Meridian Energy Limited · NZX:MEL

Meridian Energy — FY2021 Earnings Presentation

53 slides from Meridian Energy's earnings presentation, Aug 25, 2021

1. Slide 1: 2021 Annual Results Presentation

   2021 Annual Results Presentation 25 AUGUST 2021

2. Slide 2: Highlights

   Highlights construction of $395M 14% New Zealand 15% Australian sales Harapaki farm commenced sales growth growth 171 GWh1 in MoU’s or stable ordinary 7% Australasian contracted for South Island process heat dividend customer growth carbon neutral, 27% increasing gender pay severe 2021 drought total

3. Slide 3: Our people

   Our people  18 LTI injuries in FY21, an increase in injury Workforce measures numbers compared to FY20 120% FY21 FY20  Staff engagement normalising to pre-COVID levels 97% 96%  Increase to 97% gender pay equity 90% 78% 85% 60% 48% 46% 37% 34% Lost time injury frequency rate 30% Meridian employees

4. Slide 4: Strategic initiatives

   Our strategy Champion Optimise Grow initiatives Strategic Competitive markets Trading & asset management Retail Sustainability Re-consenting Generation Climate action Financing Flux Grow a clear sustainability leadership NZ’s highest customer satisfaction position NZ’s largest and fastest growing re

5. Slide 5: Sustainability at Meridian

   Sustainability at Meridian Our Material Topics 2030 emissions target Environmental Social Governance tCO2e 47,279 actual target Action on climate change Electricity pricing Sustainability leadership 50,000 Halving 44,359 2019 Pipeline of generation options Support for vulnerable Good governance, eth

6. Slide 6: Social focus

   Social focus Local communities  Long term relationships, community relationship managers  $9M of local project support over 14 years Iwi  Recognise the mana whenua of Ngāi Tahu  Close association with local rūnaka  Focus on strengthening our iwi partnerships KidsCan  $1M annual contribution to

7. Slide 7: New Zealand demand

   New Zealand demand  Underlying demand growth of 0.7% in FY21 National demand GWh  Demand recovery from COVID-19 lockdowns 4,000 evident in Q4 FY21 demand swing 3,800  Normalising for 4th Tiwai potline (operational from 3,600 May 2018 to April 2020) sees FY21 demand 3,400 growth of 1.5% over last

8. Slide 8: New Zealand customers

   New Zealand customers  Sustained sales volume growth across all segments (14% in New Zealand retail sales volumes gross GWh total) average price +1% -3% -5% -1% -2% 4,000  Through disciplined execution of multi-brand strategy change +18%  Core platform transformation near completion, focus on 3,0

9. Slide 9: New Zealand wholesale prices

   New Zealand wholesale prices  High June and July 2021 inflows have lifted national storage to 108% by early August 2021  Forward curves have responded to this reduced hydro fuel scarcity and recent announcements of contract rearrangements to help alleviate gas scarcity Benmore ASX futures settleme

10. Slide 10: Wholesale market liquidity

    Wholesale market liquidity  ASX total trading volumes has increased 275% in ASX trading trading volumes TWh the last 3 years 80 Meridian traded Total traded 74  Total traded volumes is approaching 2 times the level of system demand 60  Meridian is involved in 40% of total traded volume  Meridian

11. Slide 11: New Zealand policy and regulation

    New Zealand policy and regulation Current Electricity Authority focus  Continuing to implement Electricity Price Review related recommendations  Undertaking a review of wholesale market competition in the wholesale market for the period 2018 to early 2021  Implemented new trading conduct provisio

12. Slide 12: New Zealand policy and regulation

    New Zealand policy and regulation Climate Change Commission Final Advice  Released in June 2021, final advice on 2022-35 emissions budgets  Proposes deeper emissions cuts in first two budget periods than earlier draft advice  Recommends major expansion in the electricity system needs to start imm

13. Slide 13: New Zealand policy and regulation

    New Zealand policy and regulation Transmission Pricing Methodology (TPM) Meridian's NZ transmission costs $M  EA published final TPM guidelines in June 2020 140 Meridian actual 116 Transpower  Replaces current HVDC and RCPD charges with 120 Meridian actual estimate benefit-based and residual charg

14. Slide 14: NZAS exit

    NZAS exit 14 Jan 1 Jan 1 Jan 1 Jan 31 Dec 2021 2022 2023 2024 2024 Revised NZAS contract no termination right (except terminal force majeure) 400MW NZAS termination right with 6 months notice (terminal FM also applies) 172MW LME prices and 12 month forward forecasts Existing 4th potline contract USD

15. Slide 15: NZAS exit response

    NZAS exit response NZAS contract 14 Jan May 21 Aug 21 1 Jan 1 Jan 1 Jan 31 Dec investor annual 2021 day 2022 2023 2024 2024 results Meridian portfolio response exploring options Current swaption options discussions on on CUWLP schedule schedule completion review of review of site design & constructi

