Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 2011 Earnings Presentation
33 slides from Meridian Energy's earnings presentation, Feb 23, 2011
Slide 1: Meridian Energy Limited Interim Results
Meridian Energy Limited Interim Results For the period to 31 December, 2010 23 FEBRUARY 2011
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 sta
Slide 3: About Us
About Us • Integrated renewable generator and retailer − New Zealand’s largest electricity generator − 262,923 ICP’s – Meridian Retail (238,899) and Powershop (24,024) • International wind and solar generation facilities • Strong portfolio of future generation options in New Zealand and internationa
Slide 4: Our Strategy to create Shareholder Value
Our Strategy to create Shareholder Value INNOVATOR IN ENERGY INTEGRATED PRODUCTS & SERVICES RENEWABLE Demonstrated by our investment in new technologies, business models and products and services GENERATOR, RETAILER & DEVELOPER Integrated wholesale and retail business, with growth through investment
Slide 5: Highlights
Highlights Financial Investment Retail $353.3m EBITDAF FIRST POWER AT OUR 262,923 ICP’S •13% increase in •4% improvement in 64MW TE UKU WIND North Island from June 2010 underlying NPAT FARM •48% growth in Powershop •19% EBITDAF uplift from June 2010 MACARTHUR WIND •Billing system implemented FARM Co
Slide 6: Financial Highlights
Financial Highlights $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 Total Operating Revenue 1,094.5 925.5 18% 2,061.9 EBITDAF 353.3 297.4 19% 641.7 Net Profit after Tax 84.7 142.5 (41%) 184.0 Underlying NPAT 123.4 118.7 4% 251.9 EBITDAF per MWh Generated $ 51.92 $ 43.40 20% $ 46.29 o $123.4m Underlyin
Slide 7: Key Influences on EBITDAF
Key Influences on EBITDAF MERIDIAN ENERGY LIMITED 2011 INTERIM RESULTS – 31 DECEMBER 2010 23 FEBRUARY 2011 PAGE 7
Slide 8: EBITDAF – 19% Improvement
EBITDAF – 19% Improvement o Settlement of $28.1 million (net of legal expenses) reached with RTA Power (NZAS) o Excluding this settlement earnings before interest, taxation, depreciation, amortisation and financial instruments (EBITDAF) increased by 9% o Improved electricity margin from: o 48% incre
Slide 9: Operating Expenses
Operating Expenses o Employee & Other Expenditure declined by $9.8m against last year, a combination of: o Series of one off costs in 2010 of $6.1m o Continued focus upon cost control and improved commercial practices o Improvement achieved despite the cost of building our international operations,
Slide 10: P & L impacts below EBITDAF
P & L impacts below EBITDAF Non Cash - Changes in Fair Value o NPAT impacted largely by non-cash accounting adjustments o Net reductions in the fair value of electricity, aluminium and foreign exchange derivatives of $58.4m o Depreciation increased by $23.0m following revaluation of our generation a
Slide 11: Fair Value Movements
Fair Value Movements o 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 o A number of factors drive fair value movements across our financial instruments including forward interest rates, foreign exc
Slide 12: Investment
Investment o Current year relates largely to the development of Te Uku and Macarthur wind farms o Decrease from ‘09/10 following completion of West Wind, Ross Island and Mt Millar acquisition o Projected expenditure is associated with completion of Te Uku and continued construction of Macarthur MERI
Slide 13: Funding
Funding o Maintained S&P A2, BBB+ (stable outlook) credit rating o Cash and undrawn debt facilities of $630m as at 31 December 2010 o Debt has increased by $26m from June 2010 and is $277m higher than at the same point last year o $300m of bank facilities matured during December 2010, replaced with
Slide 14: Storage, Inflows & Price
Storage, Inflows & Price o Hydro storage remained above average throughout the period, albeit down on last year o Declining inflows and a dry outlook, combined with thermal plant outages, resulted in unusually high average wholesale prices in December. Our daily average reached a peak of $236/MWh o
Slide 15: Net Contract Position
Net Contract Position (Difference between volume generated and volume purchased to support electricity sales) o Our objective is to manage our net contract position so as to optimise potential earnings while maintaining an appropriate level of risk o Our current net position leaves us well placed to
Slide 16: New Zealand Wholesale Performance
New Zealand Wholesale Performance $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 Wholesale Revenue 533.3 417.8 28% 1,031.3 Wholesale Electricity Expenses (147.6) (109.4) (35%) (270.9) Transmission & Levies (56.1) (46.0) (22%) (98.4) Other Wholesale Electricity Expenses (11.4) (11.1) (3%) (22.4) Staff
Slide 17: New Zealand Generation
New Zealand Generation o Similar hydrology conditions resulted in generation output close to that achieved in the same period last year o Te Uku wind farm first power in November 2010, 6 weeks ahead of programme MERIDIAN ENERGY LIMITED 2011 INTERIM RESULTS – 31 DECEMBER 2010 23 FEBRUARY 2011 PAGE 17
