Meridian Energy Limited · NZX:MEL

Meridian Energy — FY2020 Earnings Presentation

49 slides from Meridian Energy's earnings presentation, Aug 26, 2020

  1. Slide 1: 2020 Annual Results Presentation

    2020 Annual Results Presentation 26 AUGUST 2020

  2. Slide 2: Highlights

    Highlights record NZ 15% Australasian 18% New Zealand generation customer growth sales growth customer support strong customer 2% EBITDAF1 growth during COVID retention rate response to NZAS 24% Australian sales carbon neutral exit established growth 1Earnings before interest, tax, depreciation, amo

  3. Slide 3: Our people

    Our people  8 LTI injuries (3 serious) in FY20, same number as Workforce measures FY19 120% FY20 FY19  Strong staff engagement 96% 97%  96% gender pay equity 90% 85% 77%  Signatory to the Aotearoa New Zealand Skills Pledge – reskilling through training investment 60% 46% 45% 34% 35% 30% 0% Women

  4. Slide 4: Our strategy

    Our strategy Champion Optimise Grow Strategic initiative Competitive markets Trading & asset management Retail Sustainability Re-consenting Generation Climate action Financing Flux  Improved plant availability  Sustainability leadership  Standout growth in NZ and  2025 Waitaki reconsent Highligh

  5. Slide 5: Our sustainability leadership

    Champion Our sustainability leadership  Net Zero Carbon across group emissions 2030 emissions target tCO2e  Aiming to halve emissions by 2030 50,000 47,279 actual target 44,359  Forever Forests: 1.5 million trees in 5 years 40,000  100% electric fleet by 2025 30,000  Climate risk and carbon dis

  6. Slide 6: Outcomes for Kiwis

    Champion Outcomes for Kiwis  Residential energy unit costs (excluding lines) at their lowest level in 10 years (after inflation) AVERAGE RESIDENTIAL ELECTRICITY COST1  Residential electricity unit costs (including lines) at % Energy & other component Lines component Total their lowest level in 8 y

  7. Slide 7: New Zealand demand

    Champion New Zealand demand NATIONAL DEMAND  Underlying demand decline of 0.3% in FY20 GWh  Includes a 14% decline in April 2020 from Alert 4,000 Level 4 lockdown 3,800  And suspension of 4th Tiwai potline during Q4 3,600 FY20 3,400  Pre-COVID growth in commercial and agricultural 3,200 sectors,

  8. Slide 8: New Zealand policy and regulation

    Champion New Zealand policy and regulation TPM  EA published final decision in June 2020 Meridian's annual HVDC costs  Replaces current HVDC charge with benefit–based $M Meridian actual 93 and residual charges 100 EA estimate  New TPM expected to be in place by April 2023 with 80 65 transitional

  9. Slide 9: New Zealand policy and regulation

    Champion New Zealand policy and regulation Emissions trading scheme  Climate Change Response Bill passed  Cap on emissions with 5 yearly carbon budgets  A cost containment system to replace the $25 price, set at $25 for 2020, lifting to $50 in 2021, with a $20 price floor  NZU’s currently tradin

  10. Slide 10: Portfolio response to NZAS exit

    Optimise Portfolio response to NZAS exit  Expecting smelter closure on 31 August 2021  Ordinary dividend policy maintained at 75%-90% of free cash flow (FY20 dividend at 75%)  Capital management programme ended  Completion by Transpower of Clutha Upper Waitaki Lines Project by May 2022 or earlie

  11. Slide 11: Lake Pūkaki low range operation

    Optimise Lake Pūkaki low range operation  Lake Pūkaki is consented to be used Lake Pūkaki operating range schematic down to 513.0m 532.5m top of consented operating range  Usage below 518.0m is tied to the 1,767GWh System Operator’s Electricity Risk Curves (ERC)  Meridian has previously only plan

  12. Slide 12: New Zealand customers

    Grow New Zealand customers  Customer number and sales volume growth across Customer sales Average price Total sales North Island South Island ($/MWh) volume (GWh) sales volume sales volume all segments (GWh) (GWh)  7% to 8% sales growth in residential and small FY20 medium business, stable average

  13. Slide 13: New Zealand generation

    Grow New Zealand generation  Record wind and hydro generation with higher New Zealand generation GWh wind farm availability and inflows 115% above Hydro Wind 15,000 average  Despite major outages on the HVDC between 12,000 January and April 2020 for reconductoring and replacement works 9,000  Ave

