Meridian Energy Craigs Investor Day Presentation

PG 1

Meridian Energy Craigs Investor Day Presentation
1 November 2017
Attached is a presentation Meridian Energy Limited is making at a Craigs Investment Partners investor day on
2 November 2017.

ENDS
Mark Binns
Chief Executive
Meridian Energy Limited

For investor relations queries, please contact:
Owen Hackston
Investor Relations Manager
021 246 4772
For media queries, please contact:
Polly Atkins
External Communications Specialist
021 174 1715

MERIDIAN ENERGY LIMITED MANAGEMENT PRESENTATION
CRAIGS QUEENSTOWN INVESTOR DAY
.

Meridian – a reminder
.
Meridian Energy Limited Craigs Investor Day 2 November 2017
2
$7b company, listed in 2013, 51% Government owned •
 
New Zealand’s largest generator, from
purely renewable sources
•
 
Seven big hydro stations – flexible plant
with the country’s largest storage
•
 
Very long life, highly efficient assets
•
 
With low operating costs and capital
needs
•
 
Five NZ wind farms, two in Australia
•
 
Proven success operating in a high wind
environment
•
 
Backed with more than a decade of
construction and operational experience
•
 
One of five vertically integrated generator
retailers in the New Zealand market

3
Large generator, smaller retailer

•
 
Second smallest r
etailer of the five
gentailers (by customer numbers)
•
 
Typical long generation position to
manage variable hydro inflows
•
 
40% of generation covered by Tiwai Point
contract (price guarantee, not supply)
•
 
Retail load is weighted towards business,
commercial and agricultural load
•
 
280,000 NZ customers with Meridian and
Powershop
•
 
Further 100,000 Powershop customers in
Australia
•
 
Now in-market in the UK, franchising
Powershop
Meridian – a reminder
.
Meridian Energy Limited Craigs Investor Day 2 November 2017
13,148
13,332
13,707
13,315
10,765
10,978
10,993
10,738
FY2014 FY2015 FY2016 FY2017
GWH
GENERATION AND CONTRACTED SALES
Physical generation
Contracted sales
82%
82%
80%
81%
18%
12%
10%
18%
7%
35%
FY2017 NZ RETAIL SALES EXCL TIWAI
Meridian Residential
Powershop Small/medium business
Agricultural
Corporate/large business Industrial
Source: Meridian Source: Meridian

4
Shareholder highlights
.
Five successive years of earnings growth

$477M
$584M
$585M
$618M
$650M
$653M
2012 2013 2014 2015 2016 2017
Financial Year ended 30 June
EBITDAF
1
13.01
18.23
18.38
18.91
2014 2015 2016 2017
TOTAL CPS
Financial Year ended 30 June
DIVIDENDS DECLARED
Higher dividends every year since listing

1. Earnings before interest, tax, depreciation, amortisation, changes in fair value of hedges and other significant items
Source: Meridian
Source: Meridian
Improvement from:

•
 
Earnings growth increasing free cash flow
•
 
Low capital needs
•
 
Progressive ordinary dividend
•
 
5 year capital management programme
Improvement from:

•
 
Lift in NZ retail profitability
•
 
Customer growth in Australia
•
 
Commissioning of new wind farms
•
 
Operating cost discipline
Meridian Energy Limited Craigs Investor Day 2 November 2017

5
Meridian’s FY17 earnings
.
Source: Meridian
NZ wholesale $588M
NZ retail $75M
Australia $34M
Other/corporate -$38M
F
Y
1
7

E
B
I
T
D
A
F

$
6
5
3
M

Meridian Energy Limited Craigs Investor Day 2 November 2017

September quarter
.
6
0
500
1,000
1,500
2,000
2,500
1-Jan 1-Mar 1-May 1-Jul 1-Sep 1-Nov
GWh
MERIDIAN'S WAITAKI STORAGE
Average 1979-
2012
2013
2014
2015
2016
2017
High August and September 2017 monthly inflows •
 
