Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 FY2016 Earnings Presentation
37 slides from Meridian Energy's earnings presentation, Feb 24, 2016
Slide 1: Better energy future
Better energy future MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2015
Slide 2: Disclaimer
24 FEBRUARY 2016 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
Slide 3: Highlights
24 FEBRUARY 2016 Highlights MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2015 3
Slide 4: The New Zealand market
24 FEBRUARY 2016 NATIONAL DEMAND The New Zealand market GWh 45,000 Modest demand growth in last six months -1.3% +1.3% +1.4% year on year -1.0% change Growth in most regions and sectors 40,000 (except industrial) 35,000 600MW of thermal plant closure has 30,000 occurred in the last 6 months Market i
Slide 5: The Australian market
24 FEBRUARY 2016 LGC SPOT PRICE The Australian market AUD 90 LGC prices have responded to RET 80 target decision in June 2015 and 70 political changes in September 2015 60 Has not yet translated into investment certainty, with little new investment 50 announced 40 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15
Slide 6: Tiwai Point smelter
24 FEBRUARY 2016 LME SPOT ALUMINIUM PRICE Tiwai Point smelter USD/tonne 1,800 Current trading environment for the 1,700 aluminium industry is difficult 1,600 USD aluminium prices have fallen 10% since the middle of 2015 1,500 Price premia have stablised from 1,400 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 De
Slide 7: Wholesale and generation
24 FEBRUARY 2016 Wholesale and generation Stay in business capital spend inside the annual $65m envelope Mill Creek wind farm performance running ahead of expectations Iconic Brooklyn turbine will be replaced in April 2016 Consent extensions gained for Central Wind and Maungharuru wind options Merid
Slide 8: Meridian Retail
24 FEBRUARY 2016 Meridian Retail Segment EBITDAF up +$5m (+19%) Growth in corporate and industrial sales volumes (+4%) Growth in residential and SMB sales volumes (+6%) Lift in average sales price Corporate and industrial +4% in line with movements in the forward market Residential and SMB +2% with
Slide 9: Meridian Retail
24 FEBRUARY 2016 Meridian Retail Launch of Xero partnership Winner of CRM contact centre award (commercial and business services) Powershop net promoter score above 46 (energy sector average is -13) Good performance on retail metrics MERIDIAN RETAIL Dec 14 Jun 15 Dec 15 Time to answer (seconds) 6 mo
Slide 10: npower agreement
24 FEBRUARY 2016 npower agreement Franchise licence agreement with RWE npower signed in November 2015 Will take the Powershop service platform and brand to the UK without Meridian carrying market exposure Staged delivery of electricity, smart meter integration, gas and dual fuel and white label offer
Slide 11: Dividends
24 FEBRUARY 2016 Dividends Interim ordinary dividend of 5.10 cps, INTERIM DIVIDENDS DECLARED CPS +22% Ordinary dividend Special dividend 85% imputed 10 7.54 8 Is a 6% increase on the interim 6.20 2.44 dividend from last year 6 1.40 4 Capital management interim special 4.80 5.10 2 4.19 dividend of 2.
