Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2018 Earnings Presentation
57 slides from Meridian Energy's earnings presentation, 2018
Slide 1: The Long Run: 2018 Annual Results Presentation
THE LONG RUN MERIDIAN ENERGY LIMITED 2018 ANNUAL RESULTS PRESENTATION
Slide 2: Introduction
INTRODUCTION Meridian Energy Limited 2018 Annual Results Presentation 2
Slide 3: A Snapshot of Our Performance
A SNAPSHOT OF OUR PERFORMANCE Meridian Energy Limited 2018 Annual Results Presentation 3
Slide 4: Our People
OUR PEOPLE Engaged and committed people EMPLOYEE MEASURES % FY18 Target 78% of our people are highly engaged Global top 10% benchmark 120% 50% of our people are shareholders. 100% 98% 100% 84% Directors and officers hold 1.9m shares 80% 78% No serious injuries during the year 60% 42% 40% Physical an
Slide 5: Our Sustainability Leadership
OUR SUSTAINABILITY LEADERSHIP Climate change Meridian now net zero carbon across Group operations Pursuing greater decarbonisation of NZ’s energy system1 (41% of carbon emissions) Potential to add 75% to electricity demand Pathway to higher renewable participation has to address potential dry period
Slide 6: Our Markets
OUR MARKETS Meridian Energy Limited 2018 Annual Results Presentation 6
Slide 7: New Zealand Demand
NEW ZEALAND DEMAND 0.8% growth in FY18 ANNUAL DEMAND CHANGE SINCE 2010 % Continued economic and population 3% +2.6% growth during FY18 2% Generally above average temperatures +1.1% +0.8% during the financial year 1% +0.3% Periods of cold conditions during the 0% current winter -1% -0.1% -0.6% -0.9%
Slide 8: New Zealand Supply
NEW ZEALAND SUPPLY High FY18 North Island inflows NEW ZEALAND LAKE STORAGE GWh Actual Average North Island storage was above average for 4,000 all but 33 days of FY18 3,500 Varying South Island storage; two 3,000 South successive dry periods in 1H FY18, storage 2,500 Island above average through all
Slide 9: New Zealand Policy and Regulation
NEW ZEALAND POLICY AND REGULATION Zero Carbon New Zealand by 2050 NZ 2016 SECTOR EMISSIONS Agriculture means NZ has one of the 6% 3% 5% highest per capita rates of emissions Electricity 17% 32 million tonnes of carbon emissions from Road transport the wider (non-agricultural) sectors could Stationar
Slide 10: New Zealand Policy and Regulation
NEW ZEALAND POLICY AND REGULATION Electricity price review AVERAGE RESIDENTIAL ELECTRICITY COST % change Review will examine whether prices are 10% +3.2% Energy & other component +3.5% Lines component Total efficient, fair and equitable 8% +2.8% Review will be forward looking and 6% +4.3% +2.4% cons
Slide 11: Australian Market
AUSTRALIAN MARKET Struggling with policy to coordinate energy RESIDENTIAL PRICE AUSTRALIA NEW COMPARISON ZEALAND affordability, reliability and decarbonisation Average 2018 prices, 40.76 29.03 Liberal National coalition in power, Nominal, NZD c/kWh NZD c/kWh election between late 2018 and mid 2019 I
Slide 12: The United Kingdom Market
THE UNITED KINGDOM MARKET Legislated price controls are imminent RESIDENTIAL PRICE UNITED NEW COMPARISON KINGDOM ZEALAND The Competition and Markets Authority Average 2017 prices, 30.37 28.79 (CMA) report has made recommendations Nominal, NZD c/kWh NZD c/kWh to improve customer engagement and Includ
Slide 13: Our Capital Management
OUR CAPITAL MANAGEMENT Meridian Energy Limited 2018 Annual Results Presentation 13
