Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2015 Earnings Presentation
41 slides from Meridian Energy's earnings presentation, Aug 19, 2015
Slide 1: Better energy future
Better energy future MERIDIAN ENERGY LIMITED Annual results presentation for the year ended 30 June 2015
Slide 2: Disclaimer
19 AUGUST 2015 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
Slide 3: Profitability and yield
19 AUGUST 2015 Profitability and yield Great financial result Free cash Underlying EBITDAF NPAT flow1 NPAT $398m $618m $247m $209m +6% on FY2014, +6% on FY2014, +7% on FY2014, +7% on FY2014, +8% on PFI2 +5% on PFI +17% on PFI +17% on PFI And delivering to investors Ordinary Special Capital TSR dividen
Slide 4: The last year
19 AUGUST 2015 The last year More rational political views on the sector Transmission pricing progressed NZAS immediate future is clearer NZ demand has grown Announcement of thermal plant retirement Review to the Renewable Energy Target completed Powershop Australia gaining momentum MERIDIAN ENERGY
Slide 5: Operational highlights
19 AUGUST 2015 Operational highlights A year of average inflows The now familiar late summer dry spell was well managed Rapid resolution of Manapōuri transformer issues Wind investment has driven record level of NZ generation (Tekapo adjusted) Retail sales volume growth with a strong irrigation seaso
Slide 6: Health and safety
19 AUGUST 2015 EMPLOYEE TRIFR1 Health and safety 16 INCIDENTS PER MILLION HOURS Preparing for changes to health and 14 12 safety legislation later this year 10 That work has re-evaluated high areas 8 6 of risk and the processes to manage 4 those risks 2 Particular emphasis on management 0 2011 2012
Slide 7: The New Zealand market
19 AUGUST 2015 The New Zealand market NATIONAL DEMAND GWh 45,000 year on Positive demand growth returned in -0.5% -1.9% -0.6% +2.8% year change 40,000 the last year, but caution needed Provincial led, with some weather 35,000 driven growth but genuine underlying 30,000 increase Significant thermal pl
Slide 8: The Australian market
19 AUGUST 2015 NEM ELECTRICITY CONSUMPTION The Australian market TWh 275 Declining demand at the market level 270 -2.3% RET1 agreed but mixed political 265 -2.6% 0.0% sentiment on renewables 260 A lot of permitted wind options, but 255 nearly all are short dated 250 Appetite for conventional PPAs2 i
Slide 9: Tiwai Point smelter contract
19 AUGUST 2015 Tiwai Point smelter contract Contract terms (other than price) similar to those previously agreed Price on 400MW unchanged from 2013 variation, higher price on 172MW from 1 January 2017 Window to give 12 months notice to reduce to 400MW extended to 1 April 2016, then any time after 30
Slide 10: Transmission pricing
19 AUGUST 2015 Transmission pricing June 2015 TPM options paper is a considerable evolution from 2012 Beneficiaries pay approach is retained, with residual costs allocated to load Goes a long way to solving the inequities of HVDC cost allocation and SI consumers paying for NI investment Must apply to
Slide 11: Meridian Retail
19 AUGUST 2015 Meridian Retail Segment EBITDAF up +$3m (+17%) adjusted for the sale of Arc Innovations A year of operational improvement: Lift in customer retention rate $3m less bad debts written off with 44% less disconnections 70% reduction in vacant site consumption 20% decrease in call centre vo
Slide 12: Powershop New Zealand
19 AUGUST 2015 Powershop New Zealand Customer satisfaction above 90% for 7 years in a row Industrialisation of processes for ease of use at scale Which supports growth in Australia and potential new market opportunities Maintaining market share on low marketing spend Lifting load through a much impr
Slide 13: Powershop Australia
19 AUGUST 2015 Powershop Australia Viable business with strong sources of competitive advantage: Customer control Renewable profile Fair pricing Differentiated service Promotional spend needed to support customer acquisition POWERSHOP AUSTRALIA CUSTOMERS FRMP Brand position has allowed us to 60,000 es
