Meridian Energy Limited · NZX:MEL
Meridian Energy — FY2017 Earnings Presentation
48 slides from Meridian Energy's earnings presentation, August 2017
Slide 1: It's our future. 2017 Annual Results Presentation
IT’S OUR FUTURE. MERIDIAN ENERGY LIMITED 2017 ANNUAL RESULTS PRESENTATION
Slide 2: Sustainability quote
“That we are a sustainable business is increasingly important to all our stakeholders, and offers significant benefits…” Meridian Energy Limited Annual Results 2017 2
Slide 3: Sustainability is what we do
GENERATION RETAIL MARKETS GROWTH Sustainability STRATEGY is what we do Financial Assets and technology People and expertise Relationships and reputation RESOURCES Natural resources Reliable & affordable VALUE electricity TO Renewable energy VALUE Sustainable shareholder Reduction in NZ’s carbon TO US
Slide 4: FY17 safety and workplace quote
“In FY17 we had no significant harm injuries and…were a category finalist in the IBM Kenexa Best Places to Work survey...” Meridian Energy Limited Annual Results 2017 4
Slide 5: Financial snapshot
Financial snapshot. Dividend Operating declared Underlying cash flow 18.91cps NPAT NPAT $470m $197m $218m 3% higher 4% higher 6% lower NZ energy Aus energy margin EBITDAF margin $938m $653m $75m 0.5% higher Operating Transmission Costs Costs $249m $130m stable Meridian Energy Limited Annual Results 2
Slide 6: Our Markets
OUR MARKETS Meridian Energy Limited Annual Results 2017 6
Slide 7: New Zealand
New Zealand. MOVEMENT IN NATIONAL DEMAND GWH +39 -52 Multiple factors resulting in flat demand +20 SOUTH -66 CANTER- BURY • +Positive macro economic indicators -10% -202 • +Cooler winter temperatures (average) 41.2k +8 • -Lower irrigation load from wet spring and summer 40.9k • Efficiency gains are a c
Slide 8: New Zealand
New Zealand. NZ CONTROLLED STORAGE AND RISK CURVES GWH As at 21 August 2017 Storage is moving away from hydro risk curves1 • Risk curves are low probability outcomes • North Island storage has remained high • After a record dry period, recent South Island inflows are nearer average -2016 Oct-2016 Jan
Slide 9: Australia
Australia. AVERAGE DAILY WHOLESALE SPOT PRICES $/MWh 250 The market remains volatile and uncertain 200 • Finkel review Clean Energy Target 150 unlikely to be adopted in the near future 100 • Thermal retirement combined with 50 domestic gas shortages, as a result of LNG exports, has led to increases
Slide 10: The UK
The UK. First two UK milestones delivered • Electricity and white label milestones delivered on time • nPower soft launch with customer acquisition meeting expectations • Dual fuel milestone in early 2018, followed by full launch • Exploring potential mainland Europe opportunities Meridian Energy Li
Slide 11: Our Operations
OUR OPERATIONS Meridian Energy Limited Annual Results 2017 11
Slide 12: NZ wholesale and generation
NZ wholesale and generation. COMBINED CATCHMENT INFLOWS GWh 83 year average Annual inflows Record low February to June inflows • Dragged a healthy half year storage 13,333 12,902 13,010 position at December 2016 down 12,190 12,455 significantly 10,533 • Resulted in Meridian accessing cover 9,093 under
Slide 13: NZ retail
NZ retail. Despite 4% lower retail sales, segment ICP CHURN % TRADER SWITCH MOVE-IN SWITCH EBITDAF was up 1% 22.2% • 2% irrigation driven decrease in residential and SMB1 sales, 2% average 13.3% price increase 11.7% 12.0% 7.1% 7.1% • 8% decrease in Corporate sales, 2% average price decrease with lar
Slide 14: Australia
Australia. MOVEMENT IN AUSTRALIA SEGMENT EBITDAF $M $5M (17%) increase in EBITDAF ENERGY MARGIN +$7M • Powershop retail sales volume 147GWh -7 +30 -16 (38%) higher at higher average prices -1 -1 • Passed 100,000 customer numbers with a 29% increase during FY17 29 34 • Generation volumes 2% lower, wi
Slide 15: Dividends
DIVIDENDS Meridian Energy Limited Annual Results 2017 15
Slide 16: Dividends
