Meridian Energy Limited · NZX:MEL

Meridian Energy — H1 FY2020 Earnings Presentation

47 slides from Meridian Energy's earnings presentation, Feb 26, 2020

  1. Slide 1: 2020 Interim Results Presentation

    2020 Interim Results Presentation 26 FEBRUARY 2020

  2. Slide 2: Progress on strategy

    Progress on strategy 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 2

  3. Slide 3: Progress on strategy

    Progress on strategy 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 3

  4. Slide 4: Financial performance

    Financial performance 26 FEBRU ARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 4

  5. Slide 5: Dividends

    Dividends  Interim ordinary dividend declared of 5.70 cps, Interim dividend declared CPS Ordinary dividend Special dividend Total 86% imputed, unchanged from 1H FY19 10  Capital management interim special dividend 9 8.14 8.14 7.54 7.77 7.82 of 2.44 cps, unimputed 8 7 2.44 2.44  Capital management

  6. Slide 6: New Zealand energy margin

    New Zealand energy margin  Customer and sales volume growth across all New Zealand energy margin movement $M Physical Financial segments 700 +$94M -$5M  Mass market average price flat, upward price +8 pressure in corporate 600 +49 -67 +65 -3 -1 +92  Financial contract, spot generation and +30 -85

  7. Slide 7: New Zealand customers

    New Zealand customers  5% sales volume growth in residential and Customer sales Customer numbers Sales volume Average price (ICPs) (GWh) ($/MWh) 10% in small medium business while 1H FY20 maintaining average sales price Residential 205,712 801  Residential, business, agri revenue increased Small m

  8. Slide 8: New Zealand generation

    New Zealand generation NZ average generation price $/MWh 150 124 93 101  Record levels of hydro and wind generation 100 57 for a first half financial year 44 50  Major flood event in early December 2019 0 lifted Meridian’s 1H FY20 inflows to 136% of 2015 2016 2017 2018 2019 Six Months ended 31 Dec

  9. Slide 9: Australian customers

    Australian customers  Electricity and gas customer growth in all Powershop Australia net customer changes 5,500 states and white label channels electricity gas  Reported average electricity sales price 4,500 decline reflects higher amounts paid to 3,500 customers for solar export  Average gas sal

  10. Slide 10: Australian energy margin

    Australian energy margin  Electricity and gas sales have lifted physical Australian energy margin movement $NZ M Physical Financial margin 90 -$7M +$6M  Drought conditions and wind farm availability 80 +10 -11 impacted total generation, 13% lower than 1H 70 +6 -12 +19 -13 FY19 60 50  Higher net f

  11. Slide 11: Operating costs

    Operating costs  Operating costs 6% higher in 1H FY20 Operating costs Total 31 December 2019 $143m $M Total 31 December 2018  Ōhau refurbishment programme expanded, 60 2019 $135m 2018 now $75M (multi-year opex and capex) and 48 50 allows a 10-year deferral of other works 50 49  Growth in Flux UK

  12. Slide 12: EBITDAF

    EBITDAF  Record level of 1H FY20 EBITDAF1, +20% on 1H FY19 supported by higher customer sales Group EBITDAF movement $M  Higher asset maintenance/refurbishment costs 500 and lower Australian generation -1 0 -3 -8  Transmission costs include $5M Clutha Upper +88 Waitaki Lines Project support 400 

  13. Slide 13: Below EBITDAF

    Below EBITDAF  15% increase in depreciation from June 2019 revaluation (+$1B) Underlying npat $M Interim Final half-year Total  $6M decrease in NPBT1 from fair value of 400 electricity hedges from changing forward 333 electricity prices ($20M increase in 1H FY19) 300  $6M increase in NPBT from fa

  14. Slide 14: Markets and regulation

    Markets and regulation 26 FEBRU ARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 14

  15. Slide 15: New Zealand wholesale prices

    New Zealand wholesale prices Otahuhu ASX futures price settment $/MWh 220  Wholesale electricity market continues to price 180 in gas supply concerns 140  Notably OMV’s January 2020 announcement 100 of further, unplanned issues with Pohokura 60 supply Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2018 2019 201