Slide 12: Financial performance
24 FEBRUARY 2016 Financial performance FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M 600 Six months ended 31 December 2015 Six months ended 31 December 2014 509 500 480 400 332 324 300 206 217 194 200 159 121 112 122 115 104 117 106 100 64 60 16 28 8 0 Energy Other Trans- Operating EBITDAF NPAT Underl
Slide 13: Earnings
24 FEBRUARY 2016 ENERGY MARGIN1 Earnings $M 1,000 916 924 954 ‘Like for like’ EBITDAF (excluding FY2015 800 763 474 +6% 481 477 insurance proceeds) increase of $12m 600 324 (4%) in 1H FY2016 from: 400 + Higher corporate sales volume in NZ 200 439 435 447 480 509 + Higher residential/SMB sales volume
Slide 14: Costs
24 FEBRUARY 2016 OPERATING COSTS Costs $M Retail segment Wholesale Corporate/Elims +3% 150 Australia IPO Costs Operating costs have increased +$9m 114 116 124 112 121 6 9 16 (+8%) in 1H FY2016 100 38 23 11 19 20 Almost half of this growth is investment 50 35 40 37 38 supporting Powershop expansion 4
Slide 15: Below EBITDAF
24 FEBRUARY 2016 NET PROFIT AFTER TAX Below EBITDAF $M 400 Net finance costs -$1m (-3%) from lower 300 295 247 interest on borrowings 122 230 200 -11% Positive change in fair value of treasury 113 130 75 instruments reflecting forward rate 100 173 117 117 104 changes in 1H FY2015 0 66 9 Negative chang
Slide 16: Concluding remarks
24 FEBRUARY 2016 Concluding remarks Strategic focus remains unchanged: Supporting TPM and thermal retirement outcomes to maintain an open and competitive market Improving asset yield and maintaining low stay in business capex Continuing to close our retail profit gap while lifting efficiency and servic
Slide 17: Questions
Questions MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2015
Slide 18: Additional information
Additional information MERIDIAN ENERGY LIMITED Interim results presentation for the six months ended 31 December 2015
Slide 19: Tiwai Point smelter contract
24 FEBRUARY 2016 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
Slide 20: New Zealand retail
24 FEBRUARY 2016 NEW ZEALAND CUSTOMER NUMBERS New Zealand retail ICP (000) 400 Meridian North Island Meridian South Island -0.8% Powershop Customer connections 300 287 272 277 276 274 48 51 55 56 55 -0.8% decline in ICP numbers since June 200 123 115 114 116 117 2015, reflecting aggressive residentia
Slide 21: Hydrology
24 FEBRUARY 2016 MERIDIAN'S COMBINED CATCHMENT INFLOWS Hydrology GWh 10,000 Inflows for the six months ended 8,000 December 2015 were 94% of historical 6,000 average 4,000 January 2016 inflows were 85% of 2,000 historical average 0 Meridian’s Waitaki catchment storage at Financial year 2002 2003 2004
Slide 22: New Zealand generation
24 FEBRUARY 2016 New Zealand generation NEW ZEALAND GENERATION GWh 8,000 Hydro Wind -1% For the six months ended 31 December 7,000 6,651 6,902 6,858 2015, Meridian’s New Zealand generation 6,190 6,050 660 739 771 was 1% lower than the same period last 6,000 623 618 year 6,163 5,000 5,991 6,087 5,567
Slide 23: Movement in EBITDAF 1H FY2015 to 1H FY2016
24 FEBRUARY 2016 Movement in EBITDAF 1H FY2015 to 1H FY2016 MOVEMENT IN EBITDAF New $M Zealand 380 energy margin +$19m 360 -2 +5 -3 +4 -15 +10 -5 +1 -4 340 +26 -9 320 332 324 300 EBITDAF 31 Retail Wholesale Net VAS Net cost of Spot Other International Net Arc Insurance Transmission Employee & EBITDA
Slide 24: EBITDAF and net profit after tax
24 FEBRUARY 2016 EBITDAF and net profit after tax 1H FY2016 EBITDAF TO NPAT RECONCILIATION $M 350 300 -117 250 -7 200 -39 332 150 -47 +7 +7 100 -32 122 50 104 - EBITDAF Depreciation Premiums on Financing Taxation Underlying Fair Value Premiums on Taxation NPAT and Electricity Expenses NPAT Movements
Slide 25: New Zealand energy margin
