Meridian Energy Limited · NZX:MEL
Meridian Energy — 1H FY2018 Earnings Presentation
45 slides from Meridian Energy's earnings presentation, February 2018
Slide 1: 2018 Interim Results Presentation
2018 INTERIM RESULTS PRESENTATION. MERIDIAN ENERGY LIMITED
Slide 2: Opening comments
Opening comments. • Challenges of two significant dry periods in 2017 • 749 GWH of new Australian generation capacity • Retail platform decision in April 2018 • New government’s target of 100% renewable generation by 2035 • Exec changes: Julian Smith and Mike Roan Meridian Energy Limited Interim Resu
Slide 3: Financial snapshot
Financial snapshot. Dividend Operating declared Underlying cash flow 7.82cps NPAT1 NPAT2 $162m $109m $104m 1% higher 20% lower 13% lower 21% lower NZ energy Aus energy margin4 EBITDAF3 margin $452m $329m $57m 7% lower 19% higher 7% lower Operating Transmission Costs Costs $127m $63m 4% higher 5% lowe
Slide 4: Our Markets
OUR MARKETS Meridian Energy Limited Interim Results 2018 4
Slide 5: New Zealand demand
New Zealand. MOVEMENT IN NATIONAL DEMAND 1.1% demand growth in the last 12 months GWh SOUTH +5 CANTER- +32 • Higher irrigation load BURY +7% +145 • Excluding irrigation regions, growth is +127 around 0.7% in the last 12 months +53 41.2k +70 • Growth occurred in all urban areas • Most regions also re
Slide 6: New Zealand storage and rainfall
New Zealand. NATIONAL STORAGE BY ISLAND GWH North Island Actual North Island Average South Island Actual South Island Average Variable rainfall • Central South Island rainfall well below average in 2017 • Upper North Island rainfall well above average in 2017 • Higher North Island hydro generation i
Slide 7: New Zealand wholesale prices
New Zealand. BENMORE ASX FUTURES SETTLEMENT PRICE $/MWh Wholesale prices 110 100 • Higher thermal utilisation as wholesale 90 prices rose to signal hydro scarcity 80 70 • No risk to security of supply from lower 60 South Island hydro generation 50 • Fehi inflows have seen reduced spot and Q1 2018 Q3
Slide 8: Electricity price review
New Zealand. Electricity price review KEY POINTS OF MERIDIAN’S SUBMISSION • Draft terms of reference published and • NZ market is delivering fair, equitable, efficient consultation has occurred and sustainable outcomes for consumers • Scope is broad - “whether the price paid • the review should focus
Slide 9: Australia
Australia. National energy guarantee • State support is mixed • Further analysis on multiple fronts • Deadline for final agreement is mid 2018 ACCC report • Preliminary report has concerns about NEM operation and affordability • Final report with reform recommendations in June 2018 Thwaites review (Vi
Slide 10: Our Operations
OUR OPERATIONS Meridian Energy Limited Interim Results 2018 10
Slide 11: NZ customers
NZ customers. CUSTOMER SALES SALES AVERAGE Higher customer numbers CUSTOMER VOLUME PRICE1 • Growth of 3% in the last 6 months NUMBERS (GWH) ($/MWH) 1H FY2018 Residential 188,698 720 12% higher sales volume, 9% excl Agri Small medium business 36,918 477 • In all segments except Residential Agricultur
Slide 12: NZ customers retail EBITDAF
NZ customers. MOVEMENT IN RETAIL SEGMENT EBITDAF Segment EBITDAF decline of $6m (11%) $M ENERGY MARGIN -$1M • Higher customers sales: revenue and +22 -23 purchase costs both up; energy margin largely flat -1 -4 55 49 • Promotional investment to support this customer growth EBITDAF 31 Contracted Cost
Slide 13: NZ wholesale and generation
NZ wholesale and generation. % COMBINED CATCHMENT INFLOWS % of monthly average Two dry periods in close succession 153% 140% • Four months of below average inflows 123% 102% 100% prior to July 2017 with each of the last 93% 77% four months also below average 62% 70% 65% 57% 61% 61% 44% • Resulted in
Slide 14: Australia
Australia. MOVEMENT IN AUSTRALIA SEGMENT EBITDAF $M Segment EBITDAF +$6M (20%) • Higher retail sales volume (+20%) ENERGY MARGIN +$9M • Average generation price +18%, greater +7 exposure to increasing merchant prices -15 +17 -1 -2 36 Generation acquisitions 30 • GSP ($168M ex stamp duty, effective 1
Slide 15: Powershop UK
