Meridian Energy Limited · NZX:MEL
Meridian Energy — H1 FY2012 Earnings Presentation
36 slides from Meridian Energy's earnings presentation, Feb 16, 2012
Slide 1: Interim Result Presentation
Interim Result Presentation For the six months ended 31 December 2011 MERIDIAN ENERGY LIMITED 2011 ANNUAL RESULTS – 30 JUNE 2011 23 AUGUST 2011 16 February 2012 PAGE 1
Slide 2: Disclaimer
Disclaimer This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking stat
Slide 3: Influences on Performance
Influences on Performance Quarterly Inflows - Waitaki Catchment • Challenging trading conditions 5,000 4,500 4,541 4,000 – Extended periods of below average inflows 3,482 4,038 3,500 3,000 GWh 2,500 2,632 2,342 2,000 – Transmission outages supporting the HVDC 2,036 1,500 1,000 500 upgrade Q1 Q2 Q1 Q
Slide 4: Financial Performance
Financial Performance • Underlying Net Profit After Tax (NPAT) declined on last year by 20%, while EBITDAF* fell 17% – Tekapo generation included in last year – One-off NZAS settlement received last year • Adjusting for the above, underlying NPAT improved 13% Benmore Hydro Station, recently upgraded
Slide 5: Key Achievements
Key Achievements • 13% growth in underlying profitability from Retail operations • Retail ICPs* increased by 4% • Powershop and Meridian ranked first and second in Meridian grew ICP numbers by 4% in Consumer NZ survey the last six months • First turbines erected at 420MW Macarthur wind farm • Mill C
Slide 6: Financial Summary
Financial Summary $ millions Dec ‘11 Dec ’10 % Change June ‘11 Net Energy Revenue 422.3 483.8 (13%) 923.6 Other Revenue including International 25.9 26.3 (1%) 60.5 Transmission (HVDC and ancillary charges) (39.8) (41.8) 5% (86.1) Employee & Other Operating Expenditure (114.1) (114.9) 1% (238.1) EBIT
Slide 7: EBITDAF drivers
EBITDAF drivers • One-off impacts of lost generation revenue from the Tekapo hydro stations ($23.4 million net of operating costs) and proceeds from the NZAS settlement received last year ($28.1 million net of legal costs) • Adjusting for these impacts EBITDAF was 2% below last year • Low inflows du
Slide 8: Uncontracted Generation
Net Energy Revenue (Energy Margin) Waterfall 500 -28.1 450 -29.7 +29.5 -23.8 +3.4 -19.1 +10.8 $ Millions 400 -4.6 483.8 426.0 422.3 350 300 NZAS Settlement Tekapo Revenue Distribution Costs NZAS Sales Hedge Margin Uncontracted Generation Other Net Energy Revenue Dec Adjusted Net Energy Retail Sales
Slide 9: Net Energy Revenue (Energy Margin) – Key drivers
Net Energy Revenue (Energy Margin) – Key drivers • Retail contracted sales improved reflecting Powershop growth, portfolio changes (location and segment mix) and price increases • Customer growth, change of mix and network company price movement have driven distribution cost increases • Pricing of t
Slide 10: Storage, Inflows and Price
Storage, Inflows and Price • Storage for large periods of the first half was below historical average, leading to storage conservation by South Island generators • Record low inflows into lakes in the Waiau catchment (36% of mean) in December required draw down of Waitaki storage • The impact of hyd
Slide 11: New Zealand Generation
New Zealand Generation • Production fell 614GWh from last year – Sale of the Tekapo hydro stations on 1 June 2011 (570GWh in last year) – Periods of conservative water use driven by hydrology conditions – Transmission outages relating to HVDC upgrade – Continued flat demand • Wind generation grew by
Slide 12: Operating Expenditure
Operating Expenditure • Continued focus on cost management • Cost pressures will continue as we grow, refine and defend our retail customer portfolio in a highly competitive environment • Addition of new generation adds to our maintenance costs, this increased cost has been offset by costs previousl
