Meridian Energy Limited · NZX:MEL

Meridian Energy — H1 FY2022 Earnings Presentation

50 slides from Meridian Energy's earnings presentation, Feb 23, 2022

  1. Slide 1: 2022 Interim Results Presentation

    2022 Interim Results Presentation 23 FEBRUARY 2022

  2. Slide 2: Highlights

    Highlights lower NZAS pricing $A740M in sale 8% growth in New change absorbed by proceeds from Zealand customer higher retail sales Australia numbers Harapaki bulk 8% growth in NZ 2.6% lift in interim earthwork electricity sales dividend commenced volumes good progress on NZAS 7% growth in NZ North

  3. Slide 3: Financial performance

    Financial performance 2 3 F EB R U A RY 2 0 2 2 2 0 2 2 I N T ER IM R ES U L T S P R ES EN T A T I ON 3

  4. Slide 4: Dividends and capital structure

    Dividends and capital structure  Interim ordinary dividend declared of 5.85 cps (86% imputed), 2.6% increase from 1H FY21 Interim dividend declared  Dividend reinvestment plan will apply to this interim CPS Ordinary dividend Special dividend Total dividend ay 0% discount 10 9  Changes to Dividend

  5. Slide 5: Australia sale

    Australia sale  Sale completed 31 January 2022  Proceeds of A$740M including interest and intercompany funding movements since 1 July 2021  Expected $240M gain on sale in FY22 full year accounts  Some proceeds initially used in repayment of short-term borrowing; bank debt and commercial paper 

  6. Slide 6: EBITDAF

    EBITDAF  EBITDAF1 $1M lower than 1H FY21 NZ Operations EBITDAF movement  Lower NZAS pricing absorbed by higher retail $M contracted sales revenue 400 +3 +3 0 -6 -1  Higher physical generation, lower spot prices 375  Operating costs flat to 1H FY21  2H FY22 has started with low inflow conditions

  7. Slide 7: New Zealand energy margin

    New Zealand energy margin  Customer and sales volume growth across New Zealand energy margin movement residential, small business and corporate $M Physical Financial 700 segments -$8M +$6M  Lift in both mass market and corporate average 600 pricing +33 -58 +84 -80 +2 +25  Lower NZAS revenue from

  8. Slide 8: New Zealand customers

    New Zealand customers  14% sales volume growth in residential and 20% in Customer sales Average price Total sales ($/MWh) volume (GWh) North Island sales volume South Island sales volume small medium business (GWh) (GWh) 1H FY22  3% higher mass market average sales price Residential 963 533 430 

  9. Slide 9: New Zealand generation

    New Zealand generation  7% higher generation in 1H FY22, notably lower wind volumes NZ average generation price $/MWh  Inflows 122% of average in 1H FY22 140 124  Record low inflows in January 2022 120 113 101 93 93  February 2022 rainfall has now lifted Lake Pukaki 100 storage to 118% of averag

  10. Slide 10: Operating costs and capital expenditure

    Operating costs and capital expenditure  Operating costs flat compared to 1H FY21 NZ Operating costs1 $M Interim Final half-year Total  Modest growth in Australia and Flux spend, offset 300 by lower NZ asset maintenance 220 ↑ 250  Expecting FY22 NZ operating costs of between 208 209 215 195 $215M

  11. Slide 11: Below EBITDAF

    Below EBITDAF  5% increase in depreciation  $68M decrease in NPBT1 from fair value of electricity hedges from falling forward electricity prices ($73M increase in 1H FY21)  $58M increase in NPBT from fair value of treasury instruments from rising interest rates ($25M increase in 1H FY21)  Result

  12. Slide 12: Markets and regulation

    Markets and regulation 2 3 F EB R U A RY 2 0 2 2 2 0 2 2 I N T ER IM R ES U L T S P R ES EN T A T I ON 12

  13. Slide 13: New Zealand wholesale prices

    New Zealand wholesale prices BENMORE ASX FUTURES SETTLEMENT PRICE  Above average inflows during 1H FY22 $/MWh  Record low January 2022 inflows 170  Factors outside hydrology continue to put upward 150 pressure on wholesale prices  Rising thermal costs, concern around availability and 130 higher

  14. Slide 14: New Zealand policy and regulation

    New Zealand policy and regulation EA review of competition in the wholesale market (2018-2021)  Confirms that high wholesale electricity prices over the last three years, reflect tight supply and demand conditions, and natural gas scarcity for electricity generation  Consultation closed December 2

  15. Slide 15: New Zealand policy and regulation

    New Zealand policy and regulation Transmission Pricing Methodology (TPM) Meridian's NZ transmission costs $M  EA published final TPM guidelines in June 2020 140 Meridian actual 116 Transpower  Replaces current HVDC and RCPD charges with 120 Meridian actual estimate benefit-based and residual charg