Powershop UK. • 19,500 nPower ICP’s through energy only soft launch • White label offers launched • Dual fuel functionality now delivered, ready for full launch • Customer uptake dependent on nPower’s sales and marketing Meridian Energy Limited Interim Results 2018 15
Slide 16: New Zealand transmission
New Zealand transmission. Future HVDC changes • Transpower1 have signalled future HVDC TRANSPOWER HVDC REVENUE FORECAST $M 2% 2% revenue will fall around $50m per annum 180 -2% -2% -2% -2% -2% 2% -4% 160 140 -2% • From lower assumed WACC in the next -6% 120 100 -10% regulatory period and an end to h
Slide 17: Financial Performance
FINANCIAL PERFORMANCE Meridian Energy Limited Interim Results 2018 17
Slide 18: Dividends
Dividends. INTERIM DIVIDEND DECLARED +1% CPS Ordinary dividend Special dividend 1% growth in ordinary dividends declared 7.82 • Interim ordinary dividend declared of 5.38 7.54 7.77 6.20 cps, 88% imputed 2.44 2.44 2.44 4.19 1.40 • Capital management interim special dividend of 2.44 cps, unimputed 4.8
Slide 19: Earnings
Earnings. ENERGY MARGIN $M $25M (7%) decrease in EBITDAF from: 924 954 1009 1,013 Business specific changes • Higher business sales 500 480 474 477 • Higher corporate sales, lower average price from timing of a large customer signing 509 533 509 447 480 • Some cost expansion to support this customer
Slide 20: Costs
Costs. OPERATING COSTS Managing cost pressures $M 1H FY18 1H FY17 • $5M (4%) increase in operating costs, offset by lower Transmission costs • Promotional investment to support 40 39 48 44 customer growth in NZ 25 26 18 16 • Multi year Ōhau and Te Āpiti -4 -3 refurbishment programmes are adding to NZ
Slide 21: Below EBITDAF
Below EBITDAF. NET PROFIT AFTER TAX Land sale gains, small impacts from fair $M 247 value movements in 1H FY18 230 185 197 • $2M (2%) increase depreciation from FY17 130 113 81 72 asset revaluations • $3M (8%) increase in net financing costs 117 117 125 104 109 from higher net debt 2014 2015 2016 201
Slide 22: Closing comments
CLOSING COMMENTS. Meridian Energy Limited Interim Results 2018 22
Slide 23: Closing comments
Closing comments. • Slow start to 2H FY18 with continued lower physical generation and higher acquired generation • Lake storage, while still below average, has lifted significantly, allowing Meridian more trading flexibility • January 2018 saw another month of higher customer numbers • Since October
Slide 24: Questions
Questions. S% a
Slide 25: Additional Information
ADDITIONAL INFORMATION Meridian Energy Limited Interim Results 2018 25
Slide 26: Segment results
Segment results. 1H 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) • Small revenue and expense changes for IRFS 15 WHOLESALE
Slide 27: NZ retail
NZ retail. Customers NEW ZEALAND CUSTOMER NUMBERS ICP (000) • 3% increase in customers since June 17 Meridian North Island Meridian South Island Powershop 277 276 275 277 282 55 56 56 59 62 Residential, SMB, Agri segment 114 115 • 7% increase in overall volumes 116 117 117 • 4% decrease in residenti
Slide 28: Hydrology
Hydrology. MERIDIAN'S COMBINED CATCHMENT INFLOWS GWh Inflows 8,000 • Inflows for the 1H FY18 were 93% of 7,000 6,000 historical average 5,000 • Concluded FY17 with a four-month dry 4,000 period of below average inflows 3,000 2,000 • Further dry conditions prevailed from 1,000 October 2017 through to Ja
Slide 29: NZ generation
NZ generation. Volume NEW ZEALAND GENERATION GWH • 1H FY18 generation was 16% lower than 1H Hydro Wind 8,000 6,902 6,858 7,029 6,651 FY17 739 733 5,937 660 771 6,000 648 • Reflected both lower hydro generation (16%) and wind generation (12%) 4,000 6,296 5,991 6,163 6,087 5,289 • Lowest 1H generation
Slide 30: 1H FY18 EBITDAF
1H FY18 EBITDAF. MOVEMENT IN EBITDAF $M New Zealand energy margin -$33M +35 +35 -9 -116 +22 +9 +1 +3 -5 354 329 EBITDAF 31 Retail Wholesale Net VAS Net cost of Net spot Australian Other revenue Transmission Employee & EBITDAF 31 Dec 2016 contracted contracted position acquired exposed energy margin
Slide 31: 1H FY18 EBITDAF to NPAT