Slide 14: Dividends
19 AUGUST 2015 DIVIDENDS DECLARED Dividends CPS 20 Ordinary dividends Special dividends Ordinary final dividend of 8.08 cps, 15 5.35 55% imputed 2.00 10 83% FCF Brings full year FY2015 ordinary 75% FCF payout 12.88 payout dividend to 12.88 cps, representing 5 11.01 83% of free cash flow, 72% imputed 0
Slide 15: Financial performance
19 AUGUST 2015 Financial performance FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M 1,200 12 months to 30 June 2015 12 months to 30 June 2014 1,000 954 924 800 618 585 600 440 433 467 400 316 334 238 237 247 230 209 195 200 147 123 129 0 Energy Trans- Operating EBITDAF NPAT Underlying Operating Investm
Slide 16: Earnings
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 ENERGY MARGIN1 Earnings $M 1,200 +3% ‘Like for like’ EBITDAF (excluding 1,000 insurance proceeds and IPO costs) 800 increase of $20m (3%) in FY2015 from: 600 950 9
Slide 17: Costs
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 OPERATING COSTS Costs $M Retail segment Wholesale Corporate/Elims +3% 300 International IPO Costs Adjusting for IPO costs, Operating costs 250 238 227 246 14 237 2
Slide 18: Below EBITDAF
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 NET PROFIT AFTER TAX Below EBITDAF $M 350 +7% Additional depreciation +$19m (+9%) 300 250 from the Mill Creek and Mt Mercer 200 Net finance costs +$5m (+7%) from 15
Slide 19: Concluding remarks
19 AUGUST 2015 Concluding remarks Over the next year, NZ focus will be on: Positioning for upcoming thermal contraction Lifting retail profitability Improving quality and cost effectiveness of customer experience Achieving more from existing assets Operating and capital cost management Support for tra
Slide 20: Questions
Questions MERIDIAN ENERGY LIMITED Annual results presentation for the year ended 30 June 2015
Slide 21: Additional information
Additional information MERIDIAN ENERGY LIMITED Annual results presentation for the year ended 30 June 2015
Slide 22: New Zealand retail
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 NEW ZEALAND CUSTOMER NUMBERS New Zealand retail ICP (000) 350 Meridian North Island Meridian South Island -0.1% Powershop 274 287 277 276 300 272 Customer connecti
Slide 23: Hydrology
19 AUGUST 2015 MERIDIAN'S COMBINED CATCHMENT INFLOWS Hydrology GWh 15,000 Inflows for the year ended June 2015 10,000 were 103% of historical average This included four months of below 5,000 average inflows from December 2014 to 0 March 2015 2001 2003 2005 2007 2009 2011 2013 2015 Financial Year ended
Slide 24: New Zealand generation
19 AUGUST 2015 NEW ZEALAND GENERATION1 +1% New Zealand generation GWh 14,000 12,000 For the year ended 30 June 2015, 10,000 Meridian’s New Zealand generation was 8,000 1% higher than the same period last year 6,000 This result is Meridian’s highest New 4,000 Zealand generation output on record 2,000
Slide 25: Movement in EBITDAF FY2014 to FY2015
19 AUGUST 2015 Movement in EBITDAF FY2014 to FY2015 MOVEMENT IN EBITDAF $M New 650 Zealand energy margin +$9m 625 +8 -9 -3 +5 -4 +6 +7 -7 +4 +21 -9 600 -4 +18 618 575 585 550 EBITDAF 30 Retail Wholesale Net VAS Net cost of Spot exposed Other market International Arc revenue Insurance Other Transmiss
Slide 26: EBITDAF and net profit after tax
19 AUGUST 2015 EBITDAF and net profit after tax FY2015 EBITDAF TO NPAT RECONCILIATION $M 700 600 500 -239 400 -15 -78 300 618 -77 -33 200 -19 +15 +75 247 100 209 0 EBITDAF Depreciation Premiums Net finance Tax Underlying Net change Gain on sale Premiums Tax NPAT and paid on costs NPAT in fair value o
Slide 27: New Zealand energy margin
19 AUGUST 2015 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 distributio
Slide 28: New Zealand energy margin