  16. Slide 16: New Zealand demand

    New Zealand demand  Demand growth of 1.3% in 2019 Annual electricity consumption (excl. agri) TWh  Continuing trend of annual increases in 39 demand (excluding agricultural)  Agricultural load (2.5TWh) reasonably flat 38 37.6 37.7 annual consumption with variable seasonal 37.2 37.3 37.2 37.0 usag

  17. Slide 17: Renewable development

    Renewable development  Harapaki windfarm investment decision expected by the middle of 2020  Access to lower Lake Pukaki storage (to 513.0m), providing 367GWh of additional storage  Early stage development licenses purchased for a new 115MW wind farm in northern NSW  Hume 20MW battery storage pr

  18. Slide 18: New Zealand policy and regulation

    New Zealand policy and regulation EPR Electricity Price Review key recommendations within 3 within 12 within 18 in 3 years  Final Report of the Electricity Price Review months months months and Government’s response released in End Prompt Mandatory ASX Generator- Further review October 2019 Payment

  19. Slide 19: New Zealand policy and regulation

    New Zealand policy and regulation Zero Carbon Bill  Passed into law as part of the Climate Change Response Act  Sets a 2050 emissions target of net zero greenhouse gases, excluding methane  Establishes a Climate Change Commission Emissions Trading Reform Bill  Brings agriculture emissions into t

  20. Slide 20: New Zealand policy and regulation

    New Zealand policy and regulation Action for Healthy Waterways  The Government’s proposals for water reform, prioritising the health of waterways  RMA changes to speed up water planning processes and set national standards  A new National Policy Statement for Freshwater Management  Six large hyd

  21. Slide 21: Rio strategic review

    Rio strategic review  In October 2019, Rio Tinto announced a strategic review of the Tiwai smelter  Rio Tinto have indicated the review will consider all options, including curtailment and closure  The review is expected to be completed by the end of the first quarter in 2020  Meridian has offer

  22. Slide 22: Clutha Upper Waitaki Lines Project

    Clutha Upper Waitaki Lines Project  Agreement reached with Transpower to support recommencement of Clutha Upper Waitaki Lines Project  Projects 1-2 have been completed 4  Projects 3-5 were previously on hold pending a smelter exit 1  Should see lower South Island 5 transmission constraints allev

  23. Slide 23: Flux

    Flux  Now supports 400,000 customers across 3 geographies  Terms agreed with npower to add an additional 200,000 customers by end of 2020  55,000 Meridian customers migrated from legacy systems at end of January 2020 Source: NZX, Meridian 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 23

  24. Slide 24: Closing comments

    Closing comments  1H FY20 result had market and weather tailwinds, however execution was excellent  Customer growth in all geographies  New Zealand gas market remains tight, with further field outages in 2020  Solid January 2020 operating result  HVDC outages are constraining discretionary gene

  25. Slide 25: Additional information

    Additional information 26 FEBRU ARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 25

  26. Slide 26: Debt and funding

    Debt and funding  December 2019 total borrowings of $1,557M Debt maturity profile as at 31 December 2019  Committed bank facilities of $665M, of which $M Available facilities maturing $525M were undrawn 900 Drawn debt maturing (face value) 800  $170M of commercial paper issued on an 700 uncommitt

  27. Slide 27: Capital expenditure

    Capital expenditure  Consistent level of stay in business capex Stay in business capital expenditure $M Interim Final half-year Total  Largely consists of system and generation 80 asset enhancement spend 60  Total capex for 1H FY20 of $32M 50 48 47 48  Expecting FY20 Group capex of between 40 25

  28. Slide 28: Segment results

    Segment results  Flux Federation and Powershop UK included in ‘other and unallocated’ segment 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 28

  29. Slide 29: New Zealand retail

    New Zealand retail New Zealand customer connections Customers ICP (000) 400 Meridian North Island Meridian South Island Powershop Total  4% increase in customers since June 2019 275 291 302 314 277 82 300 66 74 56 59 119 119 120 117 115 Residential, business, agri segment 200  5% increase in resid

  30. Slide 30: New Zealand hydrology

    New Zealand hydrology MERIDIAN'S COMBINED CATCHMENT INFLOWS Inflows GWH 9,000  1H FY20 inflows were 136% of average 8,000 7,000  January 2020 inflows were 71% of average 6,000 5,000 4,000 3,000 Storage 2,000 1,000  Meridian’s Waitaki storage 31 December 2019 0 Financial 2006 2007 2008 2009 2010 2

