Meridian Energy Limited · NZX:MEL
Meridian Energy — Investor Day (May 2016)
66 slides from Meridian Energy's investor day presentation, May 31, 2016
Slide 1: Better energy future
Better energy future MERIDIAN ENERGY LIMITED Investor day presentation
Slide 2: Disclaimer
31 MAY 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 th
Slide 3: Owen Hackston – welcome
Owen Hackston– welcome MERIDIAN ENERGY LIMITED Investor day presentation
Slide 4: Today's presentation
31 MAY 2016 Today’s presentation Chis Moller Neal Barclay Chair General Manager Retail Chair’s perspective The retail market Janine Crossley Group Treasury Mark Binns Jason McDonald Manager Chief Executive Head of Sales and Marketing Recent developments Retail detail Paul Chambers Guy Waipara Chief
Slide 5: Chris Moller – Chair's perspective
Chris Moller – Chair’s perspective MERIDIAN ENERGY LIMITED Investor day presentation
Slide 6: Chair's perspective
31 MAY 2016 Chair’s perspective Approaching three years since listing It has been a volatile period with economic uncertainty, political risk, Tiwai decisions, RET indecision, TPM delays Meridian has performed well with a TSR of 106% since listing Which has come from a focus on the performance of ou
Slide 7: Key messages from the Board
31 MAY 2016 Key messages from the Board Listed market scrutiny has bought new focus on costs and capital Strategic focus is right – protecting and growing shareholder value Low growth environment is providing heightened shareholder distributions Pleasing to be able to reward investors’ loyalty Gover
Slide 8: Mark Binns – recent developments
Mark Binns – recent developments MERIDIAN ENERGY LIMITED Investor day presentation
Slide 9: Swaption with Genesis
31 MAY 2016 Swaption with Genesis 4 year contract signed, commencing 1 January 2019 (at conclusion of the current contract) Continues to allow for 100MW to be available year round, with an additional 50MW available from 1 April to 31 October each year Greater flexibility for Meridian and a modest cos
Slide 10: Executive changes
31 MAY 2016 Executive changes Glen McLatchie, General Manager of ICT resigned in December Mark Binns Sandra Pickering (Vodafone) appointed Chief Executive General Manager of ICT, joining in July Ben Burge, CEO of Meridian Energy Australia resigned in January Ed McManus joined the Executive as Neal B
Slide 11: Current operating conditions
31 MAY 2016 Current operating conditions Westerly weather patterns have seen NATIONAL DEMAND GWh warm, wet and windy conditions in May 3,800 3,600 1m of rain at Manapōuri in 10 days 3,400 (record inflow) 3,200 3,000 Lakes are full in both catchments, with 2,800 spilling in the last two weeks 2,600 Ja
Slide 12: Other items of (continued) interest
31 MAY 2016 Other items of (continued) interest Transmission pricing proposal is a positive Beneficiaries-pay approach is fairer, more durable and simpler Still only a consultation paper, final decision expected by December 2017 The EA’s modelled impacts are only indicative Details of implementation w
Slide 13: Paul Chambers – Meridian's strategy
Paul Chambers – Meridian’s strategy MERIDIAN ENERGY LIMITED Investor day presentation
Slide 14: Meridian's approach to strategy
31 MAY 2016 Meridian’s approach to strategy We start with a very simple view of the outcomes we want Protection of shareholder value Managing disruptive risks Protecting earnings Long-term business sustainability Growth in shareholder value Improving comparative performance Investing in markets and
Slide 15: Requires investment in understanding and analysis
31 MAY 2016 Requires investment in understanding and analysis Market Meridian’s Political & social Technology performance performance pressures changes Global Customer Competitor changes trends trends MERIDIAN ENERGY LIMITED Investor day presentation 15
Slide 16: There are a lot of shiny pebbles out there
31 MAY 2016 There are a lot of shiny pebbles out there Electric Domestic Grid scale Domestic & vehicles batteries batteries industrial solar Grid scale P2P business Hydrogen Marine Hot solar models fuels generation rocks Only a few shiny pebbles will be made of gold MERIDIAN ENERGY LIMITED Investor
Slide 17: How we focus on what is material to shareholder value
31 MAY 2016 How we focus on what is material to shareholder value Maintaining an Protecting and open market in maximising our which we can generation asset compete and wholesale effectively position Better energy future Developing Growing retail value opportunities by making things for earnings easy
Slide 18: Maintaining an open market in which we can operate effectively
31 MAY 2016 Maintaining an open market in which we can operate effectively Political pressures and regulatory change can seismically influence value The best long-term results for shareholders and customers are delivered in an open market Recent progress Transmission pricing second issues paper confir