1H FY18 EBITDAF TO NPAT. 1H FY18 EBITDAF TO NPAT RECONCILIATION $M -134 -6 329 -41 -44 +4 +6 -1 -4 104 109 EBITDAF Depreciation Premiums paid Net finance Tax Underlying Net change in Loss on sale of Premiums paid Tax NPAT and on electricity costs NPAT fair value of assets/ on electricity amortisation
Slide 32: NZ energy margin
NZ energy margin. Energy margin Defined as: • A non-GAAP financial measure • Revenues received from sales to customers net of representing energy sales revenue less distribution costs (fees to distribution network energy related expenses and energy companies that cover the costs of distribution of ele
Slide 33: NZ energy margin 1H FY18
LWAP:GWAP 1H FY18 1.08 NZ energy margin.1H FY18 1H FY17 1.10 1H FY17 VOLUME1 VWAP2 $M VOLUME1 VWAP2 $M Residential/SMB contracted sales 2,027 $117.6 238 1,886 $120.7 229 Corporate contracted sales 1,114 $80.6 90 911 $84.3 77 Retail contracted sales 3,141 $104.5 328 2,797 $108.9 306 NZAS sales 2,525
Slide 34: NZ energy margin composition
NZ energy margin composition. NEW ZEALAND ENERGY MARGIN $M Contracted sales Spot exposed Net cost of acquired revenue $519M revenue -$92M generation $31M 553 -645 191 115 -4 -2 -82 -2 452 328 Retail Wholesale Meridian Cost to Supply Cost of Future Acquired Net VAS Market Energy Margin Contracted Con
Slide 35: NZ energy margin movement
NZ energy margin movement. NEW ZEALAND ENERGY MARGIN $M Contracted sales Spot exposed Net cost of acquired revenue +$57M revenue -$116M generation +$35M +241 -357 +22 +35 +92 -9 485 -55 452 -2 Energy Margin Retail Wholesale Meridian Cost to Supply Cost of Future Acquired Net VAS Energy Margin 31 Dec
Slide 36: Other revenue
Other revenue. SIX MONTHS ENDED 31 DECEMBER 2017 2016 $M Retail service revenue (field services etc) 4 4 Damwatch - 2 Miscellaneous1 6 3 Total other revenue 10 9 1. Includes revenue related to Flux Federation Meridian Energy Limited Interim Results 2018 36
Slide 37: Funding
Funding. DEBT MATURITY PROFILE AS AT 31 DECEMBER 2017 $M Available facilities maturing Drawn debt maturing (face value) • Total borrowings as at 31 December 2107 194 of $1,366M, up $137M from 31 December 2016 • Committed bank facilities of $685M of 460 363 235 which $375M were undrawn as at 31 183 D
Slide 38: Fair value movements
Fair value movements. • Meridian uses derivative instruments to NET CHANGE IN FAIR VALUE OF FINANCIAL manage interest rate, foreign exchange INSTRUMENTS and electricity price risk $18M • As forward prices and rates on these -$4M instruments move, non-cash changes to -$21M -$33M their carrying value
Slide 39: Income statement
Income statement. SIX MONTHS ENDED 31 DECEMBER 2017 2016 $M New Zealand energy margin 452 485 Australia energy margin 57 48 Other revenue 10 9 Energy transmission expense (63) (66) Employee and other operating expenses (127) (122) EBITDAF 329 354 Depreciation and amortisation (134) (132) Impairment
Slide 40: Underlying NPAT
Underlying NPAT. SIX MONTHS ENDED 31 DECEMBER 2017 2016 $M Net Profit after tax 109 125 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 2 75 Net change in fair value of treasury instruments 2 (63) Premiums paid on electricity options net of interest
Slide 41: Cash flow statement
Cash flow statement. SIX MONTHS ENDED 31 DECEMBER 2017 2016 $M Receipts from customers 1,374 1,110 Interest received - 1 Payments to suppliers and employees (1,101) (794) Interest and income tax paid (111) (114) Operating cash flows 162 203 Sale of property, plant and equipment 12 - Sales of subsidiar
Slide 42: Balance sheet
Balance sheet. SIX MONTHS ENDED 31 DECEMBER 2017 2016 $M Cash and cash equivalents 108 44 Trade receivables 304 184 Other current assets 141 138 Total current assets 553 366 Property, plant and equipment 7,871 7,648 Intangible assets 58 57 Other non-curent assets 212 225 Total non-current assets 8,1
Slide 43: 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
Slide 44: Disclaimer
Disclaimer. The information in this presentation was prepared by Meridian Energy with This presentation contains a number of non-GAAP financial measures, due care and attention. However, the information is supplied in summary including Energy Margin, EBITDAF, Underlying NPAT and gearing. Because form
Slide 45: Thank you
Thank you.