Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2014 Earnings Presentation
40 slides from Meridian Energy's earnings presentation, Aug 18, 2014
Slide 1: Better energy
Better energy MERIDIAN ENERGY LIMITED RESULTS PRESENTATION YEAR ENDING 30th June 2014
Slide 2: 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
Slide 3: Highlights – summary
Highlights – summary Biggest IPO in the country’s history, with the largest New Zealand retail investment in an IPO Financial performance ahead of Prospective Financial Information (PFI) on all key financial measures Solid cash flow has delivered higher than PFI forecast dividend for FY141 Health and
Slide 4: Highlights – creating a safer workplace
Highlights – creating a safer workplace Disappointing to see one minor LTI, EMPLOYEE TRIFR1 the first since September 2011 30 INCIDENTS PER MILLION HOURS 25 What really counts is the right level of 20 attention to those risks that can be serious or fatal 15 10 Recently completed a Board 5 commissione
Slide 5: Highlights – better performance than PFI
Highlights – better performance than PFI FINANCIAL PERFORMANCE AGAINST PROSPECTIVE FINANCIAL INFORMATION $M 1,000 923.4 915.1 12 months to 30 June 2014 Prospective Financial Information 800 585.3 600 548.4 432.8 402.0 400 338.5 333.5 315.8 254.1 268.4 236.1 229.8 187.9 194.6 200 161.5 135.6 129.3 0
Slide 6: Highlights – better performance than PFI
Highlights – better performance than PFI Strong second half performance maintained first half momentum compared to PFI Outperformed all key PFI financial metrics; Operating cash flow +27.8% NPAT +22.3%, including higher non- cash fair value gains than assumed in PFI EBITDAF +6.7%, in line with guidance
Slide 7: Highlights – higher dividends than PFI
Highlights – higher dividends than PFI DIVIDENDS DECLARED Final ordinary dividend for FY14 of CPS Ordinary dividend Special dividend 14 6.82cps 12 2.00 Brings the full year ordinary dividend 10 to 11.01cps, based on 75% of free cash 8 flow 6 10.50 11.01 11.50 4 Additional special dividend of 2.00cps
Slide 8: Highlights – consistent delivery in a variable market
Highlights – consistent delivery in a variable market INFLOW VARIATION TO HISTORICAL AVERAGES Managed highly variable inflow and 250% market conditions; 208% Highest total inflows since 1998, but 200% 185% 184% with a sustained dry period over 150% 125% 130% summer and autumn 113% 100% 89% 77% 83% Com
Slide 9: Highlights – focus on core business is delivering
Highlights – focus on core business is delivering UNDERLYING OPERATING COSTS Normalised operating cost reduction of $M Underlying Costs IPO Costs 260 6.1% Sale of surplus land and US assets 2.9 240 realised $62.2m 8.3 Improved risk profile; 250.6 220 238.1 242.5 Genesis hedge replacement 227.2 227.8
Slide 10: Operating Performance
Operating Performance
Slide 11: Highlights
Highlights Meridian’s residential customers have seen the benefit of reduced energy charges New Zealand's first electricity purchasing and energy management app Delivering two new wind farms in different countries concurrently, safely and on budget Highest total inflows since 1998 Powershop Australia cu
Slide 12: Retail
Retail NATIONAL DEMAND Aggregate electricity demand remains GWh 40,000 relatively flat Manufacturing demand remains subdued, 35,000 positive net migration and GDP outlook 30,000 Market switching rates remain above 20%1 25,000 Meridian’s New Zealand customer 20,000 numbers increased by 1.7% and total
Slide 13: Retail
Retail Residential, SME, Agri segment NEW ZEALAND CUSTOMERS ICPs (000) Meridian’s most recent MBIE survey 350 Meridian North Island Meridian South Island Powershop data showed a 0.3% annual decrease in 300 34 48 residential customers’ sales-based 250 16 51 55 electricity charges 200 123 149 130 115
Slide 14: Hydrology