16. Slide 16: 2021 drought

    2021 drought  FY21 lacked any significant inflow events until near the end of the year  November 2020 to April 2021 inflows were the 3rd lowest November to April inflows on record  With 43% less inflows in that period than in the same period of the previous financial year  FY21 hydro generation

17. Slide 17: Australian ownership review

    Australian ownership review  Ownership review announced in May 2021 Meridian Energy Australia  Owns and operates 300MW of wind (201 MW)and hydro (99  Information Memorandum released to MW) assets interested parties in August 2021  Has contracted another 127 MW of wind energy through  The review

18. Slide 18: Financial performance

    Financial performance 2 5 A U GU S T 2 0 2 1 2 0 2 1 A N N U AL R ES U L T S P R ES EN T A T I ON 18

19. Slide 19: EBITDAF

    EBITDAF1  FY21 EBITDAF -15% on FY20 Group EBITDAF movement $M  Strong retail sales performance in New Zealand 900  Severe 2021 drought conditions have only eased recently 800 -128  Lowest Australian wholesale spot prices since 2015/16 700 -25 +2 +36 -3 -6 853  Lower New Zealand transmission cha

20. Slide 20: Dividends

    Dividends  Final ordinary dividend declared of 11.20 cps, 86% Dividends declared CPS imputed Ordinary dividends Special dividends Total 25  Brings FY20 full year ordinary dividend declared to 19.20 21.30 4.88 19.34 18.91 16.90 cps, 86% imputed 20 4.88 4.88 2.44 16.90 16.42 16.90 16.90  Represents

21. Slide 21: New Zealand energy margin

    New Zealand energy margin  Customer and sales volume growth across all New Zealand energy margin movement $M Physical Financial segments 2,300 -$297M +$168M  Higher average mass market and stable corporate 2,100 pricing supported higher sales 1,900  Generation length in 2H FY21 impacted by 1,700

22. Slide 22: Australian energy margin

    Australian energy margin  Electricity and gas sales volumes have lifted Australian energy margin movement $NZ M Physical Financial physical margin, despite residential price pressure -$26M +$1M from lower wholesale market prices 160 140 +4  Respite from prior year drought conditions lifted +9 120

23. Slide 23: Cost to supply customers

    Cost to supply customers  NZ Retail segment cost to supply customers:  Residential, business and industrial fixed price variable volume customers at an average annual fixed price of $88/MWh (FY20 $81/MWh)  Corporate and industrial customers on spot agreements at prevailing wholesale spot prices 

24. Slide 24: Operating costs

    Operating costs  $6M (2%) increase in FY21 operating costs  $1M increase to provision taken on Holidays Act FY20 to FY21 operating cost movement $M payroll remediation 270  Expansion of Renewable Development team 1 2 1  Lower level of annual leave taken 1 -1 260 1 2  Further insurance cost incr

25. Slide 25: Below EBITDAF

    Below EBITDAF Net profit after tax  3% decrease in depreciation following small June $M 2020 devaluation 500 428 339  $202M June 2021 revaluation 400 300  $6M gain from changes in Australian generation 200 203 175 200 asset remediation assessments 100  $169M increase in NPBT1 from fair value of

26. Slide 26: Capital expenditure

    Capital expenditure  Consistent level of stay in business capex Capital expenditure $M Stay in business Investment Total  Largely consists of system and generation asset 250 235 enhancement spend  Harapaki investment spend of $42M in FY21 200  FY21 investment capex includes commencement 150 188

27. Slide 27: Debt and funding

    Debt and funding  June 2021 total borrowings of $1,676M  Total funding facilities of $2,198M, of which $609M Debt maturity profile as at 30 June 2021 were undrawn $M Drawn debt maturing (face value) Available facilities maturing  All facilities classified under Meridian’s Green 600 Finance Progra

28. Slide 28: Closing comments

    Closing comments  Portfolio response to NZAS exit is gaining traction  The Government’s first carbon budgets and emissions plans will further firm up this country’s electrification opportunity  Australian ownership review expected to take several more months  Momentum in Meridian’s retail busine

29. Slide 29: Questions

    Questions 2 5 A U GU S T 2 0 2 1 2 0 2 1 A N N U AL R ES U L T S P R ES EN T A T I ON 29

30. Slide 30: Additional information

    Additional information 2 5 A U GU S T 2 0 2 1 2 0 2 1 A N N U AL R ES U L T S P R ES EN T A T I ON 30

31. Slide 31: Segment results

    Segment results  Flux Federation and Powershop UK included in ‘other and unallocated’ segment 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 31

32. Slide 32: Six monthly results

    Six monthly results 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 32

33. Slide 33: New Zealand retail

    New Zealand retail Customer sales Average price Total sales North Island South Island Retail cost to serve FY19 FY20 FY21 ($/MWh) volume (GWh) sales volume sales volume Retail costs excl. metering $66M $66M $65M (GWh) (GWh) Other segment cost allocation $16M $19M $22M FY21 Year end customer numbers