Slide 14: Capital Management
CAPITAL MANAGEMENT Existing programme EXISTING CAPITAL MANAGEMENT $M Existing five-year, $625M programme 80 $437.5M to date commenced in August 2015 A special, unimputed dividend of 2.44 cps 60 declared today Brings distributions to $437.5M to date 40 Board will consider shareholder returns 20 again
Slide 15: Capital Management
CAPITAL MANAGEMENT New programme NEW CAPITAL MANAGEMENT Expectation we would update the market Existing programme New programme 5 years, $625M 2 years, $250M on capital management during 2018 Announcing a new two-year, $250M Board will consider programme commencing in August 2020 returns six Signals
Slide 16: Our Businesses
OUR BUSINESSES Meridian Energy Limited 2018 Annual Results Presentation 16
Slide 17: Our New Zealand Customers
OUR NEW ZEALAND CUSTOMERS 5% growth in customers in FY18 CUSTOMER SALES CUSTOMER SALES AVERAGE NUMBERS VOLUME PRICE1 (GWH) ($/MWH) Supported by a change in portfolio position FY18 Both Meridian (4%) and Powershop (8%) Residential 194,671 1,370 sales volume growth Small medium business 38,137 936 In
Slide 18: Our New Zealand Customers
OUR NEW ZEALAND CUSTOMERS 4% increase in retail energy margin MOVEMENT IN RETAIL SEGMENT EBITDAF1 $M 100 Energy margin +$6M (4%) Higher customer sales lifting revenue and purchase costs 90 -10 Cost per customer down, overall stable 80 +15 +1 -1 spend supporting a growing customer base 70 -1 Overall
Slide 19: Our New Zealand Generation
OUR NEW ZEALAND GENERATION Lowest NZ generation since 2013 NEW ZEALAND GENERATION GWh Hydro Wind Despite 98% of average inflows 14,000 Reflecting the timing of those inflows (low 12,000 1H FY18 inflows) and a lower wind year 10,000 8,000 Healthy storage at end of July 18: 6,000 Waitaki 19% (255GWh)
Slide 20: Our New Zealand Generation
OUR NEW ZEALAND GENERATION Despite lower generation, NZ energy AVERAGE GENERATION PRICE $/MWh margin up by $4M 90 83 80 Reflects the impact of the change in 68 70 60 57 portfolio position, allowing: 60 51 50 5% uplift in retail volumes sold 40 43% increase in derivative volumes sold 30 20 Without ad
Slide 21: Our Australian Customers
OUR AUSTRALIAN CUSTOMERS A year of customer consolidation AUSTRALIAN CUSTOMERS CONNECTIONS While further generation support was 120,000 acquired 100,000 Gas now launched in Victoria, sales of 80,000 4,800 GJ’s in June and July 2018 60,000 Market is highly competitive and has scale 40,000 77,970 100,
Slide 22: Our Australian Generation
OUR AUSTRALIAN GENERATION A growing portfolio HUME GSP assets acquired Capacity 58MW Several renewable offtake 5 year average 203GWh agreements output Record wind year, FY18 Typical seasonal August to generation 8% above FY17 generation April Wholesale prices have moderated from a peak in BURRINJUCK
Slide 23: Our United Kingdom Customers
OUR UNITED KINGDOM CUSTOMERS Main milestones now delivered 25,000 customers at 30 June 2018 Grown by more than 30% in the six weeks since FY18 milestones delivered: Gas functionality White label Powershop Lite Data protection regulation requirements Further product development underway Complex merge
Slide 24: Our Financial Performance
OUR FINANCIAL PERFORMANCE Meridian Energy Limited 2018 Annual Results Presentation 24
Slide 25: Dividends
