Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2016 Earnings Presentation
39 slides from Meridian Energy's earnings presentation, Aug 24, 2016
Slide 1: Powering today, protecting tomorrow
Powering today, protecting tomorrow MERIDIAN ENERGY LIMITED annual results presentation for the year ended 30 June 2016
Slide 2: Disclaimer
24 AUGUST 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 of
Slide 3: Highlights
24 AUGUST 2016 Highlights 1Earnings before interest, taxation, depreciation, amortisation, changes in fair value of hedges and other significant items 2Net profit after tax adjusted for the effects of non cash fair value movements and one-off items MERIDIAN ENERGY LIMITED annual results presentation for
Slide 4: Progress on strategy
24 AUGUST 2016 Progress on strategy Maintaining an TPM 2 issues paper confirms beneficiaries pay nd open market in NZ political focus on practical consumer issues which we can compete 31 retail brands make up a competitive NZ market effectively Firming RET position, some doubts target will be met by 20
Slide 5: Progress on strategy
24 AUGUST 2016 Progress on strategy Protecting and Lower Waitaki allocation plan amendments maximising our agreed generation Exposure to NZAS reduced through back-to- asset and back arrangements with other generators wholesale position Genesis swaption extension provides greater flexibility and impro
Slide 6: Health and safety
24 AUGUST 2016 TOTAL RECORDABLE INJURY FREQUENCY RATE1 Health and safety 5 Employees Contractors Combined INCIDENTS PER 200,000 HOURS Focus on preventing serious harm to 4 our staff, contractors and customers 3 A safe workplace matters - 2 engagement survey indicates 92% of 1 staff agree Meridian take
Slide 7: The New Zealand market
24 AUGUST 2016 NATIONAL DEMAND The New Zealand market GWh 45,000 year on Unseasonal warm autumn and winter -1.7% -0.9% +2.6% +0.3% year change temperatures have slowed demand 40,000 growth 2H FY16 flat Growth remains correlated to increasing 35,000 V 1H FY16 (temperature population and positive econo
Slide 8: Transmission pricing
24 AUGUST 2016 Transmission pricing Meridian’s submission on transmission pricing methodology (TPM) proposal is strongly supportive of what is a more durable and fairer approach As expected there are divergent views; generally those in the upper NI will see price increases, rest of the country will
Slide 9: The Australian market
24 AUGUST 2016 NEM DEMAND The Australian market TWh 300 Modest demand growth in FY2016 280 -2.3% -2.6% +1.6% +0.0% largely driven by new LNG production 260 AEMO forecasts suggest flat 240 consumption over the next 20 years 220 Market is still reluctant to commit to 200 new renewables despite the lift
Slide 10: Tiwai Point smelter
24 AUGUST 2016 LME SPOT ALUMINIUM PRICE 2% Tiwai Point smelter USD/tonne 1,800 depreciation since June 2015 Trading environment for the aluminium 1,700 industry remains difficult 1,600 Chinese capacity curtailments have not been sufficient to fully compensate for 1,500 the slowdown in demand growth 1,40
Slide 11: Wholesale and generation
24 AUGUST 2016 Wholesale and generation Stay in business capital spend inside the annual $65m envelope Consent extensions gained for Central Wind and Maungaharuru wind options Record level of total New Zealand generation (Tekapo adjusted) Generation from both the Manapōuri station and the total wind
Slide 12: Retail
24 AUGUST 2016 Retail Segment EBITDAF up +$13m (+23%) in FY2016 Growth in Meridian residential, SMB and agri sales volumes (+2%) and average price (+3%) Growth in Powershop sales volumes (+3%) Decline in Meridian corporate and industrial sales volumes from time- MERIDIAN RETAIL METRICS FY2016 FY2015
Slide 13: Dividends