Slide 19: Protecting and maximising our generation asset and wholesale position
31 MAY 2016 Protecting and maximising our generation asset and wholesale position 90% of Meridian’s value comes from its generation assets Recent progress Waitaki allocation plan close to confirming additional flexibility of water use and better backdrop to future re-consenting Delivering a stay-in-bu
Slide 20: Growing retail value
31 MAY 2016 Growing retail value Our industry only exists because customers need power Customer expectations are changing fast We have a significant opportunity to improve relative performance Recent progress Performance drivers are improving – moderate price increases achieved, overdue debt being re
Slide 21: Developing opportunities for growth
31 MAY 2016 Developing opportunities for growth Meridian has strengths that can be profitably leveraged Without specific focus the size of core earnings can obscure opportunities Recent progress Best New Zealand generation options have had consents and land agreements extended into 2020’s Economics of
Slide 22: Grant Telfar – New Zealand demand growth and energy supply options
Grant Telfar – New Zealand demand growth and energy supply options MERIDIAN ENERGY LIMITED Investor day presentation
Slide 23: Recent demand growth
31 MAY 2016 Recent demand growth Since July 2014: 1,300GWh incremental demand .&--- .-'-6 growth )!# !"/-.1* 3-- 3'-6 1.1% demand growth over the last 2-- 2'-6 year 2.6% demand growth over the last 0-- 0'-6 financial year /-- /'-6 All regions have shown growth - ( except Southern Auckland and the ""
Slide 24: Future demand growth
31 MAY 2016 Future demand growth Future demand growth is uncertain in scale but will increase with a growing #! && '' population and a growing economy: ! Our ability to explain past demand growth is acceptable given ! uncertainties inherent in the economy Past and future demand growth are #! primari
Slide 25: Generation mix, demand growth & energy surplus
31 MAY 2016 Generation mix, demand growth & energy surplus The generation mix in NZ has changed New Zealand Electricity Generation History & Forecast markedly over time. Recently: Annual Generation in New Zealand - 1969 to 2016 plus Forecast Committed Generation to 2030 Since the late 1990’s strong
Slide 26: New generation options and costs
31 MAY 2016 New generation options and costs NZ is well positioned to deliver a range of .311< .451< new generation options at similar costs: .311 % ! ) ) *51;!+ *66;!+ ! .281 $70-$120/MWh range, mostly .271 renewable .251 #!"$ Some supporting gas .231 ! .211 3*.61+ 3*.36+ .81 Sufficient depth of qual
Slide 27: New technologies update - solar
31 MAY 2016 New technologies update - solar Grid Solar PV in Australia: Increasing capacity factors to &*.) 28-30% &*+. Cost decline continues Some eye-opening recent projects: &*)) + .5"0 .5 Clare @ $80/MWh PPA; no subsidies &0. . )5 " #-) +1 .5$ Close to competitive with wind now #*)+ +. 05$ #., +
Slide 28: New technologies update - batteries
31 MAY 2016 New technologies update - batteries Residential batteries: Costs are more expensive than first %*(((( )* %)-((( suggested in mid 2015 )( %),((( Data puts Tesla Powerwall at > $10K %)+((( AUD - %)*((( Additional battery products %)(((( , launched in NZ & AUS giving " # " # %-((( competitio
Slide 29: New technologies update - batteries
31 MAY 2016 New technologies update - batteries Value of storage within the power system: NZ has significant existing grid storage Distribution & transmission costs savings are available via demand- side application BUT lines are comparatively cheap to build, last longer and have better reliability F
Slide 30: New technologies – what it means for New Zealand
31 MAY 2016 New technologies – what it means for New Zealand The greening of the power system: NZ Renewable Generation Share We explore resilience to possible Wholesale Market Outlook #17d - Thermal Closure; Smelter Open; Battery and Solar Sensitivities 90% green outcomes 85% Via a fundamentals base
Slide 31: New technologies – what it means for New Zealand
31 MAY 2016 New technologies – what it means for New Zealand Electricity decarbonisation has limits with current technology: PV generation largely displaces other new renewable generation options The need for thermal-hydro swing and gas turbine profitability makes lowering emissions in a more signific
Slide 32: Neal Barclay – the retail market
Neal Barclay – the retail market MERIDIAN ENERGY LIMITED Investor day presentation
Slide 33: The recipe for retail success involves a lot of steps
31 MAY 2016 The recipe for retail success involves a lot of steps Deep understanding of the customer is essential Frictionless end-to-end customer experience is being demanded Retailers are high volume businesses dealing with significant complexity – internal optimisation and alignment is essential “
