Meridian Energy Limited Annual Report 2017

Plain-text annual report

IT’S OUR FUTURE. MERIDIAN ENERGY LIMITED 2017 ANNUAL RESULTS PRESENTATION “That we are a sustainable business is increasingly important to all our stakeholders, and oﬀers signiﬁcant beneﬁts…” Meridian Energy Limited Annual Results 2017 2 Sustainability is what we do GENERATION RETAIL MARKETS GROWTH STRATEGY Financial Assets and technology People and expertise Relationships and reputation Natural resources RESOURCES VALUE TO OTHERS Reliable & aﬀordable electricity Renewable energy Reduction in NZ’s carbon footprint NZ’s economic prosperity Long-life assets Environmental stewardship Respect for Māori in NZ Prosperous communities Satisfying, safe & fair employment UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS VALUE TO US Sustainable shareholder returns Top notch generation assets Engaged employees Strong brand and customer loyalty Social licence to operate Access to ‘fuel’ Innovation and growth Meridian Energy Limited Annual Results 2017 3 “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 Financial snapshot. NPAT $197m NZ energy margin $938m Underlying NPAT $218m 6% lower Operating cash ﬂow $470m 4% higher EBITDAF $653m 0.5% higher Dividend declared 18.91cps 3% higher Aus energy margin $75m Operating Costs $249m stable Transmission Costs $130m Meridian Energy Limited Annual Results 2017 5 OUR MARKETS Meridian Energy Limited Annual Results 2017 6 New Zealand. Multiple factors resulting in ﬂat demand •  +Positive macro economic indicators MOVEMENT IN NATIONAL DEMAND GWH +39 -52 +20 -66 •  +Cooler winter temperatures (average) 41.2k •  -Lower irrigation load from wet spring and summer -202 +8 SOUTH CANTER- BURY -10% 40.9k •  Eﬃciency gains are a continuing factor, however hard to isolate 2016 Northland Auckland Central NI West Coast Canterbury Rest of NZ 2017 Source: Electricity Authority More constrained supply may impact forward prices •  Spot and near term prices have been highly sensitive to current low storage •  Too early to tell if pricing dynamics have moved •  A dry period has impacted some spot exposed customers and may change attitudes to risk BENMORE ASX FUTURES SETTLEMENT PRICE $/MWh 120 100 80 60 40 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 21 August 2017 30 June 2017 30 June 2016 Meridian Energy Limited Annual Results 2017 7 Source: ASX New Zealand. NZ CONTROLLED STORAGE AND RISK CURVES GWH As at 21 August 2017 -2016 Oct-2016 Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Apr-2018 NZ Storage Mean 1% 2% 4% 10% Source: Transpower, Meridian GENERATION AND CONTRACTED SALES GWH 74% 85% 83% 91% 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 •  Meridian has used a variety of contracting options including the Genesis swaption •  Discretionary generation has been reduced and retail acquisition unaﬀected •  Meridian’s storage management has been 286 3,702 169 466 644 eﬃcient and risk appropriate 2,937 3,327 2,963 3,398 3,214 2,887 3,221 Q1 FY17 Physical generation Q2 FY17 Q3 FY17 Q4 FY17 Acquired generation Contracted sales Source: Meridian 1. Hydro risk curves reﬂect the risk of extended energy shortages. At the 1% line, there is a 1% chance of controlled lake storage falling to its minimum level in the future, based on the historical record of lake inﬂows Meridian Energy Limited Annual Results 2017 8 Australia. The market remains volatile and uncertain •  Finkel review Clean Energy Target unlikely to be adopted in the near future •  Thermal retirement combined with domestic gas shortages, as a result of LNG exports, has led to increases in wholesale prices •  Along with outages and industrial load shedding •  Political uncertainty and diﬀering state and federal responses •  Higher wholesale and retail prices may elevate smaller retailer risk positions •  Lower customer growth a possible result •  Meridian pursuing medium-term PPA opportunities AVERAGE DAILY WHOLESALE SPOT PRICES $/MWh 250 200 150 100 50 0 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 QLD NSW VIC SA Source: AEMO Meridian Energy Limited Annual Results 2017 9 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 Limited Annual Results 2017 10 OUR OPERATIONS Meridian Energy Limited Annual Results 2017 11 NZ wholesale and generation. Record low February to June inﬂows •  Dragged a healthy half year storage position at December 2016 down signiﬁcantly •  Resulted in Meridian accessing cover under the Genesis swaption since June •  August has seen swaption volumes cease •  July 2017 inﬂows were 93% of average, helping stabilise lake levels •  Meridian’s Waitaki storage was 595 GWh (44%) below average at 31 July •  Above average inﬂows in August 2017 have lifted Lake Pukaki storage to 73% of average (261 GWh below average) •  Lakes Manapōuri and Te Anau are together now above average COMBINED CATCHMENT INFLOWS GWh 83 year average Annual inﬂows 12,902 13,333 13,010 12,455 12,190 9,093 2011 2012 2014 Financial Year ended 30 June 2013 10,533 2015 2016 2017 Source: Meridian MERIDIAN'S WAITAKI STORAGE GWh 3,000 2,000 1,000 0 1-Jan Average 1979- 2015 1-Mar 595 GWH BELOW AVERAGE 1-May 1-Jul 1-Sep 2012 2016 2013 2017 1-Nov 2014 Source: Meridian Meridian Energy Limited Annual Results 2017 12 NZ retail. Despite 4% lower retail sales, segment EBITDAF was up 1% •  2% irrigation driven decrease in residential and SMB1 sales, 2% average price increase •  8% decrease in Corporate sales, 2% average price decrease with large customer signings in 2H FY17 •  1% customer growth and strong operational performance RETAIL SEGMENT COST TO SERVE2 $/ICP 310 294 285 275 2014 2015 2016 2017 Financial Year ended 30 June 1.  Small and medium business 2. Excluding metering costs and including allocation of corporate costs ICP CHURN % TRADER SWITCH MOVE-IN SWITCH 22.2% 11.7% 12.0% 13.3% 7.1% 7.1% Meridian Powershop Industry Meridian Powershop Industry Source: Electricity Authority DOUBTFUL DEBTS EXPENSE $7M $6M $5M $3M $2M 2013 2014 2015 2016 Financial Year ended 30 June 2017 Source: Meridian Source: Meridian Meridian Energy Limited Annual Results 2017 13 Australia. MOVEMENT IN AUSTRALIA SEGMENT EBITDAF $M -7 +30 -16 ENERGY MARGIN +$7M -1 -1 29 FY16 EBITDAF Contracted sales Generation revenue Transmission expense Operating Expenses FY17 EBITDAF Cost to supply contracted sales Source: Meridian AUSTRALIAN CUSTOMERS $5M (17%) increase in EBITDAF •  Powershop retail sales volume 147GWh (38%) higher at higher average prices •  Passed 100,000 customer numbers with 34 a 29% increase during FY17 •  Generation volumes 2% lower, with 2H FY17 volumes 22% lower than 2H FY16 •  Although wholesale prices rose, Meridian’s hedge position meant generation revenue did not beneﬁt •  Exposure to merchant price increases 100,524 during FY18 and 1H FY19 77,970 48,208 13,426 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian Meridian Energy Limited Annual Results 2017 14 DIVIDENDS Meridian Energy Limited Annual Results 2017 15 Dividends. TOTAL DIVIDENDS DECLARED TOTAL CPS 18.23 18.38 +3% 4% growth in ordinary dividends declared 18.91 •  Final ordinary dividend declared of 8.70 cps, 88% imputed 13.01 2014 2015 Financial Year ended 30 June 2016 2017 Source: Meridian AMOUNT CPS IMPUTATION % FY2017 Ordinary dividends Capital management special dividend Total FY2016 Ordinary dividends Capital management special dividends Total 14.03 4.88 18.911 13.50 4.88 18.388 •  Brings FY17 full year ordinary dividend declared to 14.03 cps, 88% imputed •  Represents 84% payout of free cash ﬂow •  Capital management ﬁnal special dividend of 2.44 cps, unimputed •  Brings capital management distributions