Hydrology MERIDIAN'S COMBINED CATCHMENT INFLOWS FY14 inflows were 111% of historic GWh 14,000 average 12,000 Included the 4th driest February to 10,000 April period on record 8,000 6,000 This period coincided with the Tekapo 4,000 canal outage, lower South Island 2,000 transmission work and periods o
Slide 15: Generation
Generation MERIDIAN'S NEW ZEALAND GENERATION Meridian’s New Zealand generation in GWh 1,400 FY14 was 8.9% higher than last year, 1,200 but with large fluctuations in weekly 1,000 market share 800 New Zealand wind generation in FY14 600 was 8.0% higher than last year 400 200 Meridian’s overall average
Slide 16: Financial Performance
Financial Performance 18 August 2014
Slide 17: Summary of performance against last year
Summary of performance against last year FINANCIAL PERFORMANCE AGAINST LAST YEAR Reported financial performance for $M 1,000 12 months to 30 June 2014 923.4 915.8 FY14; 12 months to 30 June 2013 800 Operating cash flow +3.9% 585.3 584.8 600 NPAT -22.1%, from higher non cash 432.8 416.7 fair value gain
Slide 18: Earnings
Earnings EBITDAF1 ‘Like for like’ EBITDAF increase of $M 14.4% in FY14 from; 800 Cost savings 600 Higher New Zealand generation 400 659.9 volumes 641.7 476.6 584.8 585.3 200 Less acquired generation volumes 0 Mt Mercer generation 2010 2011 2012 2013 2014 Financial Year ended 30 June PFI UNDERLYING N
Slide 19: Operating cash flow and investment expenditure
Operating cash flow and investment expenditure CASH FLOW FROM OPERATING ACTIVITIES Net cash flow from operating activities $M was $16.1m (3.9%) higher than FY13 500 Includes the close out of aluminium 400 hedges following removal of aluminium 300 indexation from the NZAS contract offset 200 451.8 416.
Slide 20: Energy margin
Energy margin NEW ZEALAND ENERGY MARGIN $M Derivatives acquired to supplement 1,200 Contracted Sales Spot Exposed Net Cost of Acquired generation and cover Revenue Revenue Generation spot price risks, net of spot revenue $901.0m $13.6m -$35.4m received from those 1,000 derivatives Fixed price variab
Slide 21: Energy margin change from last year
Energy margin change from last year NEW ZEALAND ENERGY MARGIN $M 1,100 Contracted Sales Spot Exposed Net Cost of Revenue Revenue Acquired -$68.8m +$82.2m Generation +$12.9m Better mix and 1,000 higher volumes, Lower wholesale prices From lower acquired offset by price reduced spot revenue generation
Slide 22: Energy margin change from PFI
Energy margin change from PFI NEW ZEALAND ENERGY MARGIN $M 1,100 Contracted Sales Spot Exposed Net Cost of Revenue Revenue Acquired +$44.8m -$33.1m Generation -$13.2m Higher volumes 1,000 Corporate & Higher contracted driven by the mid Industrial pricing sales meant less January to April dry held up
Slide 23: Costs
Costs TRANSMISSION COSTS 12.1% increase in Transmission costs in $M FY14 150 Increase reflects Meridian’s majority 100 share of higher HVDC costs Increases were included in PFI 129.3 115.3 50 78.9 84.2 86.7 Accounting treatment of Australian connection assets meant total costs were 0 2010 2011 2012 2
Slide 24: Looking Forward
Looking Forward
Slide 25: Looking forward
Looking forward Successful first year as a listed company, still 85% New Zealand owned Very focused on delivering PFI earnings and cash flow Resolution of Arc metering business future and smart meter deployment Further update on capital management at the 2015 interim results in February 2015 Nearing c
Slide 26: Additional Financial Information
Additional Financial Information
Slide 27: Dividends
Dividends DATE AMOUNT IMPUTATION 2014 DIVIDENDS DATE PAID ANNOUNCED CPS % Interim Ordinary Dividend 19 February 2014 15 April 2014 4.19 90% Final Ordinary Dividend 18 August 2014 15 October 2014 6.82 90% Special Dividend 18 August 2014 15 October 2014 2.00 90% Full Year Dividend 13.01 90% YIELD ON I
Slide 28: EBITDAF and Net Profit After Tax