Dividends. +3% TOTAL DIVIDENDS DECLARED TOTAL CPS 4% growth in ordinary dividends declared 18.38 18.91 • Final ordinary dividend declared of 8.70 18.23 cps, 88% imputed • Brings FY17 full year ordinary dividend declared to 14.03 cps, 88% imputed 13.01 • Represents 84% payout of free cash flow 2014 20
Slide 17: Financial Performance
FINANCIAL PERFORMANCE Meridian Energy Limited Annual Results 2017 17
Slide 18: Summary
Summary. Managed dry 2H conditions to report record FY EBITDAF and operating cash flows FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M FY17 FY16 1,013 1,009 653 650 470 452 485 471 249 248 218 233 197 185 130 128 55 59 Energy Trans- Operating Underlying Operating Asset Dividend margin mission costs EBIT
Slide 19: Earnings
Earnings. ENERGY MARGIN $3M (0.4%) increase in EBITDAF from: $1,009M $1,013M • $0M higher business sales, lower agri sales, higher average prices (small $954M increases and mix) $924M $916M • -$19M lower corporate sales at lower average prices • +$35M higher wholesale sales including 2013 2014 2015
Slide 20: Six monthly view
Six monthly view. FINANCIALS 1H 2H YOY CHANGE 1H FY17 2H FY17 $M 42 32 Impact of dry 2H FY17 was significant 7 9 10 9 15 • EBITDAF +6% in 1H FY17 v 1H FY16 -8 -12 -9 -26 • Compared with -5% in 2H FY17 v 2H FY16 -69 • Discretionary generation pullback evident in 2H FY17 physical generation NZ retail W
Slide 21: Costs
Costs. OPERATING COSTS $M Continued cost discipline Retail segment Wholesale Other Australia IPO Costs $246M $248M $249M • Slight operating cost increase $237M $238M $14M $25M $35M $36M $49M $18M • Investment supporting Powershop $44M $44M $40M $42M expansion continues (Flux Federation) $94M $79M $7
Slide 22: Below EBITDAF
Below EBITDAF. NET PROFIT AFTER TAX Higher depreciation and fair value movements $295M • $28M (12%) increase depreciation from $247M FY16 asset revaluations $230M $197M • 1% lower net financing costs $185M • $55M positive change in fair value of treasury instruments from rising forward 2013 2014 2015
Slide 23: Concluding Remarks
CONCLUDING REMARKS Meridian Energy Limited Annual Results 2017 23
Slide 24: Concluding remarks
Concluding remarks. • Slow start to FY18 with lower physical generation and higher acquired generation • Including swaption volumes to mid- August 2017 • Inflows in August 2017 have been above average so far • July 2017 saw NZ sales volumes up 14% across all segments and ICP numbers up 1.2% • FY18 be
Slide 25: Questions
Questions. S% a
Slide 26: Additional Information
ADDITIONAL INFORMATION Meridian Energy Limited Annual Results 2017 26
Slide 27: Segment results
Segment results. 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) WHOLESALE RETAIL AUSTRALIA OTHER/ INTER- UNALLOCATED SEGMENT $M FY17 FY16 FY17
Slide 28: 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) WHOLESALE RETAIL AUSTRALIA OTHER/ INTER- UNALLOCATED SEGM
Slide 29: NZ retail
NZ retail. Customer connections NEW ZEALAND CUSTOMER NUMBERS ICP (000) • 1% increase in ICP numbers since June Meridian North Island Meridian South Island Powershop 2016 272 277 276 275 277 51 55 56 56 59 Residential, SMB, Agri segment 115 114 116 117 115 • 2% decrease in volumes 106 108 104 102 103
Slide 30: Hydrology
Hydrology. MERIDIAN'S COMBINED CATCHMENT INFLOWS Inflows GWh 14,000 • Inflows for the FY17 were 87% of historical 12,000 average 10,000 8,000 • Inflows in the five months between 6,000 February and June 2017 were the lowest 4,000 same period inflows on record 2,000 • July inflows were 93% of average 0 Fin
Slide 31: NZ generation
NZ generation. Volume NEW ZEALAND GENERATION GWh • FY17 generation was 3% lower than FY16 16,000 Hydro Wind 13,148 13,332 13,707 13,315 • Reflected both lower hydro generation 12,071 1,245 1,422 1,456 1,341 12,000 1,153 (2%) and wind generation (8%) 8,000 • Between June and August 2017, Meridian 11,9
Slide 32: FY17 EBITDAF
FY17 EBITDAF. MOVEMENT IN EBITDAF $M +20 -4 -37 +2 +1 +7 -2 -1 +35 -18 650 653 EBITDAF 30 Retail Wholesale Net VAS Net cost of Net spot Other market Australian Other Transmission Employee & EBITDAF 30 Jun 2016 contracted contracted position acquired exposed costs energy revenue expenses other Jun 20
