Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 FY2014 Earnings Presentation
41 slides from Meridian Energy's earnings presentation, Feb 19, 2014
Slide 1: Meridian Energy Results Presentation, six months ended December 2013
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
Highlights = Financial performance ahead of half year split of the annual Prospective Financial Information (PFI) in Meridian’s Offer Document = NPAT +49.3% including larger non cash fair value gains than assumed in PFI = EBITDAF +6.9% = Underlying NPAT +27.7% = Continued strong cash flow performanc
Slide 4: Highlights
Highlights " Improved hydrology conditions NEW ZEALAND WEEKLY GENERATION MARKET SHARE 50% + = Inflows to 31 December 2013 18% higher than the same period last year, at 122% of 45% + average = Contributed to Meridian’s highest July to December generation on record’ (6,651 35% + GWh) = Supported a sus
Slide 5: Highlights
Highlights . . . FINANCIAL PERFORMANCE AGAINST PRIOR YEAR = Reported financial performance for the six sm 500 m Six months ended 31 Dec 2013 months to December 2013 lower than the 447 435 lm Six months ended 31 Dec 2012 same period last year 400 = NPAT -32.5%, largely non cash fair 300 value gains l
Slide 6: Operating Performance
Operating Performance ® 4) © RESULTS PRESENTATION for the six months ended December 2013 19 February 2014
Slide 7: Meridian's Operating Performance - Hydrology
Meridian’s Operating Performance - Hydrology = For the six months ended December 2013, inflows were 122% of historic average, representing the 7" highest July to December inflows on record " Highest level of July to December inflows since 1996 = Multiple flood events in Meridian’s catchments were ma
Slide 8: Meridian's Operating Performance - Generation
Meridian’s Operating Performance - Generation = For the six months ended December 2013, Meridian’s New Zealand generation was 10% higher than the same period last year = Since mid October 2013 Meridian has maintained a weekly generation market share well above 35% = Market conditions have reflected
Slide 9: Meridian's Operating Performance - Transmission Improvement
Meridian’s Operating Performance - Transmission Improvement Control = Completion of the HVDC control system in late HVDC WEEKLY AVERAGE VOLUMES system November 2073 helped to further increase ae completion Meridian’s generation market share 600 500 = Since the start of December 2013, Meridian’s 400
Slide 10: Meridian's Operating Performance - Demand
Meridian’s Operating Performance - Demand * Subdued annual demand in the 12 months to NATIONAL DEMAND December 2013 compared with the same period last 3,800 year 3,600 eos 3,400 = The current New Zealand Aluminium Smelters (NZAS) Agreement base quantity of 572MW has 3.200 been in place since 1 Janua
Slide 11: Meridian's Operating Performance - Retail Competition
Meridian’s Operating Performance - Retail Competition = For the six months ended December 2013, market MARKET ICP SWITCHING (ALL RETAILERS) switching numbers were 18% higher than the same (CPs Average 40,000 21% period last year 35,000 20% " Meridian’s customer connection numbers (ICP’s) have — 39°0
Slide 12: Meridian's Operating Performance - Growth Initiatives
Meridian’s Operating Performance - Growth Initiatives Mill Creek " Access roading and concrete foundations now complete = Turbine erection will commence late March 2014 " On track for expected first generation in May 2014 and full production in early FY2015, " Construction costs are on budget Austra
Slide 13: Meridian's Operating Performance - Health and Safety
Meridian’s Operating Performance - Health and Safety = Two and half years since the last recorded lost time injury = No significant harm or injury events during the six months to December 2013 = Shifting focus to Total Recordable Injury Frequency Rate (TRIFR) across employees and contractors = Parti
Slide 14: Meridian's Operating Performance - Community Initiatives
Meridian’s Operating Performance - Community Initiatives Community Funds " Meridian’s community funds programme continues to support local projects that make a difference = Inthe six months ended December 2013, Meridian granted a further $314,000 to community projects throughout New Zealand KidsCan
