Meridian Energy Investor Presentation

PG 1

Meridian Energy Investor Presentation
5 November 2018

Attached is a presentation Meridian Energy Limited is making at a series of investor meetings during
November 2018.

ENDS
Neal Barclay
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
INVESTOR ROADSHOW
PRESENTATION

MERIDIAN ENERGY LIMITED
INVESTOR ROADSHOW
PRESENTATION
Meridian Energy Limited Investor Roadshow Presentation
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THE NEW ZEALAND ECONOMY

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High ease of doing business and low
corruption rankings


 
Seven years of economic expansion, now
entering a mature phase


 
Slowing economic growth as housing
market, construction and population growth cools


 
Terms of trade are strong and government
spending is stimulatory, suggesting middling rates of GDP growth


 
Capacity contraints may see wage growth
and rising inflation


 
Reserve Bank’s official cash rate is
expected to stay at record low rate until 2020
Stable, open, market orientated economy
Meridian Energy Limited Investor Roadshow Presentation
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THE NEW ZEALAND ELECTRICITY
MARKET
Meridian Energy Limited Investor Roadshow Presentation

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A well functioning market, characterised by:


 
Quality renewable resources


 
Progressive regulatory settings


 
Stable political environment


 
Rational market competition


 
Vertical integration is the prevailing structure


 
Wholesale and retail market regulation provided by an independent regulator –
The Electricity Authority (EA)


 
EA mandate to deliver efficient market operation, security of supply, promote
competition


 
No price controls, non-competitive distribution sector has regulated rates of
return
Delivering a reliable, affordable and environmentally sustainable electricity system
Meridian Energy Limited Investor Roadshow Presentation
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“New Zealand serves as a model for effective energy markets and secure power system operation” International Energy Agency (IEA) New Zealand 2017 Review

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Meridian Energy Limited Investor Roadshow Presentation
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5
major generators
(all listed)
1
transmission grid
owner (state owned)
1
big industrial user
(Rio Tinto/Sumitomo smelter)
29
distribution
businesses (various ownership structures)
33
retailers
(44 brands)
2.1
million
consumers (41 TWh pa)
Sources: Electricity Authority and Ministry of Business, Innovation and Employment
2017 GENERATION MIX
Hydro Geothermal Biogas Wood
Wind
Solar Oil Coal Gas Waste Heat
82%
renewable
2017 CONSUMPTION MIX
Agriculture/ Forestry/ Fishing Industrial Commercial (incl. Transport) Residential

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New Zealand’s hydro generation is
managed against limited controlled storage


 
Bulk of hydro inflow is anti-correlated to
winter demand peak


 
Thermal capacity and fuel storage manages
potential hydro inflow deficit and other renewable intermittency


 
Efficient and well-functioning wholesale
market manages this supply risk


 
Significant oversupply has existed in the
market, older thermal plant closure is bringing better balance


 
Demand growth in the last decade has only
been modest
Meridian Energy Limited Investor Roadshow Presentation
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Market will be the key enabler of greater
decarbonisation in New Zealand


 
42% of non-agricultural carbon emissions
could be removed over time through electrification


 
Converting this fossil fuel-based energy use
to predominately renewables could add 75% to current electricity demand


 
Depending on the rate of future
electrification, significant new generation will be needed


 
Unsubsidised renewables are likely to form
the bulk of new generation
5%
17%
20%
49%
6%
3%
NZ 2016 SECTOR EMISSIONS
Electricity Road transport Stationary energy* Agricultural Industrial processes Waste
*manufacturing (including milk processing), construction and commercial sectors and domestic heating
Meridian Energy Limited Investor Roadshow Presentation
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30
40
50
60
70 80 90
1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050
TWh
DEMAND FORECASTS
NZ Historical Demand Transpower MBIE - High MBIE - Low Productivity Comm. - High Productivity Comm. - Low Meridian - High Meridian - Low
Source: Ministry for the Environment
Source: Meridian

32%
27%
11%
13%
13%
3%
1%
AVERAGE RESIDENTIAL BILL
Generation
Distribution
Transmission
Retail
GST Metering Other
9
12 15
18
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
c/KWh
REAL RESIDENTIAL ELECTRICITY COST
Energy and other component
Lines component
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New Zealand Government is conducting a
review of electricity prices


 
An initial paper has been released:


 
Energy affordability can be an issue


 
Low income households need better
support


 
Competition is high, customer
engagement varies


 
Industry delivers high quality supply


 
Distribution and transmission could be
more efficient


 
New Zealand residential electricity prices
are 20% lower than the OECD average and 40% lower than Australia


 
Pricing from the competitive parts of the
electricity supply chain have been flat in real terms since 2011


 
Historical distribution cost increases have
resulted in higher residential prices
Meridian Energy Limited Investor Roadshow Presentation
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Source: Ministry of Business, Innovation and Employment
Source: Electricity Authority
+28% since 2009 +4% since 2009