24 FEBRUARY 2016 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 distribut
Slide 26: New Zealand energy margin
1Ratio between the price per unit received for Meridian’s physical 24 FEBRUARY 2016 generation and the price paid to supply each unit of contracted sales, inclusive of line losses New Zealand energy margin 1H FY2016 1H FY2015 VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $
Slide 27: New Zealand energy margin
24 FEBRUARY 2016 New Zealand energy margin NEW ZEALAND ENERGY MARGIN Derivatives acquired to supplement $M generation and cover spot price risks, net 700 Contracted Sales Spot Exposed Net Cost of Acquired of spot revenue Revenue Revenue Generation received from those $494m -$7m -$13m derivatives 600
Slide 28: Movement in energy margin 1H FY2015 to 1H FY2016
24 FEBRUARY 2016 Movement in energy margin 1H FY2015 to 1H FY2016 NEW ZEALAND ENERGY MARGIN $M Contracted Sales Spot Exposed Net Cost of Acquired From higher 550 Revenue Revenue Generation acquired generation Growth in volumes and lower residential, SMB +$30m -$15m +$5m wholesale prices and corporat
Slide 29: Other revenue
24 FEBRUARY 2016 Other revenue 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2015 31 DEC 2014 30 JUN 2015 SUMMARY OF OTHER REVENUE $M $M $M Retail service revenue (field services etc) 3 3 8 Arc Innovations - 3 3 Damwatch 2 2 5 Miscellaneous1 2 6 7 Farming - 1 1 Lease income 1 1 1 Carbon credit
Slide 30: Funding
24 FEBRUARY 2016 DEBT MATURITY PROFILE AS AT 31 DEC 2015 Funding $M 500 Total borrowings as at 31 December 2015 400 200 of $1,200m, up $13m from 31 December 300 2014 200 332 Net borrowings (net of cash) as at 31 260 267 100 157 125 December 2015 of $1,131m, up $175m 10 35 from 31 December 2014 0 201
Slide 31: Funding metrics
NET DEBT/EBITDAF (S&P VIEW) Funding metrics TIMES 2.0 Net debt/EBITDAF is the principal metric 1.5 underpinning S&P credit rating 1.0 S&P calculation of Net debt/EBITDAF 1.6 1.8 1.7 1.8 includes numerous adjustments to 0.5 reported numbers 0.0 June 2013 June 2014 June 2015 Dec 2015 Borrowings are ad
Slide 32: Fair value movements
CHANGE IN FAIR VALUE OF FINANCIAL Fair value movements $M INSTRUMENTS 120 Meridian uses derivative instruments to 100 80 manage commodity price, interest rate 60 94 and foreign exchange risk 40 53 20 18 As forward prices and rates on these 0 -20 -33 -32 instruments move, non cash changes to -40 thei
Slide 33: Group income statement
24 FEBRUARY 2016 Group income statement 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2015 31 DEC 2014 30 JUN 2015 SUMMARY GROUP INCOME STATEMENT $M $M $M New Zealand energy margin 474 455 900 International energy margin 35 25 54 Other revenue 8 16 25 Energy transmission expense (64) (60) (12
Slide 34: Group underlying NPAT
24 FEBRUARY 2016 Group underlying NPAT 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2015 31 DEC 2014 30 JUN 2015 UNDERLYING NPAT RECONCILIATION $M $M $M Net profit after tax 104 117 247 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 32 - 1
Slide 35: Group cash flow statement
24 FEBRUARY 2016 Group cash flow statement 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2015 31 DEC 2014 30 JUN 2015 SUMMARY GROUP CASH FLOW STATEMENT $M $M $M Receipts from customers 1,409 1,002 2,348 Interest and dividends received 1 5 8 Payments to suppliers and employees (1,105) (686) (1
Slide 36: Group balance sheet
24 FEBRUARY 2016 Group balance sheet AS AT AS AT AS AT 31 DEC 2015 31 DEC 2014 30 JUN 2015 SUMMARY GROUP BALANCE SHEET $M $M $M Cash and cash equivalents 69 231 69 Trade receivables 220 217 191 Other current assets 104 59 74 Total current assets 393 507 334 Property, plant and equipment 6,970 6,853
Slide 37: Glossary
24 FEBRUARY 2016 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 el