DIVIDENDS 1.5% growth in full year dividends DIVIDENDS DECLARED CPS Ordinary dividends Special dividends Final ordinary dividend declared of 8.94 25 cps, 86% imputed 20 18.23 18.38 18.91 19.20 Brings FY18 full year ordinary dividend 15 13.01 5.35 4.88 4.88 4.88 declared to 14.32 cps, 86% imputed 2.0
Slide 26: FY17 Restatement for IFRS 15
FY17 RESTATEMENT FOR IFRS 15 Early adoption of IFRS 15 YEAR ENDED ORIGINAL ADJUST RESTATED 30 JUNE 2017 2017 MENT 2017 Has resulted in a change to the accounting INCOME STATEMENT $M $M $M policy for customer incentives and Operating revenue 2,319 1 2,320 acquisition and retention costs Operating exp
Slide 27: Earnings
EARNINGS $9M (1.4%) increase in EBITDAF ENERGY MARGIN $M Business specific changes 1,050 1,030 1,009 1,014 Higher business, lower residential sales 1,000 volumes at slightly lower average price 954 Higher corporate sales volumes 950 924 Higher irrigation sales 900 Higher wholesale volumes Some NZ co
Slide 28: Costs
COSTS 5% increase in operating costs OPERATING COSTS $M FY18 FY17 Refurbishment spend on Te Āpiti wind farm 300 and the Ōhau hydro stations 250 Transformer replacements at the 200 Manapōuri power station 150 Maintaining a similar level of promotional 259 246 spend to FY17, supporting NZ customer 100
Slide 29: Below EBITDAF
BELOW EBITDAF Flat NPAT NET PROFIT AFTER TAX $M $4M (2%) increase in depreciation from 300 247 FY17 revaluations 250 230 200 201 FY18 impairments of $2M (Central Wind 200 185 consent), compared with $10M in FY17 150 Asset sale gains of $7M in FY18, compared 100 with losses of $4M in FY17 (farm land
Slide 30: Debt and Funding
DEBT AND FUNDING DEBT MATURITY PROFILE AS AT 30 JUNE 2018 Successful retail bond issue in FY18 $M Total borrowings as at 30 June 2018 of 600 Drawn debt maturing (face value) Available facilities maturing $1,473M 500 Up $281M from 3o June 2017 400 Includes $200M, seven year, fixed-rate 300 50 230 ret
Slide 31: Our Closing Comments
OUR CLOSING COMMENTS Good current catchment storage Increasing pace of change in NZ’s climate change actions NZ electricity price review issues paper expected in September 2018 Followed by consultation in early 2019 Update on NZ transmission pricing due in December 2018 Progress on Australian NEG an
Slide 32: Questions
QUESTIONS Meridian Energy Limited 2018 Annual Results Presentation 32
Slide 33: Our Financial Performance in Detail
OUR FINANCIAL PERFORMANCE IN DETAIL Meridian Energy Limited 2018 Annual Results Presentation 33
Slide 34: FY17 Segment Restatement
FY17 SEGMENT RESTATEMENT $M NZ WHOLESALE NZ RETAIL AUSTRALIA 2017 IRFS 15 Other 2017 2017 IRFS 15 Other 2017 2017 IRFS 15 Other 2017 reported restated reported restated reported restated Contracted sales 354 354 612 2 614 72 (1) 71 Virtual asset swap margins 4 4 Net cost of acquired generation (4) (
Slide 35: FY18 Operating Information Restatement
FY18 OPERATING INFORMATION RESTATEMENT FY18 OPERATING INFORMATION Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 New Zealand Contracted Sales Retail contracted sales volume (GWh) 519 529 491 475 539 589 503 438 459 442 496 502 Average reta
Slide 36: Full Year Segment Results
FULL YEAR SEGMENT RESULTS FY17 restated for segment changes Flux Federation (Powershop platform development) now included in other segment (previously retail segment) Powershop UK now included in other segment (previously international segment) $M WHOLESALE RETAIL AUSTRALIA OTHER/ INTER- UNALLOCATED