September quarter inflows were 131% of
average
•
 
Meridian’s Waitaki storage now at 121% of
average
•
 
Compared to the September quarter last
year:
•
 
25% lower NZ generation
•
 
10% higher NZ retail sales
•
 
Higher Australian generation and retail
sales
•
 
Higher customer numbers in both
countries
Meridian Energy Limited Craigs Investor Day 2 November 2017

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Solar

•
 
Solar uptake increasing in NZ as economics
slowly improve
•
 
NZ residential capacity factors are low
(13%-15%) and payback high (13 years)
•
 
Commercial solar opportunities are being
developed
•
 
Our agreement with Kiwi Property will see
them being NZ’s largest solar consumer
•
 
Grid scale solar unlikely in NZ with
competing land uses and winter peak demand
•
 
Solar uptake is much higher in Aus with
subsidy support
•
 
Residential capacity factors and paybacks
are better in Aus
•
 
Grid scale development is happening in Aus
as costs decrease significantly
New technologies
.
Meridian Energy Limited Craigs Investor Day 2 November 2017

New technologies
.
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Batteries •
 
Battery value for energy management is in
load shifting (high to low price periods)
•
 
Grid scale unlikely in NZ due to large hydro
storage
•
 
Grid scale possible in Aus with subsidy
support
•
 
Solar and batteries to achieve residential
off-grid in NZ remains very expensive (20 year payback)
•
 
Batteries also offer other value:
•
 
Back-up power
•
 
Grid and transmission support
•
 
Avoided infrastructure costs
Meridian Energy Limited Craigs Investor Day 2 November 2017

9
Electric vehicles

•
 
EV levels are growing in NZ (currently 3,500
pure EV and 1,500 hybrids)
•
 
Government and company fleet conversions
increasing
•
 
Meridian will have converted 50% of its
passenger fleet by June 2018
•
 
NZ uptake dependent on the second hand
import market, so expected to be gradual
•
 
Uptake may have system impacts,
particularly network resiliance in high peak periods
•
 
Tariffs to incentivise off peak charging now
in the market
•
 
Technology may change with a move to fast
charging infrastructure
•
 
High fossil fuel generation in Aus limits EV
environmental proposition
New technologies
.
Meridian Energy Limited Craigs Investor Day 2 November 2017

NZ demand
.
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Little demand growth in the last 7 years
•
 
+ Economic growth
•
 
+ Positive net migration
•
 
- Industrial and manufacturing closure
•
 
- Warmer than average temperatures
•
 
- Growing impact of technology and
efficiency gains
•
 
+/- Variable irrigation load depending
on rainfall
Future demand is expected
•
 
Likely to be modest, estimated between
0.5% and 1% pa on average
•
 
New generation capacity will be
needed, probably after 2021
+1.1%
-0.1%
-1.7%
-0.9%
+2.6%
+0.3%
-0.6%
2011 2012 2013 2014 2015 2016 2017
Financial Year ended 30 June
ANNUAL DEMAND CHANGE SINCE 2010
Source: Electricity Authority
Meridian Energy Limited Craigs Investor Day 2 November 2017

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12% of New Zealand’s total annual demand

•
 
CfD contract with Meridian on NZAS
perpetual 12-month termination right
•
 
International aluminium is recovering,
prices up 19% this year
•
 
Meridian’s modelling suggests smelter is
currently making healthy cash profits
•
 
Aluminium remains a commodity exposed
to cycles and Chinese supply decisions
•
 
Meridian not expecting smelter closure,
change in ownership may occur
•
 
A smelter closure would trigger further
South Island grid investment (majority of lower South Island generation can be dispatched now)
•
 
Greater HVDC capacity and North Island
line uprating possible in the medium term
Tiwai Point smelter
.
Meridian Energy Limited Craigs Investor Day 2 November 2017

Growth opportunities
.
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New Zealand
•
 
Low growth in a highly competitive
market
•
 
Retail electricity price increases have
been less than inflation, not expected to change
•
 