34. Slide 34: New Zealand retail

    New Zealand retail New Zealand customer connections Customers ICP (000) Meridian North Island Meridian South Island Powershop Total 400  7% increase in customers since June 2020 291 302 324 347 106 277 89 300 66 74 59 119 120 122 115 119 200 Residential, business, agri segment 106 109 115 119 100 1

35. Slide 35: New Zealand hydrology

    New Zealand hydrology Meridian's combined catchment inflows Inflows GWh 16,000  FY21 inflows were 97% of average 14,000 12,000  July 2021 inflows were 156% of average 10,000 8,000 6,000 Storage 4,000 2,000  Meridian’s Waitaki storage at 30 June 2021 was 0 Financial 2007 2008 2009 2010 2011 2012 2

36. Slide 36: New Zealand generation

    New Zealand generation New Zealand generation Volume GWh Hydro Wind 16,000  FY21 generation was 11% lower than FY20, with 14,000 1,341 1,263 1,244 1,465 1,395 lower hydro and wind generation 12,000 10,000 8,000 6,000 11,974 12,326 12,758 11,265 11,297 Price 4,000 2,000  FY21 average price Meridian

37. Slide 37: Australian retail

    Australian retail Australian customer connections Customers 200 Electricity Gas  4% growth in electricity customers since June 38 44 2020 150 23 136 142  16% growth in gas customers since June 2020 100 97 97 110 50 Sales volume 0 2017 2018 2019 2020 2021  15% growth in electricity sales volume in

38. Slide 38: Australian generation

    Australian generation Australian generation Volume GWh Wind Hydro 800 236  FY21 generation was 15% higher than FY20 700 203 113 28 600  Lower wind and higher hydro generation 500  344GWh of PPA offtake in FY21 400 300 510 553 525 528 502 200 100 0 2017 2018 2019 2020 2021 Financial Year ended 30

39. Slide 39: FY21 EBITDAF

    FY21 EBITDAF Movement in EBITDAF $M New Zealand energy margin -$128M 1,900 1,700 1,500 +927 1,300 -1,410 1,100 900 +148 -42 +1 +2 700 +36 -12 -25 -3 -6 853 +260 500 729 300 EBITDAF 30 Jun Retail contracted Wholesale Generation spot Cost to supply Net cost of hedges Virtual asset Other market Austral

40. Slide 40: EBITDAF to NPAT

    EBITDAF to NPAT FY21 EBITDAF TO NPAT RECONCILIATION $M 1,000 800 600 -303 +5 +20 -77 400 -20 729 -84 +248 -90 200 428 232 0 EBITDAF Depreciation and Premiums paid on Net finance costs Tax Underlying Net change in fair Loss on sale of Premiums paid on Tax NPAT amortisation electricity options net NPA

41. Slide 41: Energy margin

    Energy margin Defined as  Revenues received from sales to customers net of distribution  A non-GAAP financial measure representing costs (fees to distribution network companies that cover the costs energy sales revenue less energy related of distribution of electricity to customers), sales to larg

42. Slide 42: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin $M 4,000 3,500 3,000 2,500 2,193 -2,574 2,000 1,500 489 1,000 -323 -14 -3 -4 352 706 500 -421 994 593 0 Res, SMB, Agi C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS margins Market costs En

43. Slide 43: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin movement $M 2,200 2,000 1,800 +927 1,600 -1,306 1,400 1,200 +55 +94 -42 +1 1,000 0 -12 1,122 800 -105 +454 994 -194 600 Energy Res, SMB, Agi C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS

44. Slide 44: New Zealand energy margin

    New Zealand energy margin 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 44

45. Slide 45: Australian energy margin

    Australian energy margin 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 45

46. Slide 46: Funding metrics

    Funding metrics  Net debt/EBITDAF is the principal metric underpinning S&P credit rating  S&P calculation of net debt/EBITDAF includes numerous adjustments to reported numbers;  Borrowings adjusted for the impact of leases  Cash balances adjusted for restricted cash  A cash buffer at 25% of unr

47. Slide 47: Fair value movements

    Fair value movements  Meridian uses derivative instruments to manage Change in fair value of financial instruments $M interest rate, foreign exchange and electricity 300 248 price risk 200  As forward prices and rates on these instruments 100 -21 move, non-cash changes to their carrying value 0 ar

48. Slide 48: Income statement

    Income statement 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 48

49. Slide 49: Underlying NPAT reconciliation

    Underlying NPAT reconciliation 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 49

50. Slide 50: Cash flow statement

    Cash flow statement 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 50

51. Slide 51: Balance sheet

    Balance sheet 2 5 A U GUST 2 0 2 1 2 0 2 1 A N N UAL R E S UL TS PR E SEN TATION 51

52. Slide 52: Glossary

    Glossary Hedging 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 received from

53. Slide 53: Disclaimer

    Disclaimer The information in this presentation was prepared by Meridian Energy with they are not defined by GAAP or IFRS, Meridian's calculation of these due care and attention. However, the information is supplied in summary measures may differ from similarly titled measures presented by other for

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