24 AUGUST 2016 Dividends DIVIDENDS DECLARED Final ordinary dividend of 8.40 cps, CPS Ordinary dividends Special dividends 25 90% imputed 20 18.23 18.38 Brings FY2016 full year ordinary 15 13.01 5.35 4.88 dividend to 13.50 cps, 88% imputed 2.00 10 5% growth Represents 83.1% payout of free cash 5 11.0
Slide 14: Financial performance
24 AUGUST 2016 Financial performance FINANCIAL PERFORMANCE AGAINST PRIOR YEAR Financial Year ended 30 June 2016 $M 1,200 Financial Year ended 30 June 2015 1,009 1,000 954 800 650 618 600 452 440 471 467 400 248 238 247 233 209 185 200 128 123 85 59 0 Energy Trans- Operating EBITDAF NPAT Underlying O
Slide 15: Earnings
24 AUGUST 2016 ENERGY MARGIN1 Earnings $M 1,200 +6% ‘Like for like’ EBITDAF (excluding $5m 1,000 FY2015 insurance proceeds) increase of 800 +$37m (+6%) in FY2016 from: 600 954 1,009 1H +6% 916 924 2H +5% 400 763 + Higher residential/SMB/agri sales 200 volumes and average prices in NZ 0 +$16m 2012 20
Slide 16: Costs
24 AUGUST 2016 OPERATING COSTS Costs $M Retail segment Wholesale Corporate/Elims +3% 300 International IPO Costs 1H +8% Operating costs have increased +$10m 227 246 237 238 248 2H +1% 18 25 35 (+4%) in FY2016 200 49 44 44 42 1H FY2016 +$9m, 2H FY2016 +$1m 100 94 79 79 80 against prior year 86 88 90
Slide 17: Below EBITDAF
24 AUGUST 2016 NET PROFIT AFTER TAX Below EBITDAF $M 350 Net finance costs flat as higher floating 300 -25% rate borrowings were offset by post 250 hedging interest rates 200 150 295 Negative change in fair value of treasury 100 230 247 185 1H -11% 2H -38% instruments reflecting declining forward 50 75 i
Slide 18: Concluding remarks
24 AUGUST 2016 Concluding remarks Started FY2017 with high storage and strong July generation Expect greater volatility in wholesale prices during peak and dry periods Delivering on Powershop UK initiative NZAS price increase from 1 January 2017 and perpetual right of termination commences (with 12-
Slide 19: Questions
Questions MERIDIAN ENERGY LIMITED annual results presentation for the year ended 30 June 2016
Slide 20: Additional information
Additional information MERIDIAN ENERGY LIMITED annual results presentation for the year ended 30 June 2016
Slide 21: Tiwai Point smelter contract
24 AUGUST 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 30
Slide 22: New Zealand retail
24 AUGUST 2016 NEW ZEALAND CUSTOMER NUMBERS New Zealand retail ICP (000) 400 Meridian North Island Meridian South Island -0.6% Powershop Customer connections 300 287 272 277 276 275 48 51 -0.6% decline in ICP numbers since June 55 56 56 200 2015, reflecting aggressive residential 123 115 114 116 117
Slide 23: Hydrology
24 AUGUST 2016 MERIDIAN'S COMBINED CATCHMENT INFLOWS Hydrology GWh 14,000 12,000 Inflows for the year ended June 2016 10,000 were 108% of historical average 8,000 July 2016 inflows were 168% of historical 6,000 average 4,000 2,000 Meridian’s Waitaki catchment storage at 0 30 June 2016 was 133% of hist
Slide 24: New Zealand generation
24 AUGUST 2016 Record generation1 New Zealand generation NEW ZEALAND GENERATION GWh 16,000 Hydro Wind -1% 13,707 For the year ended 30 June 2016, 12,071 13,148 13,332 1,422 1,456 1,245 Meridian’s New Zealand generation was 12,000 10,996 1,153 3% higher than the same period last year 1,206 8,000 11,9
Slide 25: Movement in EBITDAF FY2015 to FY2016
24 AUGUST 2016 Movement in EBITDAF FY2015 to FY2016 New MOVEMENT IN EBITDAF Zealand $M energy 675 margin +$39m -3 -5 +16 -5 +3 -10 650 +7 -2 +7 +8 625 +16 650 618 600 EBITDAF 30 Retail Wholesale Net VAS Net cost of Net spot Other International Arc revenue Other Transmission Employee & EBITDAF 30 Jun
Slide 26: EBITDAF and net profit after tax
24 AUGUST 2016 EBITDAF and net profit after tax FY2016 EBITDAF TO NPAT RECONCILIATION $M 700 600 -236 500 -12 400 -78 650 300 -91 200 +20 -83 +12 +3 233 100 185 0 EBITDAF Depreciation Premiums paid Net finance Tax Underlying Net change in Gain on sale of Premiums paid Tax NPAT and on electricity cost