Slide 15: Regulatory Environment
Regulatory Environment ® 4) © RESULTS PRESENTATION for the six months ended December 2013 19 February 2014 PG15
Slide 16: Meridian's Regulatory Environment
Meridian’s Regulatory Environment Labour-Green proposed market reform a = Proposals are still unclear and difficult to assess = Current market is delivering positive change - security of supply, retail competition benefiting consumers, exporting New Zealand’s renewable energy expertise = Government
Slide 17: Meridian's Regulatory Environment
Meridian’s Regulatory Environment Transmission pricing * Electricity Authority has developed four alternative models on ways the beneficiaries-pay principle could be applied to transmission pricing = All the alternatives look more beneficial to Meridian than the current pricing methodology Australia
Slide 18: Financial Performance
Financial Performance RESULTS PRESENTATION for the six months ended December 2013 19 February 2014 PG18
Slide 19: Earnings
Earnings -. oo. . EBITDAF' " Significant decline in Net Profit after Tax ($116.9m, $M . 700 4 down from $173.3m) due to non cash, fair value . 600 + gains last year 500 + " EBITDAF -$8.9m (-3.2%) with higher Transmission 400 + costs and IPO costs (collectively $19m) offsetting 300 | increased Energy
Slide 20: Energy Margin
Energy Margin NEW ZEALAND ENERGY MARGIN $M a ; ContractedSales ! l Net Cost of Spot Exposed goo Revenue l ! Acquired Revenue Fromspot | | . revenue received I $445m For derivatives Generation $8m for Meridian’s 800 acquired to own generation q' ! supplement ~$25m less the cost of From fixed price ge
Slide 21: Energy Margin Change from Prior Year
Energy Margin Change from Prior Year NEW ZEALAND ENERGY MARGIN M I From $ - Contracted NetCostof |! SpotExposed generation revenue 5 SalesRevenue | Acquired i! Revenue I (lower wholesale From lower | . prices outweighing Corporate & crom lower I Generation iF +$18m higher generation volumes), more t
Slide 22: Energy Margin Change from PFI
Energy Margin Change from PFI NEW ZEALAND ENERGY MARGIN $M l I I I Contracted I ! Net Cost of i! Spot Exposed | 500 SalesRevenue ; Acquired j! — Revenue hace coe +$14m 1 /Sromiower\ Generation |, -$2m _ outweighing Industrial price I wholesale I ] higher generation and volumes, and I Prices “$10m !
Slide 23: Costs
Costs = 21.9% increase in Transmission costs over the same TRANSMISSION COSTS $M period last year vo 120 = Increase reflects Meridian’s majority share of higher 100 HVDC costs 80 = Increases were included in PFI 6e 40 = Full year PFI forecast for Transmission costs of 54.8 . 20 42.0 41.0 $135.6m in
Slide 24: Operating Cash Flow and Investment Expenditure
Operating Cash Flow and Investment Expenditure ™ Net cash flow from operating activities was $64.5m ahead of PFI " This reflects both improved EBITDAF, and the close out of aluminium hedges following the removal of aluminium indexation from the NZAS contract = Investment expenditure was $42.0m lower
Slide 25: Dividends
Dividends = Interim dividend of 4.19 cps (¢107.4m) in line with PFI forecast = Imputed to 90% of the corporate tax rate = Interim dividend represents a 3.8% gross yield on Meridian’s IPO share price = Prospective full year gross dividend yield of 8.9% (10.5 cps) = Represents a prospective full year
Slide 26: Summary
Summary RESULTS PRESENTATION for the six months ended December 2013 19 February 2014 PG 26
Slide 27: Summary
Summary = Good operating conditions supported financial performance ahead of the half year internal split of the annual PFI " EBITDAF adjusted for one-off cost increases up 3.7% on last year = Focus remains on improving the efficiency of the business and delivery of the two wind farm construction pr
Slide 28: Additional Financial Information
Additional Financial Information ® 060 RESULTS PRESENTATION for the six months ended December 2013 19 February 2014 PG 28
Slide 29: Additional Financial Information