Wholesale prices may gradually lift as
demand slowly grows
•
 
Meridian is well positioned with future
wind generation options
•
 
Underweight residential position may
provide future load growth
•
 
Other customer segments have growth
potential, including commercial solar
•
 
Examining synergies between Meridian
Retail and Powershop platforms
Meridian Energy Limited Craigs Investor Day 2 November 2017
26.9
27.8
28.6
28.1
28.8
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
c/kWh
AVERAGE RESIDENTIAL ELECTRICITY COST
Energy Lines
+1%

+7%
+3%

+4%
+0%

+7%
-3%

+0%
+1%

+4%
Source: Ministry of Business, Employment & Innovation

13
Australia

•
 
Potential retail growth off the back of new
offtake agreements
•
 
Dual fuel offering will support further
uptake in Victoria
•
 
Unlikely to build new generation in the
current environment
UK and Europe

•
 
Powershop now in-market in the UK
through a franchise with nPower
•
 
Dual fuel functionality by January 2018
could offer meaningful growth
•
 
Exploring mainland Europe opportunities
with nPower’s parent company, Innogy

Growth opportunities
.
Meridian Energy Limited Craigs Investor Day 2 November 2017
?

The political scene
.
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New Zealand
•
 
Conversion of the Govt car fleet to
electric by 2025/26 is positive
•
 
Meridian is supportive of an
independent Climate Change Commission
•
 
Case for fairer transmission charging
remains compelling
•
 
Greater focus on water quality
•
 
Resource rentals for water is a complex
issue, we are supportive of a holistic, equitable approach
•
 
Retail pricing could benefit from
addressing inefficient network company structure and misdirected low user charges
•
 
Positive on the new Government’s
proposals, plenty of detail to engage on
Meridian Energy Limited Craigs Investor Day 2 November 2017

15
Australia •
 
Market is slow to commit to new
renewables due to the lack of coherent energy policy
•
 
Proposed National Energy Guarantee may
provide a better solution
•
 
Market has experienced several
widespread outages and unplanned industrial load shedding
•
 
Exacerbated by subsidies for continued
smelter operations
•
 
Thermal plant retirement and domestic
gas shortage has led to a sharp increase in wholesale and retail prices
•
 
Complicated by differing state and federal
responses
The political scene
.
Meridian Energy Limited Craigs Investor Day 2 November 2017

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Shareholder value
.
H
i
g
h

I
n
c
o
m
e

Strong
free cash
flow
Low
capital
needs
High free
cash flow
payout
Continued
cost
discipline
Progressive
ordinary
DPS
Capital
manage
ment
P
o
t
e
n
t
i
a
l

G
r
o
w
t
h

NZ retail
load
Retail
platform
review
Medium
term new
generation
Customer
growth in
Australia
Powershop
franchise
into the
UK/Europe

Long term
sustainable
business
Meridian Energy Limited Craigs Investor Day 2 November 2017

Disclaimer
.
17
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 the information. In addition, neither the company nor any of its directors, employees, shareholders nor any other person shall have liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it. This presentation may contain forward-looking statements and projections. These reflect Meridian’s current expectations, based on what it thinks are reasonable assumptions. Meridian gives no warranty or representation as to its future financial performance or any future matter. Except as required by law or NZX or ASX listing rules, Meridian is not obliged to update this presentation after its release, even if things change materially. This presentation does not constitute financial advice. Further, this presentation is not and should not be construed as an offer to sell or a solicitation of an offer to buy Meridian Energy securities and may not be relied upon in connection with any purchase of Meridian Energy securities.
This presentation contains a number of non-GAAP financial measures, including Energy Margin, EBITDAF, Underlying NPAT and gearing. Because they are not defined by GAAP or IFRS, Meridian's calculation of these measures may differ from similarly titled measures presented by other companies and they should not be considered in isolation from, or construed as an alternative to, other financial measures determined in accordance with GAAP. Although Meridian believes they provide useful information in measuring the financial performance and condition of Meridian's business, readers are cautioned not to place undue reliance on these non-GAAP financial measures. The information contained in this presentation should be considered in conjunction with the company’s financial statements, which are included in Meridian’s integrated report for the year ended 30 June 2017 and is available at: All currency amounts are in New Zealand dollars unless stated otherwise.
Meridian Energy Limited Craigs Investor Day 2 November 2017

Thank you
.