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CfD contract with Meridian on NZAS
perpetual 12-month termination right


 
Meridian’s modelling suggests smelter is
currently making healthy cash profits


 
Additional 50MW contract signed in May 18


 
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 smelter is 12% of national demand
Meridian Energy Limited Investor Roadshow Presentation
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MERIDIAN ENERGY
Meridian Energy Limited Investor Roadshow Presentation

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NZ$8b company, listed in 2013, 51%
Government owned


 
Largest and most liquid of five listed New
Zealand retailer generators


 
The only New Zealand electricity company
with a customer and asset base diversified across different countries


 
Strong environmental, social and
governance focus


 
40% of New Zealand generation covered
by a price guarantee contract with Rio Tinto/Sumitomo’s New Zealand aluminium smelter
Meridian Energy Limited Investor Roadshow Presentation
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New Zealand’s largest generator, all
production from renewable sources


 
Seven big hydro stations – flexible plant
with the country’s largest storage


 
With low operating costs and capital needs


 
Five New Zealand wind farms and proven
success operating in a high wind environment


 
Backed with more than a decade of
construction and operational experience


 
Typical long generation position to manage
variable hydro inflows


 
Generation portfolio of wind, hydro and
renewable offtake in Australia
Meridian Energy Limited Investor Roadshow Presentation
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Meridian Energy Limited Investor Roadshow Presentation
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Champion benefits of competitive markets

 
Competing vigorously


 
Leadership in sustainability in New Zealand and Australia


 
Supporting wholesale liquidity
Support retail growth & protecting our generation legacy

 
Contribution of hydro to 100% renewable aspiration


 
Maintaining a best in class generation portfolio


 
Best placed renewable energy pipeline
Clean energy for a fairer & healthier world
Grow overseas earnings, through

 
Expansion of challenger brand


 
Strengthening our vertically integrated position


 
Flux client success
Grow New Zealand retail, through

 
Simpler systems


 
Reduced cost


 
Faster adoption


 
Relentless focus on customer experience

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Five successive years of earnings and
dividend growth since listing


 
Double digit shareholder returns every year
since listing


 
High free cash flow, high payout ratio,
progressive ordinary dividend policy


 
Structured capital management
programme running to 2022


 
Strategic focus on potential market growth
in three countries
Meridian Energy Limited Investor Roadshow Presentation
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585
618
650
657
666
550
600
650 700
2014 2015 2016 2017 2018
$M
Financial Year ended 30 June
EBITDAF
19%
33%
31%
17%
14%
0%
5%
10%
15%
20%
25%
30%
35%
2014 2015 2016 2017 2018
%
Financial Year ended 30 June
TOTAL SHAREHOLDER RETURN
Source: Meridian Source: Meridian

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Solar uptake increasing in New Zealand as
economics slowly improve


 
New Zealand residential capacity factors
are low (13%-15%) and payback high (13 years)


 
Commercial solar opportunities are being
developed


 
Grid scale solar unlikely in New Zealand in
the near term with competing land uses and winter peak demand


 
Solar uptake is much higher in Australia
with subsidy support


 
Residential capacity factors and paybacks
are better in Australia


 
Grid scale development is happening in
Australia as costs decrease significantly
Meridian Energy Limited Investor Roadshow Presentation
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Battery value for energy management is in load shifting (high to low price periods)


 
Grid scale unlikely in New Zealand due to large hydro storage


 
Grid scale possible in Australia with subsidy support


 
Solar and batteries to achieve residential off-grid in New Zealand remains very expensive (20 year payback)


 
Batteries also offer other value:

 





 


 
 






 






Meridian Energy Limited Investor Roadshow Presentation
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Electric vehicle levels are growing in New Zealand


 
Government and company fleet conversions increasing


 
Meridian will have converted 80% of its passenger fleet by 2020


 
New Zealand uptake dependent on the second-hand import market, so expected to be gradual


 
Uptake may have system impacts, particularly network resilience 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 Australia limits electric vehicle environmental proposition
Meridian Energy Limited Investor Roadshow Presentation
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Meridian Energy Limited Investor Roadshow Presentation
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High Income
Strong free
cash flow
Low capital
needs
High free
cash flow
payout
Continued
cost
discipline
Progressive
ordinary DPS
Capital
management
Potential
Growth
NZ retail
load
Retail
platform
changes
Medium
term new
generation
Customer
growth in
Australia
Flux
Powershop
franchise
into the UK
Long term
sustainable
business

Meridian Energy Limited Investor Roadshow Presentation
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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 2018 AND IS AVAILABLE AT: WWW.MERIDIANENERGY.CO.NZ/INVESTORS/ ALL CURRENCY AMOUNTS ARE IN NEW ZEALAND DOLLARS UNLESS STATED OTHERWISE.