Slide 18: Renewable Generation Pipeline
Renewable Generation Pipeline* Name Te Uku Size 64 MW ~240 GWh Stage Partially constructed Name Maungaharuru Size 94 - 127MW, ~320 - 430 GWh Stage Consented Name Central Wind Size 120 MW, ~420 GWh Stage Consented Name Mill Creek Size 67 MW, ~250 GWh Stage Environment Court appeal Name Mokihinui Size
Slide 19: Retail Segment Performance
Retail Segment Performance $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 Retail Revenue 532.5 493.4 8% 993.7 Wholesale Electricity Expenses (234.4) (176.3) (33%) (459.4) Distribution & Levies (175.2) (167.9) (4%) (327.4) Staff & Other Operating Expenses (35.7) (31.0) (15%) (69.2) Direct EBITDAF 87.2
Slide 20: Retail Segment Performance
Retail Segment Performance o Revenue improved with change of customer mix and increased electricity sales volume o EBITDAF was negatively impacted by an increase in average electricity purchase price from $43.20/MWh to $55.48/MWh (+ 28% from December 2009) o Growth in ICP numbers and a highly compet
Slide 21: Retail – Lifting Our Customer Game
Retail – Lifting Our Customer Game o We continue to focus on improving our service offering and maximising operational efficiency o Implementation of Meridian Retail’s new customer billing platform – initial billing delays have now been resolved o Improved customer satisfaction across all our segmen
Slide 22: Retail Customers 14% Growth in ICP Numbers
Retail Customers 14% Growth in ICP numbers since December 2009 ICP = Installation control points o Powershop continues impressive growth in customers up 48% in the last six months o Total North Island ICP growth – 13% since June 2010 o Overall ICP’s are up 14% from 31 December 2009 o Customer and lo
Slide 23: Customer Satisfaction
Customer Satisfaction o Powershop recognised by Consumer New Zealand as having the highest customer satisfaction rating for an electricity retailer o Meridian Retail have achieved gains in rural and residential customer satisfaction o Business satisfaction remains a concern, account management focus
Slide 24: International Segment Performance
International Segment Performance $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 International Revenue 10.8 - - 1.6 Energy Related Expenses (0.2) - - - Transmission & Levies (1.0) - - (0.1) Staff & Other Operating Expenses (4.9) (2.2) (123%) (12.6) Direct EBITDAF 4.7 (2.2) 314% (11.1) Corporate Overhe
Slide 25: Other Segment Performance
Other Segment Performance $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 Other Segment Revenue 17.6 14.2 24% 35.0 Energy Related Expenses (8.3) (7.0) (19%) (19.7) Staff & Other Operating Expenses (11.1) (12.5) 11% (23.2) Direct EBITDAF (1.8) (5.3) 66% (7.9) Corporate Overhead Allocation (2.3) (3.0) 23
Slide 26: Electricity Industry Act (EIA)
Electricity Industry Act (EIA) o During December 2010 Meridian signed the Virtual Asset Swap (VAS) agreements with Genesis and Mighty River Power – taking effect on 1 January 2011 for a period of 15 years o The Tekapo sale is expected to happen in the first half of 2011 o Government announced that i
Slide 27: Outlook
Outlook o The full impact of the Christchurch earthquake of 22nd February is still being assessed, preliminary investigations indicate no damage to Meridian’s generating assets o Slow recovery of the economy and the high-level of retail competition remain a challenge for us to navigate during the re
Slide 28: Additional Information
Additional Information MERIDIAN ENERGY LIMITED 2011 INTERIM RESULTS – 31 DECEMBER 2010 23 FEBRUARY 2011 PAGE 28
Slide 29: Income Summary
Income Summary $ million’s Dec ‘10 Dec ’09 % change Jun ‘10 Energy & Related Services Sales 1,086.8 917.8 18% 2,039.6 Other Revenue 7.7 7.7 0% 22.3 Total Group Operating Revenue 1,094.5 925.5 18% 2,061.9 Energy Related Costs 394.1 289.6 36% 743.6 Energy Transmission, Distribution and Levies 232.2 21
Slide 30: Statement of Corporate Intent Measures
Statement of Corporate Intent Measures Target Dec ‘10 Dec ’09 Jun ‘10 Equity to Total Assets 56.6% 59.6% 57.7% 58.2% Return on Average Equity 3.9% 2.5% 6.0% 3.9% Underlying Return on Average Equity (excl. Revaluations)* 18.3% 21.5% 18.1% 19.8% Underlying Return on Average Capital Employed (incl. Rev
Slide 31: Segment Reporting / Overhead Allocation
Segment Reporting / Overhead Allocation Since June 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 Othe
Slide 32: LWAP to GWAP
LWAP to GWAP (Our electricity purchase price compared to the price at which we sell our generation) December 2010 December 2009 South Island North Island South Island North Island TWAP at BEN2201, OTA2201 49.63 55.65 34.64 46.88 GWAP / TWAP 1.02 0.86 0.97 0.88 Total Retail LWAP / TWAP 1.14 1.03 1.13
Slide 33: Plant Performance
Plant Performance Target Dec ‘10 Dec ’09 Jun ‘10 Plant Availability - Hydro 92.6% 93.4% 92.3% 91.3% Plant Availability - Wind 96.2% 97.5% 95.9% 96.0% Plant Forced Outage Factor - Hydro 0.34% 0.22% 0.35% 1.47% o All performance metrics performed in line with expectations and were within target o Curr