  31. Slide 31: New Zealand generation

    New Zealand generation New Zealand generation Volume GWH Hydro Wind Total 8,000  1H FY20 generation was 10% higher than 1H 7,000 6,858 7,029 733 5,937 6,546 7,187 779 771 FY19, with higher hydro and higher wind 6,000 648 621 5,000 generation 4,000 3,000 6,087 6,296 5,925 6,408 5,289 2,000 1,000 Pri

  32. Slide 32: Australian retail

    Australian retail Australian customer connections Customers Electricity Gas  14% growth in electricity customers since 160 30 June 2019 140 120 23 125 110  35% growth in gas customers since June 100 97 97 80 2019 78 60 40 20 Sales volume 0 Jun-16 Jun-17 Jun-18 Jun-19 Dec-19  18% growth in electri

  33. Slide 33: Australian generation

    Australian generation Australian generation Volume GWH Wind Hydro Total 600  1H FY20 generation was 13% lower than 1H 500 437 FY19 400 419 367 309 305 123  1H FY20 wind generation was 2% lower than 300 77 437 1H FY19 200 309 305 296 290 100  1H FY20 hydro generation was 37% lower 0 than 1H FY19 2

  34. Slide 34: 1H FY20 EBITDAF

    1H FY20 EBITDAF Movement in EBITDAF $M New Zealand energy margin +$88M 600 500 -44 -3 +145 -3 -1 -1 0 -3 -8 +79 -85 400 300 465 200 389 100 0 EBITDAF 31 Retail Wholesale Generation Cost to Net cost of Virtual asset Other market Australian Other Transmission Employee & EBITDAF 31 Dec 2018 contracted

  35. Slide 35: EBITDAF to NPAT

    EBITDAF to NPAT 1H FY20 EBITDAF TO NPAT RECONCILIATION $M 500 450 400 -157 350 300 465 -10 -43 250 -71 200 +10 0 0 -3 150 191 184 100 EBITDAF Depreciation and Premiums paid on Net finance costs Tax Underlying Net change in fair Loss on sale of Premiums paid on Tax NPAT amortisation electricity optio

  36. Slide 36: Energy margin

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

  37. Slide 37: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin $M 1,500 1,200 727 -703 900 3 600 -94 -57 94 -5 -4 246 300 136 598 255 0 Res, SMB, C&I sales Financial Generation Cost to Cost to Hedging Hedging spot Contract VAS margins Market costs Energy Agi sales contract spot revenue supply supply fixed cost

  38. Slide 38: New Zealand energy margin

    New Zealand energy margin New Zealand energy margin movement $M 700 +15 -56 +53 600 -3 -3 -1 +49 -3 -85 +92 +30 500 400 598 510 300 200 Energy Res, SMB, C&I sales Financial Generation Cost to Cost to Hedging Hedging Contract VAS margins Market costs Energy Margin 31 Agi sales contract spot revenue s

  39. Slide 39: New Zealand energy margin

    New Zealand energy margin 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 39

  40. Slide 40: Australian energy margin (AUD)

    Australian energy margin (AUD) 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 40

  41. Slide 41: Fair value movements

    Fair value movements  Meridian uses derivative instruments to Change in fair value of financial instruments $M manage interest rate, foreign exchange and 0 electricity price risk 0 -5 -20  As forward prices and rates on these -21 instruments move, non-cash changes to their -40 -26 carrying value a

  42. Slide 42: Income statement

    Income statement 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 42

  43. Slide 43: Underlying NPAT reconciliation

    Underlying NPAT reconciliation 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 43

  44. Slide 44: Cash flow statement

    Cash flow statement 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 44

  45. Slide 45: Balance sheet

    Balance sheet 26 FEBRUARY 2020 2020 INT ERIM RESULT S PRESENT AT IO N 45

  46. Slide 46: 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

  47. Slide 47: Disclaimer

    Disclaimer The information in this presentation was prepared by Meridian Energy This presentation contains a number of non-GAAP financial measures, with due care and attention. However, the information is supplied in including Energy Margin, EBITDAF, Underlying NPAT and gearing. summary form and is

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