1Ratio between the price per unit received for Meridian’s physical 19 AUGUST 2015 generation and the price paid to supply each unit of contracted sales, inclusive of line losses New Zealand energy margin FY2015 FY2014 VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $M Reside
Slide 29: New Zealand energy margin
19 AUGUST 2015 New Zealand energy margin NEW ZEALAND ENERGY MARGIN Derivatives acquired to supplement $M generation and cover spot price risks, net 1,200 Contracted Sales Spot Exposed Net Cost of Acquired of spot revenue Revenue Revenue Generation received from those $925m $5m -$31m derivatives 1,00
Slide 30: Movement in energy margin FY2014 to FY2015
19 AUGUST 2015 Movement in energy margin FY2014 to FY2015 NEW ZEALAND ENERGY MARGIN $M 1,000 Contracted Sales Spot Exposed Net Cost of Acquired From lower acquired Revenue Revenue Generation generation volumes Growth in SME and higher wholesale +$25m -$9m +$4m prices and agri business customer -4 -1
Slide 31: Other revenue
19 AUGUST 2015 Other revenue FINANCIAL YEAR ENDED 30 JUNE 2015 2014 2013 2012 SUMMARY OF OTHER REVENUE $M $M $M $M Retail service revenue (field services etc) 8 10 8 7 Arc Innovations 3 6 6 5 Damwatch 5 5 5 4 Energy for Industry - - 0 0 Miscellaneous1 7 2 4 5 Farming 1 3 2 2 Lease income 1 1 2 2 Carb
Slide 32: Free cash flow
19 AUGUST 2015 Free cash flow FINANCIAL YEAR ENDED 30 JUNE 2015 2014 GROUP FREE CASH FLOW $M $M Net profit after tax 247 230 Adjustments Net change in fair value of electricity and other hedges 1 9 Net change in fair value of treasury instruments 32 (27) Gain/(loss) on sale of assets (19) (7) Impaime
Slide 33: Movement in international earnings FY2014 to FY2015
19 AUGUST 2015 Movement in international earnings FY2014 to FY2015 MOVEMENT IN INTERNATIONAL SEGMENT EBITDAF $M 60 International energy margin +$21m 50 40 -7 +13 -1 +1 30 -11 20 +15 23 10 13 0 EBITDAF 30 Jun Contracted Generation spot Cost to supply Transmission Employee Other operating EBITDAF 30 J
Slide 34: Funding
19 AUGUST 2015 DEBT MATURITY PROFILE AS AT 30 JUNE 2015 Funding $M 500 Total borrowings as at 30 June 2015 of 400 $1,076m, down $16m from 30 June 2014 300 310 Net borrowings (net of cash) as at 30 200 282 June 2015 of $1,007m, up $191m from 30 207 150 282 100 June 2014 150 10 60 0 Committed bank fac
Slide 35: Funding metrics
19 AUGUST 2015 NET DEBT/EBITDAF Funding metrics TIMES 2.0 Net debt/EBITDAF is the principal metric 1.5 underpinning S&P credit rating 1.0 1.8 1.7 1.6 0.5 S&P calculation of Net debt/EBITDAF includes numerous adjustments to 0.0 June 2013 June 2014 June 2015 reported numbers Borrowings are adjusted fo
Slide 36: Fair value movements
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 CHANGE IN FAIR VALUE FINANCIAL INSTRUMENTS Fair value movements $M 100 Meridian uses derivative instruments to 50 94 18 53 manage commodity price, interest rate 0
Slide 37: Group income statement
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 Group income statement FINANCIAL YEAR ENDED 30 JUNE 2015 2014 2013 2012 2011 SUMMARY GROUP INCOME STATEMENT $M $M $M $M $M New Zealand energy margin 900 891 865 74
Slide 38: Group underlying NPAT
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 Group underlying NPAT FINANCIAL YEAR ENDED 30 JUNE 2015 2014 2013 2012 2011 UNDERLYING NPAT RECONCILIATION $M $M $M $M $M Net profit after tax 247 230 295 75 303 Un
Slide 39: Group cash flow statement
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 Group cash flow statement FINANCIAL YEAR ENDED 30 JUNE 2015 2014 2013 2012 2011 SUMMARY GROUP CASH FLOW STATEMENT $M $M $M $M $M Receipts from customers 2,348 2,08
Slide 40: Group balance sheet
Results for the year ended 30 June 2011 include the Tekapo 19 AUGUST 2015 power stations, which were sold to Genesis Energy in June 2011 Group balance sheet FINANCIAL YEAR ENDED 30 JUNE 2015 2014 2013 2012 2011 SUMMARY GROUP BALANCE SHEET $M $M $M $M $M Cash and cash equivalents 69 276 383 214 368 T
Slide 41: Glossary
19 AUGUST 2015 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 elec