Slide 13: EBITDAF to NPAT Waterfall
16 February 2012 9.2 NPAT Notional Taxation on Fair Value +31.7 9 Movements +0.4 Other -8.3 Non-cash Impairments -113.5 Fair Value Mvmt's on Financial Instruments 98.9 Underying NPAT -30.0 Taxation EBITDAF to NPAT Waterfall -0.4 Other -5.8 Premiums on Electricity Options Meridian Energy Limited Inte
Slide 14: Fair Value Movements – Treasury Derivatives
Fair Value Movements – Treasury Derivatives • Meridian uses interest rate swaps to manage long-term average cost of borrowings • Declining interest rate swap curves to historical low positions has lead to large non cash fair value movements • Accounting standards do not currently permit hedge accoun
Slide 15: Funding
Funding • Maintained Standard & Poor’s A2, BBB+ (stable outlook) credit rating • Cash and undrawn debt facilities of $722m (cash $173m) as at 31 December 2011 • Successfully closed out Syndicated Facility Agreement for project financing of Meridian’s debt portion (AU$386 million) in Macarthur wind f
Slide 16: Capital Investment
Capital Investment • Investment spend for 2012 is largely construction of the 420MW Macarthur wind farm • Macarthur investment is ~$A500m (of which 70% is funded from project finance) • Once completed in early 2013, this investment will lift EBITDAF by approximately $A60m per annum in its first full
Slide 17: Improved Retail Performance
Improved Retail Performance • 10% increase in revenue - from customer growth, change in mix and price increases • Removing purchase price volatility, EBITDAF improved by 13% against the same period last year • Customer segment and regional mix changing, 5% increase of North Island ICPs as we continu
Slide 18: Customer Satisfaction Converted to Growth
Customer Satisfaction Converted to Growth • Strong customer satisfaction results, as measured externally • ICP growth of 4% from 30 June 2011, market share has increased from 14.2% to 14.8% • Powershop increased its customer base by 25% from June 2011 – ranked 1st in the annual Deloitte Technology F
Slide 19: Future Investment
Future Investment • Meridian has a strong pipeline of renewable generation options in wind and hydro at various stages of development – Mill Creek and Central Wind investment ready • Meridian applies a disciplined approach to investment decisions • We expect medium to long-term NZ demand growth to r
Slide 20: Outlook for the Full Year
Outlook for the Full Year • Continued subdued demand as a result of sluggish economy • We enter the second half with dry conditions in our major storage catchments • Following record low inflows in our Southland catchments in December, we saw record low inflows into the Waitaki catchment in January
Slide 21: Growth Opportunities
Growth Opportunities • Quality of generation pipeline backed by robust investment disciplines • Evaluating best timing for our next two, highly competitive, options • Improving Retail financial performance • Earnings upside in the core business from long term wholesale price path and new NZAS contra
Slide 22: Additional Information
Additional Information
Slide 23: Income Summary
Income Summary $ millions Dec ‘11 Dec ‘10 % Change June ‘11 Energy and Related Services Sales 1,219.6 1,086.8 12% 2,032.8 Other Revenue 3.6 7.6 (52%) 20.2 Total Group Operating Revenue 1,223.2 1,094.4 12% 2,053.0 Energy Related Costs (559.5) (394.0) (42%) (703.3) Energy Transmission, Distribution (2
Slide 24: Balance Sheet
Balance Sheet $ millions Dec ‘11 Dec ‘10 % Change June ‘11 Cash and Cash Equivalents 173.0 53.7 222% 368.2 Accounts Receivable and Prepayments 267.5 274.5 (3%) 240.9 Other 25.6 664.8 (96%) 18.1 Current Assets 466.1 993.0 (53%) 627.2 Property, Plant and Equipment 7,816.8 7,669.8 2% 7,720.8 Other 144.