to $312.5m since the programme began in August 2015 88% 0% •  FY17 TSR of 17% from a 10% share price increase and 18.61 cps of dividends paid during the year 88% 0% Meridian Energy Limited Annual Results 2017 16 FINANCIAL PERFORMANCE Meridian Energy Limited Annual Results 2017 17 Summary. Managed dry 2H conditions to report record FY EBITDAF and operating cash ﬂows FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M 1,013 1,009 FY17 FY16 653 650 470 452 485 471 249 248 130 128 197 185 218 233 55 59 Energy margin +0% Trans- mission +2% Operating costs +0% EBITDAF +0.5% NPAT +6% Underlying NPAT -6% Operating cash ﬂows +4% Asset additions -7% Dividend declared +3% Meridian Energy Limited Annual Results 2017 18 Source: Meridian Earnings. ENERGY MARGIN $954M $916M $924M $1,009M $1,013M 2013 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian EBITDAF $3M (0.4%) increase in EBITDAF from: •  $0M higher business sales, lower agri sales, higher average prices (small increases and mix) •  -$19M lower corporate sales at lower average prices •  +$35M higher wholesale sales including higher sell-side CfDs •  +$20M lower net cost of acquired generation (spot revenue prices) •  -$37M net spot exposed revenue (lower $618M $585M $585M $650M $653M physical generation) •  +$7M Australian energy margin •  -$1M operating costs 2013 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian Meridian Energy Limited Annual Results 2017 19 Six monthly view. FINANCIALS 1H 2H YOY CHANGE $M 1H FY17 2H FY17 Impact of dry 2H FY17 was signiﬁcant 7 42 32 •  EBITDAF +6% in 1H FY17 v 1H FY16 •  Compared with -5% in 2H FY17 v 2H FY16 •  Discretionary generation pullback evident in 2H FY17 physical generation and net spot exposed revenue •  Higher sell-side CfD and acquired generation volumes in 2H FY17, reﬂecting back to back hedges and then emerging dry spell 9 10 9 15 -12 -9 -8 -26 -69 NZ retail sales Wholesale sales Net spot exposed revenue Cost of acquired generation NZ energy margin Aus energy margin Source: Meridian VOLUMES 1H 2H YOY CHANGE GWH 1H FY17 2H FY17 648 417 •  2H FY17 growth in sales volumes in all 43 81 171 49 segments other than Agri •  Poor wind months in Australia in 2H FY17 slowed energy margin growth -114 -253 -100 -215 -57 -563 Res/SMB sales Corporate sales Sell-side CfDs Acquired generation NZ generation Aus generation Source: Meridian Meridian Energy Limited Annual Results 2017 20 Costs. OPERATING COSTS $M Retail segment Wholesale Other Australia IPO Costs $246M $14M $49M $94M $237M $18M $44M $79M $238M $25M $44M $79M $248M $35M $40M $81M $249M $36M $42M $82M $86M $88M $90M $92M $89M Continued cost discipline •  Slight operating cost increase •  Investment supporting Powershop expansion continues (Flux Federation) •  Continued NZ customer acquisition pressure being absorbed 2013 2014 Financial Year ended 30 June 2015 2016 2017 •  Ōhau and Te Āpiti refurbishment Source: Meridian programmes expected to push operating costs up in the next few years STAY IN BUSINESS CAPEX $58M $61M $50M $47M 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian Meridian Energy Limited Annual Results 2017 21 Below EBITDAF. Higher depreciation and fair value movements •  $28M (12%) increase depreciation from FY16 asset revaluations •  1% lower net ﬁnancing costs •  $55M positive change in fair value of treasury instruments from rising forward interest rates •  $76M negative change in fair value of electricity hedges from changing forward electicity prices •  $10M of impairments mainly relating to Pouto and Hurunui wind options not being pursued •  $4M loss on sale of surplus farm and other NET PROFIT AFTER TAX $295M $230M $247M $185M $197M 2013 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian UNDERLYING NPAT $233M $218M $209M $195M assets $163M •  $15M (6%) decrease in