Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 FY2017 Earnings Presentation
39 slides from Meridian Energy's earnings presentation, Feb 22, 2017
Slide 1: Powering today, protecting tomorrow
Powering today, protecting tomorrow MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2016
Slide 2: Disclaimer
22 FEBRUARY 2017 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
Slide 3: Highlights
22 FEBRUARY 2017 Highlights 1Net profit after tax adjusted for the effects of non-cash fair value movements and one-off items MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2016 3
Slide 4: Progress on strategy
22 FEBRUARY 2017 Progress on strategy Maintaining an TPM supplementary consultation paper released, open market in implementation expected by April 2020 (latest) which we can Election year focus unlikely to be on electricity compete market structure effectively NZ wind options ready to meet expected
Slide 5: Progress on strategy
22 FEBRUARY 2017 Progress on strategy Protecting and NZAS back-to-back arrangements with other maximising our generators in effect generation Transmission grid resilient to a Tiwai exit asset and wholesale Ability of HVDC to deliver energy into the North position Island is robust Growing retail Two y
Slide 6: The New Zealand market
22 FEBRUARY 2017 The New Zealand market NATIONAL DEMAND GWh 45,000 year on Warm winter temperatures and high -1.4% +1.2% +1.8% -1.4% year change rainfall eliminated demand growth 40,000 National demand has decreased 2.0% in Jul-Dec 2016 the last six months and 1.4% in the last -2% 35,000 Oct-Dec 201
Slide 7: New Zealand demand
22 FEBRUARY 2017 New Zealand demand REGIONAL DEMAND 1H FY2017 V 1H FY2016 Climatic factors have impacted demand: 2016 was New Zealand’s warmest year +4% on record Soil moisture levels in South Island 0% -2% irrigation regions were higher than the +1% -1% last two years +2% Decreased South Island loa
Slide 8: The Australian market
22 FEBRUARY 2017 NEM DEMAND The Australian market TWh 300 Stable demand in the last year 280 LGC prices have maintained their 260 strong performance 240 Political uncertainty around support of 220 renewables 200 Renewables are more politicised 2012 2013 Calendar year ended 31 December 2014 2015 2016
Slide 9: Tiwai Point smelter
22 FEBRUARY 2017 LME SPOT ALUMINIUM PRICE 4% Tiwai Point smelter USD/tonne 1,800 appreciation since June 2016 Price increased from 1 January 2017 1,700 Contract now into NZAS perpetual 12- 1,600 month termination right 1,500 International aluminium market is improving, but remains difficult 1,400 1 Ju
Slide 10: Wholesale and generation
22 FEBRUARY 2017 Wholesale and generation Stay in business capital spend of $19m in 1H FY2017 Six year, $41m refurbishment programme on Ōhau stations commenced Record level of New Zealand generation for a six month period, 34% average generation market share 19% increase in Australian generation vol
Slide 11: Retail
22 FEBRUARY 2017 Retail Segment EBITDAF increased $1m (2%) in 1H FY2017 Despite 12% decline in retail contracted sales volumes Impact of a wet spring and timing of corporate customer churn reduced contracted sales Some offset from a 22% increase in SMB sales MERIDIAN RETAIL Dec 16 Dec 15 Dec 14 Janua
Slide 12: Dividends
22 FEBRUARY 2017 Dividends Interim ordinary dividend of 5.33 cps, INTERIM DIVIDENDS DECLARED CPS Ordinary dividend Special dividend 88% imputed 10 7.54 7.77 8 4.5% increase on the interim dividend 6.20 2.44 2.44 from last year 6 4.19 1.40 4 Capital management interim special 4.80 5.10 5.33 2 4.19 di
Slide 13: Financial performance
22 FEBRUARY 2017 Financial performance FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M 600 Six months ended 31 December 2016 533 509 Six months ended 31 December 2015 500 400 352 332 300 203 206 200 194 200 123 121 124 130 122 104 100 66 64 27 28 8 8 0 Energy Other Trans- Operating EBITDAF NPAT Underlyi
Slide 14: Earnings + Powershop growth, higher generation