Slide 27: New Zealand energy margin
24 AUGUST 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 distributio
Slide 28: New Zealand energy margin
1Ratio between the price per unit received for Meridian’s physical 24 AUGUST 2016 generation and the price paid to supply each unit of contracted sales, inclusive of line losses New Zealand energy margin FY2016 FY2015 VOLUME VWAP VOLUME VWAP NEW ZEALAND ENERGY MARGIN GWh $/MWh $M GWh $/MWh $M Reside
Slide 29: New Zealand energy margin
24 AUGUST 2016 New Zealand energy margin NEW ZEALAND ENERGY MARGIN Derivatives acquired to supplement $M generation and cover spot price risks, net 1,200 Contracted Sales Spot Exposed Net Cost of Acquired of spot revenue Revenue Revenue Generation received from those $949m +$12m -$24m derivatives 1,
Slide 30: Movement in energy margin FY2015 to FY2016
24 AUGUST 2016 Movement in energy margin FY2015 to FY2016 NEW ZEALAND ENERGY MARGIN $M Contracted Sales Spot Exposed Net Cost of Acquired 1,100 Revenue Revenue Generation From lower +$24m +$7m +$7m contract close outs Higher generation volumes were more than offset by lower average generation Growth
Slide 31: Other revenue
24 AUGUST 2016 Other revenue FINANCIAL YEAR ENDED 30 JUNE 2016 2015 2014 2013 2012 SUMMARY OF OTHER REVENUE $M $M $M $M $M Retail service revenue (field services etc) 6 8 10 8 7 Arc Innovations - 3 6 6 5 Damwatch 5 5 5 5 4 Energy for Industry - - - 0 0 Miscellaneous1 5 7 2 4 5 Farming - 1 3 2 2 Lease
Slide 32: Funding
24 AUGUST 2016 DEBT MATURITY PROFILE AS AT 30 JUNE 2016 Funding $M 500 Available facilities maturing Drawn debt maturing (face value) Total borrowings as at 30 June 2016 of 400 $1,214m, up $138m from 30 June 2015 300 Net debt1 as at 30 June 2016 of $1,168m, 200 70 357 175 409 up +$123m (+12%) from 3
Slide 33: Funding metrics
24 AUGUST 2016 NET DEBT/EBITDAF Funding metrics TIMES 2.0 Net debt/EBITDAF is the principal 1.5 metric underpinning S&P credit rating 1.0 1.8 1.8 1.6 1.7 S&P calculation of Net debt/ 0.5 EBITDAF includes numerous 0.0 adjustments to reported numbers June 2013 June 2014 June 2015 June 2016 Borrowings
Slide 34: Fair value movements
24 AUGUST 2016 CHANGE IN FAIR VALUE FINANCIAL Fair value movements $M INSTRUMENTS 100 Meridian uses derivative instruments to 50 94 manage interest rate and foreign exchange 54 18 risk 0 -33 -83 As forward prices and rates on these -50 instruments move, non cash changes to -100 2012 2013 2014 2015 2
Slide 35: Group income statement
24 AUGUST 2016 Group income statement FINANCIAL YEAR ENDED 30 JUNE 2016 2015 2014 2013 2012 SUMMARY GROUP INCOME STATEMENT $M $M $M $M $M New Zealand energy margin 939 900 891 865 740 International energy margin 70 54 33 51 23 Other revenue 17 25 27 30 27 Energy transmission expense (128) (123) (129
Slide 36: Group underlying NPAT
24 AUGUST 2016 Group underlying NPAT FINANCIAL YEAR ENDED 30 JUNE 2016 2015 2014 2013 2012 UNDERLYING NPAT RECONCILIATION $M $M $M $M $M Net profit after tax 185 247 230 295 75 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 15 1 9 (51) (122) Net ch
Slide 37: Group cash flow statement
24 AUGUST 2016 Group cash flow statement FINANCIAL YEAR ENDED 30 JUNE 2016 2015 2014 2013 2012 SUMMARY GROUP CASH FLOW STATEMENT $M $M $M $M $M Receipts from customers 2,348 2,348 2,083 2,390 2,515 Interest and dividends received 2 8 9 2 8 Payments to suppliers and employees (1,723) (1,742) (1,480)
Slide 38: Group balance sheet
24 AUGUST 2016 Group balance sheet FINANCIAL YEAR ENDED 30 JUNE 2016 2015 2014 2013 2012 SUMMARY GROUP BALANCE SHEET $M $M $M $M $M Cash and cash equivalents 118 69 276 383 214 Trade receivables 194 191 183 262 298 Other current assets 94 74 64 121 59 Total current assets 406 334 523 766 571 Propert
Slide 39: Glossary
24 AUGUST 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 elec