EBITDAF and Net Profit After Tax FY2014 EBITDAF TO NPAT RECONCILIATION $M 600 500 -220.0 400 -20.1 -0.4 300 -73.7 585.3 +20.1 -10.1 +18.6 +6.6 -76.5 200 229.8 100 194.6 0 EBITDAF* D&A and Premiums on Equity Financing Taxation Underlying Fair Value Gain on Sale Premiums on Taxation NPAT Impairments E
Slide 29: New Zealand Energy Margin
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 distribution network compa
Slide 30: New Zealand Energy Margin
New Zealand Energy Margin FY2014 FY2013 VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $M Retail Contracted Sales 5,754.0 $103.7 $596.7 5,660.8 $105.6 $597.8 NZAS Aluminium Sales 5,010.7 4,886.0 Sell Side CFDs 898.3 1,129.4 Wholesale Contracted Sales 5,909.0 $51.5 $304.3 6,
Slide 31: New Zealand Energy Margin
New Zealand Energy Margin FY2014 FY2014 PFI VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $M Retail Contracted Sales 5,754.0 $103.7 $596.7 5,562.6 $103.5 $575.7 NZAS Aluminium Sales 5,010.7 5,011.9 Sell Side CFDs 898.3 495.4 Wholesale Contracted Sales 5,909.0 $51.5 $304.3
Slide 32: Funding
Funding DEBT MATURITY PROFILE AS AT 30 JUNE 2014 Total borrowings as at 30 June 2014 of $M 500 $1,092.5m, down $87.7m from 30 June 400 2013 243 300 81 100 Committed bank facilities of $850.8m as 447 200 at 30 June 2014, of which $423.9m were 247 undrawn 100 200 238 5 10 FFO interest cover of 6.6 tim
Slide 33: Fair Value Movements
Fair Value Movements CHANGE IN FV OF FINANCIAL INSTRUMENTS Meridian uses derivative instruments to $M manage commodity price, interest rate 150 and foreign exchange risk 100 50 93.8 As forward prices and rates on these 0 53.3 18.6 -38.2 instruments move, non cash changes to -50 -103.5 their carrying
Slide 34: Group Income Statement
Group Income Statement Results for the financial years ended 30 June 2010 and 2011 include the Tekapo power stations, which were sold to Genesis Energy in June 2011 FINANCIAL YEAR ENDED 30 JUNE 2014 2013 2012 2011 2010 SUMMARY GROUP INCOME STATEMENT $M $M $M $M $M New Zealand Energy Margin 891.5 865.
Slide 35: Group Income Statement
Group Income Statement FINANCIAL YEAR ENDED 30 JUNE 2014 2014 PFI SUMMARY GROUP INCOME STATEMENT $M $M New Zealand Energy Margin 891.5 880.6 International Energy Margin 31.9 34.5 Other Revenue 27.3 23.0 Energy Transmission Costs (129.3) (135.6) Employee and Other Operating Costs (236.1) (254.1) EBIT
Slide 36: Group Underlying NPAT
Group Underlying NPAT FINANCIAL YEAR ENDED 30 JUNE 2014 2013 2012 2011 2010 UNDERLYING NPAT RECONCILIATION $M $M $M $M $M Net Profit after Tax 229.8 295.1 74.6 303.1 184.0 Net Change in Fair Value of Financial Instruments (Operational) 8.4 (51.1) (121.3) 89.3 14.7 Net Change in Fair Value of Financia
Slide 37: Group Underlying NPAT
Group Underlying NPAT FINANCIAL YEAR ENDED 30 JUNE 2014 2014 PFI UNDERLYING NPAT RECONCILIATION $M $M Net Profit after Tax 229.8 187.9 Net Change in Fair Value of Financial Instruments (Operational) 8.4 15.3 Net Change in Fair Value of Financial Instruments (Financing) (27.0) (28.3) Premiums paid on
Slide 38: Group Cash Flow Statement
Group Cash Flow Statement FINANCIAL YEAR ENDED 30 JUNE 2014 2013 2012 2011 2010 SUMMARY GROUP CASH FLOW STATEMENT $M $M $M $M $M Receipts from Customers 2,083.4 2,390.0 2,514.8 2,008.9 2,051.0 Interest and Dividends Received 8.5 2.1 7.8 2.8 2.7 Payments to Suppliers and Employees (1,480.5) (1,811.8)
Slide 39: Group Balance Sheet
Group Balance Sheet FINANCIAL YEAR ENDED 30 JUNE 2014 2013 2012 2011 2010 SUMMARY GROUP BALANCE SHEET $M $M $M $M $M Cash and Cash Equivalents 276.4 382.8 214.4 368.2 54.4 Accounts Receiveable 182.7 261.9 298.1 240.9 199.1 Other Current Assets 63.5 121.4 58.3 18.1 18.1 Current Assets 522.6 766.1 570
Slide 40: 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 Combined catchment inflows combined water inflows into Meridian’s Waitaki and Manap