Slide 37: Six Monthly Results
SIX MONTHLY RESULTS 7% decrease in 1H FY18 EBITDAF, 11% increase in 2H FY18 $M 1H 2H FULL YEAR 2018 2017 CHANGE 2018 2017 CHANGE 2018 2017 CHANGE Contracted sales 568 494 74 594 545 49 1,162 1,039 123 Virtual asset swap margins (4) 5 (9) 2 (1) 3 (2) 4 (6) Net cost of acquired generation 31 (4) 35 10
Slide 38: New Zealand Retail
NEW ZEALAND RETAIL Customers NEW ZEALAND CUSTOMER NUMBERS ICP (000) 5% increase in customers since June 2017 350 Meridian North Island Meridian South Island Powershop 291 300 277 276 275 277 Residential, Business, Agri segment 250 55 56 56 59 66 3% increase in overall volumes 200 114 116 115 119 1.5
Slide 39: New Zealand Hydrology
NEW ZEALAND HYDROLOGY Inflows MERIDIAN'S TOTAL CATCHMENT INFLOWS GWh Inflows for FY18 were 98% of historical 14,000 average 12,000 July 2018 inflows were 161% of average 10,000 8,000 6,000 Storage 4,000 Meridian’s Waitaki catchment storage at 30 2,000 June 2018 was 113% of historical average 0 By 31
Slide 40: New Zealand Generation
NEW ZEALAND GENERATION Volume NEW ZEALAND GENERATION GWh Hydro Wind Total FY18 generation was 6% lower than FY17 15,000 13,333 13,707 13,315 Reflected both lower hydro and wind 13,148 1,245 1,422 1,456 1,341 12,528 12,000 1,263 generation 1H FY18 generation 16% lower, 2H FY18 9,000 generation 5% hig
Slide 41: Australian Retail
AUSTRALIAN RETAIL Customers AUSTRALIAN CUSTOMERS CONNECTIONS Flat customer numbers since June 2017, in 120,000 response to higher wholesale market 100,000 prices 80,000 Sales volume 60,000 100,524 100,545 12% increase in sales volumes 40,000 77,970 48,208 20,000 13,426 0 2014 2015 2016 2017 2018 Fin
Slide 42: Australian Generation
AUSTRALIAN GENERATION Volume AUSTRALIAN GENERATION GWh FY18 generation was 14% higher than FY17 700 Wind Hydro Total 581 FY18 includes 28GWh of seasonal 600 519 519 510 28 generation from the GSP hydro assets 500 FY18 wind generation was 8% higher than 400 285 300 FY17 519 519 510 553 200 285 100 Pr
Slide 43: FY18 EBITDAF
FY18 EBITDAF MOVEMENT IN EBITDAF $M Energy margin +$4M (0.4%) 800 +45 760 -6 -132 720 +81 +3 +3 680 -13 +1 +12 +15 640 666 657 600 EBITDAF 30 Retail Wholesale Net VAS Net cost of Net spot Other market Australian Other revenue Transmission Employee & EBITDAF 30 Jun 2017 contracted contracted position
Slide 44: EBITDAF to NPAT
EBITDAF TO NPAT FY18 XXXX EBITDAF TO NPAT RECONCILIATION $M 700 600 -268 500 400 666 -13 -81 300 -98 +13 +3 +5 200 206 -26 201 100 EBITDAF Depreciation Premiums Net finance Tax Underlying Net change in Loss on sale Premiums Tax NPAT and paid on costs NPAT fair value of of assets/ paid on amortisatio
Slide 45: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN ENERGY MARGIN Revenues received from sales to customers net of A non-GAAP financial measure distribution costs (fees to distribution network representing energy sales revenue less companies that cover the costs of distribution of energy related expenses and energy electrici
Slide 46: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN LWAP:GWAP FY18 1.04 FY18 FY17 1.11 FY173 VOLUME1 VWAP2 $M VOLUME1 VWAP2 $M Residential/SMB contracted sales 3,823 $117.3 449 3,710 $118.9 441 Corporate contracted sales 2,158 $83.4 180 2,017 $85.7 173 Retail contracted sales 5,981 $105.1 629 5,727 $107.2 614 NZAS sales 5,01