Slide 34: Growth in retail customer numbers
31 MAY 2016 Growth in retail customer numbers The retail market is very competitive 35 Number of Retailers with market entry relatively easy 30 There are more ways to participate in 25 the electricity market beyond the 20 traditional retailer model 15 Increase in less-regulated 10 intermediaries (br
Slide 35: Price is still the number one lever – especially for residential
31 MAY 2016 Price is still the number one lever – especially for residential MERIDIAN ENERGY LIMITED Investor day presentation 35
Slide 36: Middle tier retailers are the movers, with new entrants beginning to feature
31 MAY 2016 “Middle tier” retailers are the movers, with new entrants beginning to feature Jan 07 Market acquisition - by retailer groups* Jul 07 Oct 07 Apr 06 Apr 08 Apr 14 Jul 06 Oct 06 Jul 08 Jul 14 Jan 16 Jan 08 Jan 14 Apr 07 Oct 08 Oct 14 Jul 15 Jan 15 Oct 15 Apr 10 Apr 11 Jul 10 Jan 10 Jul 11
Slide 37: The consequence – market switching remains strong
31 MAY 2016 The consequence – market switching remains strong and is expected to continue Market switching rates will continue at Relative market losses - Meridian vs market the recent high levels Meridian Retail loss rates are lower than market, driven by: Market switching very North Island heavy a
Slide 38: Switching activity drives significant internal activity
31 MAY 2016 Switching activity drives significant internal activity… Breakdown of gains and losses FY15 222,000 220,500 -1,500 net change Opening cust Customers moving out Move outs retained New customers Losses direct to other Gains direct from Closing cust connections moving retailers other retail
Slide 39: Above the line marketing and promo costs
31 MAY 2016 ….and “above the line” marketing and promo costs.… $18.9m $29.7m ~$34.2m* FY14 FY15 FY16* Source: TVmap /Nielsen Media Research *Note: FY16 is an annualised view of the 9 months to date in FY16 MERIDIAN ENERGY LIMITED Investor day presentation 39
Slide 40: Not very aligned to changes in market position
31 MAY 2016 …and not very aligned to changes in market position Change Change in Customer Connections 500,000 450,000 -30k -28k 400,000 350,000 -42k 300,000 +96k 250,000 +39k -2k 200,000 150,000 100,000 +23k 50,000 Genesis Other Contact Meridian TrustPower Nova Mercury 0 Nov-14 Aug-14 Mar-16 Mar-14
Slide 41: Meridian's retail brand is a strong platform
31 MAY 2016 Meridian’s retail brand is a strong platform With market share Market Share Unprompted Brand Awareness by Retailer at time less than our peers – 55% 22% we punch above our weight in terms of 11% 50% brand awareness 22% 45% 16% 40% 35% 11% 30% 25% 20% Nov-14 Mar-14 Jul-11 Sep-14 Mar-15 No
Slide 42: Jason McDonald – retail detail
Jason McDonald – retail detail MERIDIAN ENERGY LIMITED Investor day presentation
Slide 43: Customers' needs can be disarmingly simple
31 MAY 2016 Customers’ needs can be disarmingly simple and are at the forefront of product and service design Residential Business Trusted and reliable brand Reputation for excellent Easy to sign-up service Good pricing plans Pricing plans to suit needs Compelling join offers Speed of connection Envi
Slide 44: Specific focus areas in each of our four segments
31 MAY 2016 These are delivered by specific focus areas in each of our four segments…. Agribusiness Small-medium business Current Market leadership position having focused heavily Current Small-medium business market is difficult to situation on growth over last three years. Significant situation acces
Slide 45: Meridian's portfolio is weighted into the business segments
31 MAY 2016 Meridian’s portfolio is weighted into the business segments Market share holding overall with Residential and Business Market Share business growth largely replacing 28% residential loss 26% 24% 22% Business Growth 20% Focus on business segments 18% through ongoing use of our Corporate L
Slide 46: Meridian is weighting portfolio into the business segments
31 MAY 2016 Meridian is weighting portfolio into the business segments Total monthly load Residential load 700,000 decreasing but overall Res SME C&I TOU 600,000 load slightly up due to move into higher 500,000 consuming business 400,000 segments 300,000 200,000 100,000 - Dec-14 Sep-14 Feb-16 Feb-14
Slide 47: Acquisition channel efficiency is a key driver of value and retention
31 MAY 2016 Acquisition channel efficiency is a key driver of value and retention 7,000 Telesales 3rd Party Channels Other Online Energy Centre 6,000 Reduction in reliance on 3rd 5,000 party door-to-door and 4,000 Telesales 3,000 Rise in online acquisition 2,000 Inbound contact centre 1,000 efficiency
Slide 48: Excellent service investment programme