Slide 25: Statement of Corporate Intent (SCI)
Statement of Corporate Intent (SCI) Statement of Corporate Intent (SCI) Financial Measures Target Dec ‘11 Dec ‘10 June ‘11 Equity to Total Assets 58.5% 58.0% 59.6% 58.3% Return on Average Equity 3.9% 4.6% 2.5% 6.1% Underlying Return on Average Equity (excl. Revaluations) 16.0% 16.2% 21.5% 18.5% Unde
Slide 26: Retail Segment Performance
Retail Segment Performance $ millions Dec ‘11 Dec ‘10 % Change June ‘10 Retail Revenue 583.8 532.5 10% 1,038.5 Energy Related Expenses (344.4) (238.0) (45%) (438.8) Distribution (199.0) (175.2) (14%) (347.5) Employee and Other Operating Expenses (38.2) (32.1) (19%) (66.8) Direct EBITDAF 2.2 87.2 (97
Slide 27: Wholesale Segment Performance
Wholesale Segment Performance $ millions Dec ‘11 Dec ’10 % Change June ‘11 Wholesale Revenue 614.9 533.3 15% 952.3 Wholesale Electricity Expenses (208.4) (147.6) (41%) (246.9) Transmission Expenses (55.3) (56.1) 1% (102.4) Employee and other Operating Expenses (32.5) (32.9) 1% (67.2) Direct EBITDAF
Slide 28: International Segment Performance
International Segment Performance $ millions Dec ‘11 Dec ‘10 % Change Jun ‘11 International Revenue 11.9 10.8 10% 21.8 Energy Related Expenses (0.3) (0.2) (50%) (0.5) Transmission (1.0) (1.0) - (1.9) Employee and Other Operating Expenses (5.2) (4.9) (6%) (11.4) Direct EBITDAF 5.4 4.7 15% 8.0 Corpora
Slide 29: Other Segment Performance
Other Segment Performance $ millions Dec ‘11 Dec ‘10 % Change Jun ‘11 Other Segment Revenue 12.7 17.6 (28%) 36.5 Energy Related Expenses (6.3) (8.3) 24% (17.1) Electricity Transmission and Distribution - - - 0.2 Employee and Other Operating Expenses (5.8) (11.1) 48% (21.7) Direct EBITDAF 0.6 (1.8) -
Slide 30: Health & Safety
Health & Safety • Health & Safety remains a top priority as we strive to achieve zero harm • Lost-Time Injury Frequency Rate well below the industry average Annual Industry Health & Safety Metrics Target Dec ‘11 June ’11 Dec ‘10 Average Number of Lost Time Injuries nil 2 3 2 NA Lost Time Injury Freq
Slide 31: New Zealand Generation Pipeline
New Zealand Generation Pipeline Development Option Stage Capacity New Zealand Development Pipeline Central Wind Investment ready 120MW Maungaharuru Consent held 94MW Mill Creek Consent held 60MW Mt Munro Consent Application Lodged 60MW Hurunui Consultation 76MW Pukaki (Gate 18) Hydro Consents held 3
Slide 32: International Generation Pipeline
International Generation Pipeline Development Option Stage Capacity Construction Macarthur, Victoria, Australia (50-50 joint venture with AGL Energy) 420MW Mt Mercer, Victoria, Australia Preconstruction design 130MW Jacobs Corner, California, USA Feasibility 20-60MW San Luis, Colorado, USA Investiga
Slide 33: Contract Position
Contract Position Difference between volume generated and volume purchased to support electricity sales Net Contract Position Difference between volume generated and volume purchased to support electricity sales Interim 2012 -1% 39% 25% 25% 2011 36% 5% 24% 22% 2010 34% 0% 26% 18% 2009 -1% 33% 30% 23
Slide 34: LWAP to GWAP
LWAP to GWAP 6 Month to 31 Dec 2011 6 Months to 31 Dec 2010 Full year June 2011 South Island North Island South Island North Island South Island North Island TWAP at BEN2201, OTA2201 76.99 81.14 49.63 55.65 39.27 54.98 GWAP / TWAP 1.00 0.88 1.02 0.86 1.04 0.83 LWAP / TWAP 1.05 1.01 1.14 1.03 1.12 0.
Slide 35: Plant Performance
Plant Performance Annual Plant Performance Metrics Target Dec ‘11 Dec ‘10 June ‘11 Plant Availability - Hydro 93.3% 93.6% 93.4% 93.1% Plant Availability - Wind 96.3% 97.3% 97.5% 96.6% Forced Outage Factor 0.35% 0.17% 0.22% 0.18% • Continued strong performance on asset management with performance met
Slide 36: Segment Reporting and Overhead Allocation
Segment Reporting and Overhead Allocation • We view the business from the perspective of three reportable segments, being Wholesale, Retail and International Meridian Segment Composition New Zealand Wholesale Retail International Other Segments Unallocated Wholesale Meridian Retail Australia Energy