22 FEBRUARY 2017 ENERGY MARGIN1 Earnings $M 1,200 1,009 954 EBITDAF increase of $20m (6%) in 1H 1,000 916 924 +5% FY2017 from: 800 481 477 474 500 600 + Powershop growth, higher generation 400 and prices in Australia +$14m 200 435 447 480 509 533 - Lower residential/SMB/agri sales at 0 2013 2014 201
Slide 15: International
22 FEBRUARY 2017 INTERNATIONAL SEGMENT EBITDAF International $M 50 Segment EBITDAF increased $15m (88%) in 40 +88% 34 1H FY2017 30 26 Powershop Australia retail sales volumes 17 20 13 14 32 78GWh (48%) higher 10 12 17 Customer numbers +16% since June 2016 0 12 Wind generation volumes 19% higher in 1
Slide 16: Costs
22 FEBRUARY 2017 OPERATING COSTS Costs $M Retail segment Wholesale Corporate/Elims +3% 150 International IPO Costs Operating costs have increased +$2m 116 124 112 121 123 9 16 17 (+2%) in 1H FY2017 100 38 23 11 19 19 20 Investment supporting Powershop 50 35 40 37 38 40 expansion offshore continues 37
Slide 17: Below EBITDAF
22 FEBRUARY 2017 NET PROFIT AFTER TAX Below EBITDAF $M 400 Higher depreciation from June 16 revaluations 295 300 247 Net finance costs $1m (3%) from lower interest 122 230 185 +19% on higher borrowings 200 113 130 81 Positive change in fair value of treasury 100 173 117 117 104 124 instruments reflect
Slide 18: Concluding remarks
22 FEBRUARY 2017 Concluding remarks MERIDIAN'S WAITAKI STORAGE Well positioned for generation GWh 2,500 6 months of increase in Tiwai prices in 2,000 2H FY2017 1,500 Back-to-back Tiwai support from other 1,000 generators in place and providing 500 options 0 TPM decision from the EA a milestone 1-Jan
Slide 19: Questions
Questions MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2016
Slide 20: Additional information
Additional information MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2016
Slide 21: Tiwai Point smelter contract
22 FEBRUARY 2017 Tiwai Point smelter contract Price on 400MW unchanged from 2013 variation, higher price on 172MW from 1 January 2017 Perpetual termination right from 1 January 2017 Window to give 12 months notice to reduce to 400MW any time after 30 April 2017 1 Jan 2017 30 Apr 2017 31 Dec 2030 Ter
Slide 22: New Zealand retail
22 FEBRUARY 2017 NEW ZEALAND CUSTOMER NUMBERS New Zealand retail ICP (000) 400 Meridian North Island Meridian South Island +0.3% Powershop Customer connections 300 272 277 276 275 276 55 0.3% increase in ICP numbers since June 51 56 56 57 200 117 2016, reflecting greater SMB focus and 115 114 116 115
Slide 23: Hydrology
22 FEBRUARY 2017 MERIDIAN'S COMBINED CATCHMENT INFLOWS Hydrology GWh 8,000 Inflows for the six months ended 6,000 December 2016 were 96% of historical average 4,000 January 2017 inflows were 123% of 2,000 historical average 0 Meridian’s Waitaki catchment storage at Financial2003 year 2005 2007 Decembe
Slide 24: New Zealand generation
22 FEBRUARY 2017 New Zealand generation NEW ZEALAND GENERATION GWh 8,000 Hydro Wind +2.5% For the six months ended 31 December 7,000 6,651 6,902 6,858 7,029 2016, Meridian’s New Zealand generation 6,050 739 771 733 660 was 2.5% higher than the same period 6,000 618 last year 6,296 5,000 5,991 6,163
Slide 25: Movement in EBITDAF 1H FY2016 to 1H FY2017
22 FEBRUARY 2017 Movement in EBITDAF 1H FY2016 to 1H FY2017 MOVEMENT IN EBITDAF $M New 370 Zealand energy margin +$9m 350 -2 +15 -2 +1 330 +32 352 -26 310 332 -7 +9 290 EBITDAF 31 Retail Wholesale Net cost of Net spot Other market International Transmission Employee & EBITDAF 31 Dec 2015 contracted
Slide 26: EBITDAF and net profit after tax
22 FEBRUARY 2017 EBITDAF and net profit after tax 1H FY2017 EBITDAF TO NPAT RECONCILIATION $M 400 350 300 -132 250 200 -6 -38 352 150 -46 +6 -2 +2 100 -12 130 124 50 - EBITDAF Depreciation Premiums on Net finance Income tax Underlying Net change in Premiums on Gain/(loss) on Income tax NPAT and elect
Slide 27: New Zealand energy margin