Additional Financial Information EBITDAF TO NPAT RECONCILIATION $M 300 45 250 4 -106 200 4 150 + s 37 268 -2 = — — 33 mo 50 4 83 EBITDAF* Dep& NetFinance Premiums Taxation Underlying Fair Value Losson Sale Premiums Taxation 31 Dec 13 Amort Costs on NPAT** Mvmt's on & Other Electricity 31Dec13 on Fin
Slide 30: Additional Financial Information
Additional Financial Information New Zealand Energy Margin = Energy Margin is a non-GAAP financial measure representing Energy Sales Revenue less Energy Related Expenses and Energy Distribution Expenses = Energy Margin is used to measure the vertically integrated performance of the retail and wholes
Slide 31: Additional Financial Information
Additional Financial Information NEW ZEALAND ENERGY MARGIN FY2014 FY2014 FY2014 FY2013 FY2013 FY2013 6 MONTHS 6 MONTHS 6 MONTHS 6 MONTHS 6 MONTHS 6 MONTHS ENDED ENDED ENDED ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2013. 31 DEC 2013 31DEC 2012 31DEC 2012 31 DEC 2012 VOLUME GWh_ VWAP $/MWh $M VOLUME GWh_
Slide 32: Additional Financial Information
Additional Financial Information DEBT MATURITY PROFILE AS AT 31 DEC 2013 i $M Funding Me * Total borrowings as at 31 December 2013 of 400 $1,126.1m, down $54.1m from 30 June 2013 300 = Committed bank facilities of $858.8m of which 200 $379.8m were undrawn at 31 December 2013 100 238 a . . 6 = FFO in
Slide 33: Additional Financial Information
Additional Financial Information Fair Value Movements " Meridian uses derivative instruments to manage commodity price, interest rate and foreign exchange risk " As forward prices and rates on these instruments move, non cash changes to their carrying values are reflected in NPAT = Accounting standa
Slide 34: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 FY2014 GROUP INCOME STATEMENT 6 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS $M ENDED ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 30 JUN 2014 ACTUAL ACTUAL ACTUAL PFI New Zealand Energy Margin 434.9 423.7 865.1 880.6 International Energy Margin
Slide 35: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 FY2014 GROUP UNDERLYING NPAT RECONCILIATION 6 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS $M ENDED ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 30 JUN 2014 ACTUAL ACTUAL ACTUAL PFI Net Profit after Tax 116.9 173.3 295.1 187.9 Net Change in Fair
Slide 36: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 FY2014 GROUP CASH FLOW STATEMENT 6 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS $M ENDED ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 30 JUN 2014 ACTUAL ACTUAL ACTUAL PFI Receipts from Customers 963.5 1,277.9 2,390.0 2,439.6 Interest and Dividen
Slide 37: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 FY2014 GROUP BALANCE SHEET 6 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS $M ENDED ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 30 JUN 2014 ACTUAL ACTUAL ACTUAL PFI Cash and Cash Equivalents 252.4 72.6 382.8 73.3 Accounts Receivable and Prepayme
Slide 38: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 WHOLESALE SEGMENT PERFORMANCE 6 MONTHS 6 MONTHS 12 MONTHS $M ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 ACTUAL ACTUAL ACTUAL Energy Margin 372.0 352.3 770.8 Dividend and Other Revenue 4.3 4.7 12.3 Energy Transmission Costs -64.8 -53.8
Slide 39: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 INTERNATIONAL SEGMENT PERFORMANCE 6 MONTHS 6 MONTHS 12 MONTHS $M ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 ACTUAL ACTUAL ACTUAL Energy Margin 11.7 11.3 50.7 Dividend and Other Revenue Energy Transmission Costs “1.9 -1.0 -2.1 Gross Ma
Slide 40: Additional Financial Information
Additional Financial Information FY2014 FY2013 FY2013 UNALLOCATED CORPORATE SEGMENT PERFORMANCE 6 MONTHS 6 MONTHS 12 MONTHS $M ENDED ENDED ENDED 31 DEC 2013. 31 DEC 2012 30 JUN 2013 ACTUAL ACTUAL ACTUAL Energy Margin 0.5 Dividend and Other Revenue 5.2 0.6 2.6 Energy Transmission Costs Gross Margin 5
Slide 41: Glossary
Glossary Acquired generation volumes Average generation price Combined catchment inflows Cost to supply contracted sales Customer connections GWh Historic average inflows Historic average storage HVDC IcP ICP switching MWh NZAS Retail contracted sales average price Retail sales volumes Sell side der