  16. Slide 16: New Zealand policy and regulation

    New Zealand policy and regulation Decarbonisation  Government deadline to set:  the first three emissions budgets out to 2035  and release the country’s first emissions reduction plan  both pushed out to May 2022 (previously December 2021)  Price of NZU’s trading near $85 (spot)  Clean car dis

  17. Slide 17: Business update

    Business update 2 3 F EB R U A RY 2 0 2 2 2 0 2 2 I N T ER IM R ES U L T S P R ES EN T A T I ON 17

  18. Slide 18: Harapaki construction

    Harapaki construction  Site enabling and mobilisation works completed in September 2021  Bulk earthworks commenced that month  Main access road has required increased scope in soil nailing works to improve slope stability  Project was shut down during the Alert Level 4 period (August 2021) and a

  19. Slide 19: Retail initiatives

    Retail initiatives Certified Renewable Energy  60 customers now with Meridian’s Certified Renewable Energy product  Net proceeds of the product will be reinvested back into decarbonisation projects Energy hardship  Developing a new and more comprehensive energy hardship solution  To be trialled

  20. Slide 20: Renewable development pipeline

    Renewable development pipeline  Utility scale solar development announced to complement battery at Ruākākā Energy Park  Assessments continuing on additional solar sites, land option acquired at Bunnythorpe  2.3 GW (5,700 GWh) of development options, 1 GW of that secured  Decision made not to pro

  21. Slide 21: NZAS contract termination

    NZAS contract termination 14 Jan 1 Jan 1 Jan 1 Jan 31 Dec 2021 2022 2023 2024 2024 Revised NZAS contract no termination right (except terminal force majeure) 400MW NZAS termination right with 6 months notice (terminal FM also applies) 172MW Existing 4th potline contract 2 month termination right USD

  22. Slide 22: NZAS contract termination - mitigation

    NZAS contract termination - mitigation Current swaption  Meridian selling Nova 235 GWh NI and SI CfDs  Meridian buying call option for 235 GWh NI CfD’s (minimum 10-hour call period)  17 MW Ngāwhā geothermal PPA from 2024 Clutha Upper Waitaki Lines Project  Final section (Naseby – Livingstone) co

  23. Slide 23: NZAS contract termination - mitigation

    NZAS contract termination - mitigation Process heat  278 GWh in MOUs, 14 GWh contracted  Includes A2 Milk’s Mataura plant coal conversion  Round 3 GIDI funding closed, future funding unclear, EECA announcement in early 2022 Data centre  43-hectare Southland site acquired by datagrid, OIO approva

  24. Slide 24: NZAS contract termination - mitigation

    NZAS contract termination - mitigation NZAS contract 14 Jan May 21 Aug 21 1 Jan Feb 22 1 Jan 1 Jan 31 Dec investor annual interim 2021 day 2022 results 2023 2024 2024 results Meridian portfolio response exploring options Nova call further Current swaption options discussions option options on on 1,1

  25. Slide 25: Closing comments

    Closing comments  Flat EBITDAF performance a sound outcome given impact of lower NZAS pricing  Bulk of the MEA sale proceeds are earmarked for future NZ investment  Ruākākā and Mt Munro are the current development focus  Sound progress on development of new South Island demand  There are no cur

  26. Slide 26: Additional information

    Additional information 2 3 F EB R U A RY 2 0 2 2 2 0 2 2 I N T ER IM R ES U L T S P R ES EN T A T I ON 26

  27. Slide 27: Debt and funding

    Debt and funding  December 2021 total borrowings of $1,799M Debt maturity profile as at 31 December 2021  Committed bank facilities of $955M, of which $M Drawn debt maturing (face value) Available facilities maturing $377M were undrawn 600 8 500  $192M of commercial paper issued on an 400 uncommi

  28. Slide 28: Discontinued operations

    Discontinued operations  Investment in MEA classified as held for sale and a discontinued operation at 31 December 2021 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 28

  29. Slide 29: Capital expenditure

    Capital expenditure  Consistent level of stay in business capex New Zealand operations capital expenditure $M Stay in business Growth Total  Largely consists of system and generation asset 100 92 enhancement spend 80  NZ operations capex of $92M in 1H FY22 60 71  Expecting FY22 NZ operations cap

  30. Slide 30: Segment results

    Segment results  Flux Federation included in ‘other and unallocated’ segment 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 30