Slide 47: New Zealand Energy Margin
NEW ZEALAND ENERGY MARGIN NEW ZEALAND ENERGY MARGIN $M Contracted sales revenue Spot exposed revenue Net cost of acquired generation 2,400 $1,064M -$155M $41M 2,000 1,600 1,039 -1,194 1,200 435 195 -2 -4 800 -150 -4 944 400 629 0 Retail Wholesale Meridian Cost to Supply Cost of Future Acquired Net V
Slide 48: New Zealand Energy Margin Movement
NEW ZEALAND ENERGY MARGIN MOVEMENT NEW ZEALAND ENERGY MARGIN $M Contracted sales Spot exposed revenue Net cost of acquired generation 1,500 revenue +$96M -$132M +$45M 1,300 +355 -487 1,100 +15 +81 +1 -6 900 +99 940 -53 -1 944 700 Energy Retail Wholesale Meridian Cost to Cost of Future Acquired Net V
Slide 49: Other Revenue
OTHER REVENUE FINANCIAL YEAR ENDED 30 JUNE 20181 2017 2016 2015 2014 $M RESTATED1 REPORTED REPORTED REPORTED Retail service revenue (field services revenue etc) 6 6 6 8 10 Arc Innovations 3 6 Damwatch 2 5 5 5 Miscellaneous2 15 11 5 7 2 Farming 1 3 Lease income 1 0 1 1 1 Total other revenue 22 19 17
Slide 50: Funding Metrics
FUNDING METRICS Net debt/EBITDAF 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 finance and operating leases Cash balances adjusted for restricted cas
Slide 51: Fair Value Movements
FAIR VALUE MOVEMENTS On electricity and other hedges and NET CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS treasury instruments $M Meridian uses derivative instruments to 50 manage interest rate, foreign exchange and 18 0 electricity price risk -33 -21 -26 As forward prices and rates on these -50 -8
Slide 52: Income Statement
INCOME STATEMENT FINANCIAL YEAR ENDED 30 JUNE 20181 2017 2016 2015 2014 $M RESTATED1 REPORTED REPORTED REPORTED New Zealand energy margin 944 940 941 900 891 Australia energy margin 86 74 68 54 33 Other revenue 22 19 17 25 27 Energy transmission expense (127) (130) (128) (123) (129) Employee and oth
Slide 53: Underlying NPAT Reconciliation
UNDERLYING NPAT RECONCILIATION FINANCIAL YEAR ENDED 30 JUNE 20181 2017 2016 2015 2014 $M RESTATED1 REPORTED REPORTED REPORTED Net profit after tax 201 200 185 247 230 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 23 76 15 1 9 Net change in fair v
Slide 54: Cash Flow Statement
CASH FLOW STATEMENT FINANCIAL YEAR ENDED 30 JUNE 20181 2017 2016 2015 2014 $M RESTATED1 REPORTED REPORTED REPORTED Receipts from customers 2,765 2,250 2,348 2,348 2,083 Interest and dividends received 1 2 2 8 9 Payments to suppliers and employees (2,152) (1,596) (1,723) (1,742) (1,480) Interest and
Slide 55: Balance Sheet
BALANCE SHEET FINANCIAL YEAR ENDED 30 JUNE 20181 2017 2016 2015 2014 $M RESTATED1 REPORTED REPORTED REPORTED Cash and cash equivalents 60 80 118 69 276 Trade receivables 261 260 194 191 183 Customer contract assets 19 18 Other current assets 109 91 94 74 64 Total current assets 449 449 406 334 523 P
Slide 56: 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 Average retail contracted sales price volume weighted average electricity price r
Slide 57: Disclaimer
DISCLAIMER THE INFORMATION IN THIS PRESENTATION WAS PREPARED BY MERIDIAN WITH ANY PURCHASE OF MERIDIAN ENERGY SECURITIES. ENERGY WITH DUE CARE AND ATTENTION. HOWEVER, THE INFORMATION THIS PRESENTATION CONTAINS A NUMBER OF NON-GAAP FINANCIAL IS SUPPLIED IN SUMMARY FORM AND IS THEREFORE NOT NECESSARIL