  14. Slide 14: Australian customers

    Grow Australian customers  24% growth in both electricity sales volume and Powershop Australia net customer changes 5,500 electricity gas customers during FY20 4,500  310% increase in gas sales volumes from a 68% increase in gas customers 3,500  Despite acquisition rates being impacted in Q4 by C

  15. Slide 15: Australian generation

    Grow Australian generation  NSW drought conditions persisted during FY20, Australian generation GWh impacting hydro generation FY20 FY19 450  Hydro storage is improving, now above 50% and 400 389 367 363 close to seasonal average 350  Repairs and upgrades reduced availability at Mt 300 Millar dur

  16. Slide 16: Flux

    Grow Flux  Now supports 513,000 customers across 3 geographies  88,000 Meridian customers migrated from legacy systems at end of June 2020  Original Meridian migration project timeline has been extended 9 months to September 2021  Allows for development of further functionality, particularly to

  17. Slide 17: Financial performance

    Financial performance 2 6 A U GU S T 2 0 2 0 2 0 2 0 A N N U AL R ES U L T S P R ES EN T A T I ON 17

  18. Slide 18: EBITDAF

    EBITDAF  FY20 EBITDAF +2% on FY19 Group EBITDAF movement $M  $6M benefit from adoption of IRFS 16 900 +14 +4 +2 +8  Strong retail performance in New Zealand and -12 Australia 800  Lower wholesale prices and HVDC outages slowed EBITDAF in 2H FY20 700 854  Lower New Zealand transmission charges w

  19. Slide 19: Dividends

    Dividends  Final ordinary dividend declared of 11.20 cps, 86% Dividends declared CPS imputed Ordinary dividends Special dividends Total 25  Brings FY20 full year ordinary dividend declared to 19.20 21.30 19.34 18.38 18.91 4.88 16.90 cps, 86% imputed 20 4.88 4.88 2.44 4.88  Represents 75% payout o

  20. Slide 20: New Zealand energy margin

    New Zealand energy margin  Customer and sales volume growth across all New Zealand energy margin movement $M segments drove energy margin growth 1,500 Physical Financial +$76M -$62M  Upward price pressure in corporate and stable mass market pricing supported higher sales 1,300 +9  Generation leng

  21. Slide 21: Australian energy margin

    Australian energy margin  Electricity and gas sales have lifted physical margin Australian energy margin movement $NZ M Physical Financial 160  Residential price pressure reflecting significantly -$5M +$9M lower wholesale market costs 140 +16 -24 120 +13  Drought conditions and wind farm availabi

  22. Slide 22: Operating costs

    Operating costs  $6M reduction in FY20 operating costs from IFRS 16  Like for like operating cost increase of $15M (6%) FY19 to FY20 opex movement $M  $6M provision taken on Holiday’s Act payroll 270 remediation (previously a contingent liability)  Low levels of annual leave taken since COVID-19

  23. Slide 23: Below EBITDAF

    Below EBITDAF Net profit after tax  13% increase in depreciation from June 2019 $M 400 339 revaluation (+$1B)  Immaterial June 2020 devaluation 300 200 203 185 176  $58M impairments, mainly Australian generation 200 assets 100  $113M decrease in NPBT1 from fair value of 0 electricity hedges from

  24. Slide 24: Capital expenditure

    Capital expenditure  Consistent level of stay in business capex Capital expenditure $M Stay in business Investment Total  Largely consists of system and generation asset 250 235 enhancement spend  Currently expecting FY21 Group capex of between 200 $70M and $80M 150 188  $50M to $55M of stay in

  25. Slide 25: Debt and funding

    Debt and funding  June 2020 total borrowings of $1,688M Debt maturity profile as at 30 June 2020  Total funding facilities of $1,891M, of which $M Drawn debt maturing (face value) Available facilities maturing $400M were undrawn 600  Net debt of $1,513M, up 4% from FY19 500  Net debt to EBITDAF

  26. Slide 26: Closing comments

    Closing comments  Timing of NZAS exit to be determined  Portfolio response to NZAS exit is well established  Lasting impacts from COVID-19 are unclear  Fundamentals of the sector remain strong  Momentum in both Meridian’s retail businesses is strong  Solid July 2020 operating result 2 6 A U GU

  27. Slide 27: Additional information

    Additional information 2 6 A U GU S T 2 0 2 0 2 0 2 0 A N N U AL R ES U L T S P R ES EN T A T I ON 27