  31. Slide 31: NZ operations results

    NZ operations results 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 31

  32. Slide 32: New Zealand retail

    New Zealand retail New Zealand customer connections Customers ICP (000) 500 Meridian North Island Meridian South Island Powershop Total  3% increase in customers since June 2021 347 358 324 400 291 302 106 115 89 300 66 74 Mass market segment 200 119 119 120 122 123  14% increase in residential vo

  33. Slide 33: New Zealand hydrology

    New Zealand hydrology Meridian’s combined catchment inflows Inflows GWH 10,000  1H FY22 inflows were 122% of average 8,000  January 2022 inflows were 41% of average 6,000 4,000 Storage 2,000  Meridian’s Waitaki storage as of 31 December 0 Financial 2008 2009 2010 2011 2012 2013 2014 2015 2016 201

  34. Slide 34: New Zealand generation

    New Zealand generation New Zealand generation Volume GWH Hydro Wind Total 8,000  1H FY22 generation was 7% higher than 1H FY21, 6,546 7,187 779 6,676 7,111 709 5,937 with higher hydro and lower wind generation 6,000 648 621 765 4,000 5,925 6,408 5,911 6,402 5,289 Price 2,000  1H FY22 average price

  35. Slide 35: Australian retail

    Australian retail Australian customer connections Customers Electricity Gas 200  1% decrease in electricity customers since June 38 44 48 2021 150 142 141 136  8% growth in gas customers since June 2021 100 97 110 50 Sales volume 0  6% growth in electricity sales volume in 1H FY22 Jun-18 Jun-19 J

  36. Slide 36: Australian generation

    Australian generation Australian generation Volume GWH Wind Hydro Total 600  1H FY22 wind generation was 2% higher than 1H 500 506 FY21 400 419 367 391 221 305 123  1H FY22 hydro generation was 95% higher than 1H 77 113 300 FY21 200 305 296 290 278 285 100 0 2017 2018 2019 2020 2021 Price Six Mont

  37. Slide 37: 1H FY22 EBITDAF

    1H FY22 EBITDAF Movement in EBITDAF $M New Zealand energy margin -$6M 500 +14 +58 -94 400 -28 +2 +3 +3 +46 -4 -1 0 300 200 395 394 100 0 EBITDAF 31 Dec Retail Wholesale Generation Cost to supply Net cost of Virtual asset Other market Other revenue Transmission Metering Employee & EBITDAF 31 Dec 2020

  38. Slide 38: EBITDAF to NPAT

    EBITDAF to NPAT 1H FY22 EBITDAF TO NPAT RECONCILIATION $M 400 350 -144 300 250 394 -10 -39 200 -56 150 0 -10 0 +10 145 145 100 EBITDAF Depreciation and Premiums paid on Net finance costs Tax Underlying Net change in fair value Loss on sale of Premiums paid on Tax NPAT amortisation electricity option

  39. Slide 39: Energy margin

    Energy margin Defined as  Revenues received from sales to customers net of distribution  A non-GAAP financial measure representing costs (fees to distribution network companies that cover the costs energy sales revenue less energy related of distribution of electricity to customers), sales to larg

  40. Slide 40: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin $M 1,500 1,200 661 -747 900 270 -158 600 3 -1 -6 198 -220 217 300 537 320 0 Mass market C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS margins Market costs Energy Margin sales contract sal

  41. Slide 41: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin movement $M 800 600 +14 +33 -94 -40 +2 +25 +86 +12 +9 -49 -4 400 543 537 200 0 Energy Margin Mass market C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS margins Market costs Energy Margin 3

  42. Slide 42: New Zealand energy margin

    New Zealand energy margin 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 42

  43. Slide 43: Australian energy margin (AUD)

    Australian energy margin (AUD) 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 43

  44. Slide 44: Fair value movements

    Fair value movements  Meridian uses derivative instruments to manage Change in fair value of financial instruments $M interest rate, foreign exchange and electricity 300 248 price risk 200  As forward prices and rates on these instruments 100 move, non-cash changes to their carrying value 0 -26 ar

  45. Slide 45: Income statement

    Income statement 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 45

  46. Slide 46: Underlying NPAT reconciliation

    Underlying NPAT reconciliation 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 46

  47. Slide 47: Cash flow statement

    Cash flow statement 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 47

  48. Slide 48: Balance sheet

    Balance sheet 2 3 F E B R UARY 2 0 2 2 2 0 2 2 I N TE RIM R E S UL TS PR ES EN TATI ON 48

  49. Slide 49: Glossary

    Glossary Hedging 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 received from

  50. Slide 50: Disclaimer

    Disclaimer The information in this presentation was prepared by Meridian Energy with they are not defined by GAAP or IFRS, Meridian's calculation of these due care and attention. However, the information is supplied in summary measures may differ from similarly titled measures presented by other for

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