31 MAY 2016 In Year 2 of a 4 year investment programme to target customer pain points and new services Complete In Progress Planned Mobile responsive website On-boarding step change Marketing automation Easy to Optimised online join Join Direct Sales Team Knowledge rationalisation Enhanced email han
Slide 49: Paul Chambers - Powershop
Paul Chambers - Powershop MERIDIAN ENERGY LIMITED Investor day presentation
Slide 50: Powershop New Zealand
31 MAY 2016 Powershop New Zealand MERIDIAN ENERGY LIMITED Investor day presentation 50
Slide 51: Powershop New Zealand
31 MAY 2016 Powershop New Zealand Customer satisfaction continues to exceed 90%, net promoter score of 47.7 Recent focus has been on industrialising processes for use at scale Supports growth in Australia and expansion into the UK Market share is being maintained on low marketing spend Focus is now
Slide 52: Powershop Australia
31 MAY 2016 Powershop Australia Growing business with strong sources of competitive advantage: Customer control Renewable profile Fair pricing Differentiated service MERIDIAN ENERGY LIMITED Investor day presentation 52
Slide 53: Powershop Australia
31 MAY 2016 Powershop Australia High quality service experience: Carbon neutral accreditation (National Carbon Offset Standard) Most satisfied customers in Victoria (Canstar Blue) Greenest electricity retailer (Greenpeace) Best energy company for service (ServiceRage) 94% overall satisfaction (call ce
Slide 54: Powershop Australia
31 MAY 2016 Powershop Australia Acquisition rates: POWERSHOP AUSTRALIA CUSTOMERS FRMP (000) 80 74k customers at end of April 16 Similar acquisition rates in both 60 Victoria and NSW 40 71 64 56 48 20 35 Improving earnings contribution 28 22 13 6 0 Past the customer numbers needed Mar-14 Jun-14 Sep-1
Slide 55: Powershop Australia
31 MAY 2016 Powershop Australia The market opportunity in Australia is significant: Powershop has 2% market share of the 2.7m customers in Victoria Equivalent to Pulse Energy’s market share in NZ Powershop has 0.6% market share of the 3.4m customers in NSW Equivalent to Flick Energy’s market share in
Slide 56: npower agreement
31 MAY 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 offerings
Slide 57: npower agreement
31 MAY 2016 npower agreement npower is one of the ‘big six’ UK suppliers 3.5 million customers, 12% market share Low customer satisfaction and a recent IT upgrade failure has npower pursuing a differentiated offer View Powershop as a different way of engaging customers Part of RWE group which has 16 mi
Slide 58: Guy Waipara – transmission pricing
Guy Waipara – transmission pricing MERIDIAN ENERGY LIMITED Investor day presentation
Slide 59: Transmission pricing
31 MAY 2016 Transmission pricing EA has proposed changes to the Transmission Pricing Methodology (TPM) Key components: Connection charge: largely same as current (~$130m p.a.) Area-of-benefit (AoB) charge: adopts a beneficiaries-pay approach to recovering costs of large existing and new assets (~$300m
Slide 60: Transmission pricing
31 MAY 2016 Transmission pricing Proposal in line with the key principles Meridian has advocated: Consistent treatment of HVDC Beneficiaries-pay basis EA’s indicative modelling: Meridian’s 2019 charge would reduce from $97m to $39m However final decision still pending and implementation details to com
Slide 61: Guy Waipara – hydro risk and Manapōuri
Guy Waipara – hydro risk and Manapōuri MERIDIAN ENERGY LIMITED Investor day presentation
Slide 62: Managing hydro risk
31 MAY 2016 Managing hydro risk ILLUSTRATIVE QUARTERLY BOW TIE Meridian has a wide toolbox to manage Energy Margin hydro and revenue variability risk P95 Minimum 5th-95th percentile spread Vertical integration limits exposure to spot P75 prices Mean Wind at 10% of our portfolio provides a P25 degree
Slide 63: The Waitaki chain
31 MAY 2016 The Waitaki chain Meridian’s six stations on the Waitaki deliver over 50% of the company’s generation Block dispatched with optimisation of the chain achieved within a range of constraints (resource consents and operational) Pūkaki is Meridian’s and NZ’s largest storage lake (1,750 GWh,
Slide 64: The Waiau catchment
31 MAY 2016 The Waiau catchment Te Anau and Manapōuri lakes are relatively small at 440 GWh when full Lakes can be filled in one significant rainfall event so they are typically cycled through the high to low range every 4-6 weeks Relatively consistent year round inflows of 5,430 GWh on average The Lak
Slide 65: Manapōuri power station
31 MAY 2016 Manapōuri power station Operates within a National Park and World Heritage site Took 1,800 workers 8 years to tunnel 10 kms (drill and blast) 16 men lost their lives during construction Second tailrace tunnel was completed in the 5 years to 2002 (machine boring). Exceptional value to Mer
Slide 66: Thank you
Thank you MERIDIAN ENERGY LIMITED Investor day presentation