22 FEBRUARY 2017 New Zealand energy margin Energy margin is a non-GAAP financial measure Energy margin is defined as: representing Energy Sales Revenue less Energy ₊ revenues received from sales to customers net of Related Expenses and Energy Distribution Expenses distribution costs (fees to distribut
Slide 28: New Zealand energy margin
1Ratio between the price per unit received for Meridian’s physical 22 FEBRUARY 2017 generation and the price paid to supply each unit of contracted sales, inclusive of line losses New Zealand energy margin 1H FY2017 1H FY2016 VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $
Slide 29: New Zealand energy margin
22 FEBRUARY 2017 New Zealand energy margin NEW ZEALAND ENERGY MARGIN Derivatives acquired to supplement $M generation and cover spot price risks, net 700 Contracted Sales Spot Exposed Net Cost of Acquired of spot revenue Revenue Revenue Generation received from those $461m +$25m -$4m derivatives 600
Slide 30: Movement in energy margin 1H FY2016 to 1H FY2017
22 FEBRUARY 2017 Movement in energy margin 1H FY2016 to 1H FY2017 NEW ZEALAND ENERGY MARGIN $M Contracted Sales Spot Exposed Net Cost of Acquired 600 From lower Lower Revenue Revenue Generation acquired residential, agri -$33m +$32m +$9m generation volumes and corporate Higher spot and lower custome
Slide 31: Other revenue
22 FEBRUARY 2017 Other revenue 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2016 31 DEC 2015 30 JUN 2016 SUMMARY OF OTHER REVENUE $M $M $M Retail service revenue (field services etc) 3 3 6 Damwatch 2 2 5 Miscellaneous 3 2 5 Lease income 0 1 1 Carbon credits - - 0 Total other revenue 8 8 17 ME
Slide 32: Funding
22 FEBRUARY 2017 DEBT MATURITY PROFILE AS AT 31 DEC 2016 Funding $M 500 Total borrowings as at 31 December 2016 400 of $1,229m, up $29m from 31 December 300 2015 357 107 200 408 105 Net borrowings (net of cash) as at 31 100 203 December 2016 of $1,185m, up $54m 80 105 10 0 from 31 December 2015 2017
Slide 33: Funding metrics
22 FEBRUARY 2017 NET DEBT/EBITDAF (S&P VIEW) Funding metrics TIMES 2.0 Net debt/EBITDAF is the principal metric 1.5 underpinning S&P credit rating 1.0 S&P calculation of Net debt/EBITDAF 1.8 1.8 1.9 1.7 includes numerous adjustments to 0.5 reported numbers 0.0 Jun 2014 Jun 2015 Jun 2016 Dec 2016 Bor
Slide 34: Fair value movements
22 FEBRUARY 2017 CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value movements $M 120 100 Meridian uses derivative instruments to 80 60 94 manage commodity price, interest rate 40 20 and foreign exchange risk 0 18 -33 -20 -12 As forward prices and rates on these -40 -60 -83 -80 instruments move
Slide 35: Group income statement
22 FEBRUARY 2017 Group income statement 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2016 31 DEC 2015 30 JUN 2016 SUMMARY GROUP INCOME STATEMENT $M $M $M New Zealand energy margin 483 474 939 International energy margin 50 35 70 Other revenue 8 8 17 Energy transmission expense (66) (64) (128
Slide 36: Group underlying NPAT
22 FEBRUARY 2017 Group underlying NPAT 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2016 31 DEC 2015 30 JUN 2016 UNDERLYING NPAT RECONCILIATION $M $M $M Net profit after tax 124 104 185 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 75 32 1
Slide 37: Group cash flow statement
22 FEBRUARY 2017 Group cash flow statement 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2016 31 DEC 2015 30 JUN 2016 SUMMARY GROUP CASH FLOW STATEMENT $M $M $M Receipts from customers 1,110 1,166 2,348 Interest and dividends received 1 1 2 Payments to suppliers and employees (794) (862) (1,7
Slide 38: Group balance sheet
22 FEBRUARY 2017 Group balance sheet AS AT AS AT AS AT 31 DEC 2016 31 DEC 2015 30 JUN 2016 SUMMARY GROUP BALANCE SHEET $M $M $M Cash and cash equivalents 44 69 118 Trade receivables 184 220 194 Other current assets 121 104 94 Total current assets 349 393 406 Property, plant and equipment 7,648 6,970
Slide 39: Glossary
22 FEBRUARY 2017 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 el