind and hydro projects • Options across a range of sizes and geographies, allowing us to take advantage of marke
Slide 30: New Zealand Generation Pipeline
New Zealand Generation Pipeline Development Option Stage Capacity New Zealand Development Pipeline Central Wind Investment ready 120MW Maungaharuru Consent held 94MW Mill Creek Consent held 60MW Hayes Environment Court 630MW WIND Hurunui Consultation 76MW Maungaharuru WIND Central Wind WIND Pukaki (
Slide 31: International Segment Performance
International Segment Performance $ millions 2011 2010 % Change Full year contributions International Revenue 21.8 1.6 from both Mt Millar Energy Related Expenses (0.5) - wind farm and Transmission (1.9) (0.1) CalRENEW-1 solar Employee and Other Operating Expenses (11.4) (12.7) facility Direct EBITD
Slide 32: International Generation Pipeline
International Generation Pipeline Development Option Stage Capacity Construction Macarthur, Victoria, Australia (50-50 joint venture with AGL Energy) 420MW Mt Mercer, Victoria, Australia Preconstruction design 130MW Jacobs Corner, California, USA Feasibility 20-60MW San Luis, Colorado, USA Investiga
Slide 33: Other Segment Performance
Other Segment Performance $ millions 2011 2010 % Change Improved contribution Other Segment Revenue 36.5 35.0 4.4% from Energy for Energy Related Expenses (17.1) (19.7) (13.3%) Industry (EFI) primary Electricity Transmission and Distribution 0.2 - - driver of EBITDAF Employee and Other Operating Exp
Slide 34: Outlook and Opportunities
Outlook and Opportunities West Wind, Wellington 62 turbines, 143MW wind farm
Slide 35: Short-Term Market Outlook
Short-Term Market Outlook • Enter the 2012 financial year with high hydro storage and continued flat demand • This is likely to suppress Wholesale prices in the near term • Active retail competition will likely result in a continuation of high customer churn levels – customer service costs will be u
Slide 36: Opportunities
Opportunities • Meridian’s medium-term development pipeline has options well-placed in the generation merit order • Medium to long-term growth expected to return, lifting wholesale prices to the long- run marginal cost • Long-term agreement with NZAS will provide commercial certainty • Pole 3 comple
Slide 37: Additional Information
Additional Information Benmore Power Station 6 Generators, 540MW
Slide 38: Income Summary
Income Summary $ millions 2011 2010 2009 2008 2007 Energy and Related Services Sales 2,032.7 2,039.6 1871.9 2,580.2 1,776.6 Other Revenue 20.3 22.3 20.5 19.8 14.1 Total Group Operating Revenue 2,053.0 2,061.9 1,892.4 2,600.0 1,790.7 Energy Related Costs (703.3) (743.6) (788.5) (1,591.0) (720.4) Ener
Slide 39: Balance Sheet
Balance Sheet $ millions 2011 2010 2009 2008 2007 Cash and Cash Equivalents 368.2 54.4 47.9 71.7 44.8 Accounts Receivable and Prepayments 240.9 199.1 188.2 471.1 221.7 Other 18.1 18.1 30.8 61.9 20.5 Current Assets 627.2 271.6 266.9 604.7 287.0 Property, Plant and Equipment 7,720.8 8,207.3 6,743.1 6,
Slide 40: Statement of Corporate Intent (SCI)
Statement of Corporate Intent (SCI) Statement of Corporate Intent (SCI) Financial Measures Target 2011 2010 2009 2008 2007 Equity to Total Assets 56.6% 58.3% 58.2% 59.7% 58.4% 65.6% Return on Average Equity 3.9% 6.1% 3.9% 2.1% 3.0% 5.6% Underlying Return on Average Equity (excl. Revaluations) 18.3%
Slide 41: LWAP to GWAP
LWAP to GWAP 2011 2010 South Island North Island South Island North Island TWAP at BEN2201, OTA2201 39.27 54.98 48.87 58.83 GWAP / TWAP 1.04 0.83 0.98 0.91 LWAP / TWAP 1.12 0.97 1.06 1.02 LWAP / GWAP 1.07 1.17 1.08 1.12 Aggregate LWAP /GWAP 1.21 1.19 LWAP represents load weighted average price to su
Slide 42: NZAS Long-term Derivative Contract
NZAS Long-term Derivative Contract • Long term 572MW contract for difference (CfD) with New Zealand Aluminium Smelters (NZAS), commencing January 2013 for 18 years • Arrangement is a financial contract with the strike price escalated annually based on, 3 year average aluminium commodity price (LME),
Slide 43: Segment Reporting and Overhead Allocation
Segment Reporting and Overhead Allocation • Since 2010 with the growth of our International business we now consider the business from the perspective of three reportable segments, being Wholesale, Retail and International Meridian Segment Composition New Zealand Wholesale Retail International (prev