  28. Slide 28: Segment results

    Segment results  Flux Federation and Powershop UK included in ‘other and unallocated’ segment 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 28

  29. Slide 29: Six monthly results

    Six monthly results 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 29

  30. Slide 30: New Zealand retail

    New Zealand retail New Zealand customer connections Customers ICP (000) Meridian North Island Meridian South Island Powershop Total 324 350  7% increase in customers since June 2019 291 302 275 277 89 300 66 74 56 59 250 119 119 120 117 115 200 Residential, business, agri segment 150 115 100 102 10

  31. Slide 31: New Zealand hydrology

    New Zealand hydrology Meridian's combined catchment inflows Inflows GWh 16,000  FY20 inflows were 115% of average 14,000 12,000  July 2020 inflows were 108% of average 10,000 8,000 6,000 Storage 4,000 2,000  Meridian’s Waitaki storage at 30 June 2020 was 0 2006 2007 2008 2009 2010 2011 2012 2013

  32. Slide 32: New Zealand generation

    New Zealand generation New Zealand generation Volume GWh Hydro Wind 16,000  FY20 generation was 5% higher than FY19, with 14,000 1,456 1,341 1,263 1,244 1,465 higher hydro and wind generation 12,000 10,000 8,000 6,000 12,251 11,974 12,326 12,758 11,265 Price 4,000 2,000  FY20 average price Meridia

  33. Slide 33: Australian retail

    Australian retail Australian customer connections Customers 200 Electricity Gas  24% growth in electricity customers since June 38 2019 150 23 136  37,878 gas customers by June 2020 100 97 97 110 78 50 Sales volume 0 2016 2017 2018 2019 2020  24% growth in electricity sales volume in FY20 Financi

  34. Slide 34: Australian generation

    Australian generation Australian generation Volume GWh Wind Hydro 800  FY20 generation was 12% lower than FY19 700 203 113 28 600  Higher wind and lower hydro generation 500  367GWh of PPA offtake in FY20 400 300 519 510 553 525 528 200 100 0 2016 2017 2018 2019 2020 Financial Year ended 30 June

  35. Slide 35: FY20 EBITDAF

    FY20 EBITDAF Movement in EBITDAF $M New Zealand energy margin +$14M 1,100 1,000 +7 900 +142 -115 +2 +8 +4 0 -12 -2 800 -406 +388 700 838 854 600 500 EBITDAF 30 Jun Retail contracted Wholesale Generation spot Cost to supply Net cost of hedges Virtual asset swaps Other market costs Australian energy O

  36. Slide 36: EBITDAF to NPAT

    EBITDAF to NPAT FY20 EBITDAF TO NPAT RECONCILIATION $M 900 800 700 -312 600 500 -20 -84 854 400 -121 300 -161 200 317 +20 +58 -58 100 176 0 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 elect

  37. Slide 37: 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

  38. Slide 38: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin $M 3,000 2,500 2,000 1,266 -1,268 1,500 -218 +9 1,000 531 -227 252 -14 -5 297 500 1,122 499 0 Res, SMB, Agi C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS margins Market costs Energy Margi

  39. Slide 39: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin movement $M 1,500 1,300 +7 +88 +57 -94 +54 0 1,100 -15 -6 -2 -406 +331 900 1,108 1,122 700 Energy Margin Res, SMB, Agi C&I sales Financial Generation Cost to supply Cost to supply Hedging fixed Hedging spot Contract close VAS margins Market costs E

  40. Slide 40: New Zealand energy margin

    New Zealand energy margin 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 40

  41. Slide 41: Australian energy margin

    Australian energy margin 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 41

  42. Slide 42: Funding metrics

    Funding metrics  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 cash  A cas

  43. Slide 43: 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 0 price risk -20 -5 -40 -21 -26  As forward prices and rates on these instruments -60 -80 move, non-cash changes to their carrying v

  44. Slide 44: Income statement

    Income statement 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 44

  45. Slide 45: Underlying NPAT reconciliation

    Underlying NPAT reconciliation 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 45

  46. Slide 46: Cash flow statement

    Cash flow statement 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 46

  47. Slide 47: Balance sheet

    Balance sheet 2 6 A U GUST 2 0 2 0 2 0 2 0 A N N UAL R E S UL TS PR E SEN TATION 47

  48. Slide 48: 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

  49. Slide 49: 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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