Slide 33: FY17 EBITDAF to NPAT
FY17 EBITDAF TO NPAT. FY17 EBITDAF TO NPAT RECONCILIATION $M -264 -12 653 -77 -82 +12 +2 -21 -14 218 197 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 o
Slide 34: 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 35: NZ energy margin FY17
LWAP:GWAP FY17 1.11 NZ energy margin. FY17 FY16 1.10 FY16 VOLUME1 VWAP2 $M VOLUME1 VWAP2 $M Residential/SMB contracted sales 3,710 3,781 Corporate contracted sales 2,017 2,188 Retail contracted sales 5,727 $106.8 612 5,969 $105.7 630 NZAS sales 5,011 5,024 Sell side CfDs 1,280 1,280 Wholesale contra
Slide 36: NZ energy margin composition
NZ energy margin composition. NEW ZEALAND ENERGY MARGIN $M Contracted sales Spot exposed Net cost of acquired revenue $966M revenue -$23M generation -$4M +4 -97 +96 -5 354 -3 -707 +684 938 612 Retail Wholesale Cost to Meridian Cost of Future Acquired Net VAS Market Energy Contracted Contracted Suppl
Slide 37: FY17 NZ energy margin movement
FY17 NZ energy margin movement. NEW ZEALAND ENERGY MARGIN $M Contracted sales Spot exposed Net cost of acquired revenue +$17M revenue -$37M generation +$20M +59 -96 +1 +35 -18 +4 +27 -4 -11 941 938 Energy Retail Wholesale Cost to Meridian Cost of Future Acquired Net VAS Market Energy Margin 30 Contr
Slide 38: Other revenue
Other revenue. FINANCIAL YEAR ENDED 30 JUNE 2017 2016 2015 2014 2013 $M Retail service revenue (field services etc) 6 6 8 10 8 Arc Innovations - - 3 6 6 Damwatch 2 5 5 5 5 Energy for Industry - - - - 0 Miscellaneous1 11 5 7 2 4 Farming - - 1 3 2 Lease income 0 1 1 1 2 Carbon credits - 0 0 0 3 Total o
Slide 39: Funding
Funding. DEBT MATURITY PROFILE AS AT 30 JUNE 2017 $M Available facilities maturing Drawn debt maturing (face value) • Total borrowings as at 30 June 2107 of 200 $1,192M, down $22M from 30 June 2016 • Net debt1 as at 30 June 2017 of $1,254M, up $86M (7%) from 30 June 2016 22 454 357 213 • Committed b
Slide 40: Funding metrics
Funding metrics. FINANCIAL YEAR ENDED 2017 2016 2015 2014 • Net debt/EBITDAF is the principal metric 30 JUNE $M underpinning S&P credit rating Drawn borrowings 1,158 1,136 991 1,146 • S&P calculation of net debt/EBITDAF Finance lease payable 47 48 52 49 includes numerous adjustments to Operating lea
Slide 41: Fair value movements
Fair value movements. NET CHANGE IN FAIR VALUE OF FINANCIAL • Meridian uses derivative instruments to INSTRUMENTS manage interest rate, foreign exchange 150 and electricity price risk 100 $94M • As forward prices and rates on these 50 $18M instruments move, non-cash changes to 0 -$33M -$21M their ca
Slide 42: Income statement
Income statement. FINANCIAL YEAR ENDED 30 JUNE 2017 2016 2015 2014 2013 $M New Zealand energy margin 938 941 900 891 865 Australia energy margin 75 68 54 33 51 Other revenue 19 17 25 27 30 Energy transmission expense (130) (128) (123) (129) (115) Employee and other operating expenses (249) (248) (23
Slide 43: Underlying NPAT
Underlying NPAT. FINANCIAL YEAR ENDED 30 JUNE 2017 2016 2015 2014 2013 $M Net Profit after tax 197 185 247 230 295 Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges 76 15 1 9 (51) Net change in fair value of treasury instruments (55) 68 32 (27) (43) P
Slide 44: Cash flow statement
Cash flow statement. FINANCIAL YEAR ENDED 30 JUNE 2017 2016 2015 2014 2013 $M Receipts from customers 2,250 2,348 2,348 2,083 2,390 Interest and dividends received 2 2 8 9 2 Payments to suppliers and employees (1,596) (1,723) (1,742) (1,480) (1,812) Interest and income tax paid (186) (175) (174) (179
Slide 45: Balance sheet
Balance sheet. FINANCIAL YEAR ENDED 30 JUNE 2017 2016 2015 2014 2013 $M Cash and cash equivalents 80 118 69 276 383 Trade receivables 260 194 191 183 254 Other current assets 91 94 74 64 129 Total current assets 431 406 334 523 766 Property, plant and equipment 7,961 7,771 7,097 6,929 6,769 Intangib
Slide 46: 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 47: 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 48: Thank you
Thank you.