underlying NPAT from ﬂat earnings and higher depreciation 2013 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridians Meridian Energy Limited Annual Results 2017 22 CONCLUDING REMARKS Meridian Energy Limited Annual Results 2017 23 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 beneﬁts from a full year of Tiwai price increase •  Working hard to deliver another good result for shareholders Meridian Energy Limited Annual Results 2017 24 Questions. ADDITIONAL INFORMATION Meridian Energy Limited Annual Results 2017 26 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/ UNALLOCATED INTER- SEGMENT $M FY17 FY16 FY17 2016 FY17 FY16 FY17 FY16 FY17 FY16 Energy margin Other revenue Dividend revenue 785 787 153 4 - 6 - 154 12 - - 75 - - (5) 11 - - Energy transmission expense (125) (124) Operating expenses EBITDAF (82) 582 (81) 588 (89) (92) (36) 75 74 34 68 - - (4) (35) 29 - 11 1 - - 5 21 - (49) (37) (45) (19) - (7) (1) - 7 - (6) (21) - 5 (1) (22) Meridian Energy Limited Annual Results 2017 27 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) $M Energy margin Other revenue Dividend revenue Energy transmission expense Operating expenses EBITDAF WHOLESALE RETAIL AUSTRALIA OTHER/ UNALLOCATED INTER- SEGMENT 1H FY17 1H FY16 1H FY17 1H FY16 1H FY17 1H FY16 1H FY17 1H FY16 1H FY17 1H FY16 392 386 3 - (64) (40) 291 3 - (62) (38) 289 91 6 - - 88 50 6 - - - - (2) (16) 31 (45) (45) 53 49 35 - - (2) (16) 17 - 3 1 - - 1 - - (24) (20) (24) (23) - (4) (1) - 3 (2) - (3) - - 3 - Meridian Energy Limited Annual Results 2017 28 NZ retail. Customer connections •  1% increase in ICP numbers since June 2016 Residential, SMB, Agri segment •  2% decrease in volumes •  Growth in total residential, SMB and large business volumes •  16% decrease in agri volumes, irrigation- driven •  2% increase in average sales price Corporate segment •  8% decrease in volumes •  2% decrease in average sales price NEW ZEALAND CUSTOMER NUMBERS ICP (000) Meridian North Island Meridian South Island Powershop 276 277 277 275 272 51 115 55 114 56 116 56 117 59 115 106 108 104 102 103 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 RETAIL SALES VOLUMES GWh Residential, SMB, Agri Corporate 5,661 5,754 5,967 5,969 2,232 2,344 2,276 2,188 Source: Meridian 5,727 2,017 3,429 3,410 3,691 3,781 3,710 2013 2015 Financial Year ended 30 June 2014 2016 2017 Source: Meridian Meridian Energy Limited Annual Results 2017 29 Hydrology. MERIDIAN'S COMBINED CATCHMENT INFLOWS GWh 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Financial year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 83 year average June YTD Inﬂows •  Inﬂows for the FY17 were 87% of historical average •  Inﬂows in the ﬁve months between February and June 2017 were the lowest same period inﬂows on record •  July inﬂows were 93% of average Source: Meridian Storage •  Meridian’s Waitaki catchment storage at 30 June 2017 was 55% of historical average •  By 31 July 2017, this position was 56% of historical average MERIDIAN'S WAITAKI STORAGE GWh 2,500 2,000 1,500 1,000 500 0 1-Jan 1-Mar 1-May 1-Jul 1-Sep 1-Nov Average 1979- 2012 2013 2014 2015 2016 2017 Source: Meridian Meridian Energy Limited Annual Results 2017 30 NZ generation. Volume •  FY17 generation was 3% lower than FY16 •  Reﬂected both lower hydro generation (2%) and wind generation (8%) •  Between June and August 2017, Meridian accessed cover under the swaption with Genesis Price •  FY17 average price Meridian received for its generation was 10% lower than FY16 •  FY17 average price Meridian paid to supply contracted sales was 8% lower than FY16 NEW ZEALAND GENERATION GWh 16,000 Hydro 13,148 1,245 Wind 13,332 1,422 13,707 1,456 13,315 1,341 11,903 11,911 12,251 11,974 12,071 1,153 10,918 12,000 8,000 4,000 0 2013 2014 2015 2016 2017 Financial Year ended 30 June Source: Meridian NZ AVERAGE GENERATION PRICE $/MWH 65 60 68 57 51 2013 2014 2015 2016 Financial Year ended 30 June 2017 Source: Meridian Meridian Energy Limited Annual Results 2017 31 FY17 EBITDAF. MOVEMENT IN EBITDAF $M +20 -4 -37 +2 +1 +7 -2 -1 +35 -18 650 EBITDAF 30 Jun 2016 Retail contracted sales Wholesale contracted sales Net VAS position Net cost of acquired generation Net spot exposed revenue Other market costs Australian energy margin Other revenue Transmission expenses 653 EBITDAF 30 Jun 2017 Employee & other operating expenses Source: Meridian Meridian Energy Limited Annual Results 2017 32 FY17 EBITDAF TO NPAT. FY17 EBITDAF TO NPAT RECONCILIATION $M -264 653 -12 -77 -82 +12 +2 -21 -14 218 197 EBITDAF Depreciation and amortisation Premiums paid on electricity options net of interest Net ﬁnance costs Tax Underlying NPAT Net change in fair value of hedges/ instruments Loss on sale of assets/ impairments Premiums paid on electricity options net of interest Tax NPAT Source: Meridian Meridian Energy Limited Annual Results 2017 33 NZ energy margin. Energy margin •  A non-GAAP ﬁnancial measure representing energy sales revenue less energy related expenses and energy distribution expenses •  Used to measure the vertically integrated performance of the retail and wholesale businesses. •  Used in place of statutory reporting which requires gross sales and costs to be reported separately, therefore not accounting for the variability of the wholesale spot market and the broadly oﬀsetting impact of wholesale prices on the cost of retail electricity purchases Deﬁned as: •  Revenues received from sales to customers net of distribution costs (fees to distribution network companies that cover the costs of distribution of electricity to customers), sales to large industrial customers and ﬁxed price revenues from derivatives sold (Contract sales revenue) •  The net position of virtual assets swaps with Genesis Energy and Mercury •  The ﬁxed cost of derivatives acquired to supplement generation and manage spot price risks, net of spot revenue received for generation acquired from those derivatives (Net cost of acquired generation) •  Revenue from the volume of electricity that Meridian generates that is in excess of volumes required to cover contracted customer sales (Spot exposed revenues) •  Other associated market revenues and costs including Electricity Authority levies and ancillary generation revenues (i.e. frequency keeping) Meridian Energy Limited Annual Results 2017 34 NZ energy margin. LWAP:GWAP FY17 1.11 FY16 1.10 FY17 FY16 VOLUME1 VWAP2 $M VOLUME1 VWAP2 $M Residential/SMB contracted sales Corporate contracted sales Retail contracted sales NZAS sales Sell side CfDs 3,710 2,017 5,727 5,011 1,280 $106.8 612 Wholesale contracted sales 6,608 $53.5 Net VAS position Acquired generation revenue Cost of acquired generation Future contract close outs Net cost of acquired generation Generation revenue Cost to supply retail sales Cost to supply wholesale sales $61.1 ($62.0) $51.4 1,148 1,564 1,564 13,315 6,002 6,608 354 4 96 (97) (3) (4) 684 Cost to supply contracted sales 12,610 ($56.1) (707) 3,781 2,188 5,969 5,024 1,280 6,304 1,152 1,130 1,130 13,707 6,251 6,304 12,555 $105.7 630 $50.7 $61.0 $56.9 319 8 69 (86) (7) (24) 780 ($61.0) (766) Net spot exposed revenue Other market costs Energy Margin 1. GWH 2. Volume weighted average price in $/MWH (23) (5) 938 14 (6) 941 35 Meridian Energy Limited Annual Results 2017 NZ energy margin composition. NEW ZEALAND ENERGY MARGIN $M Contracted sales revenue $966M Spot exposed revenue -$23M Net cost of acquired generation -$4M 354 -707 +684 -97 +96 -3 612 +4 -5 938 Retail Contracted Sales (net) Wholesale Contracted Sales Cost to Supply Contracted Sales Meridian Generation Spot Revenue Cost of Acquired Generation Future Contract Close Outs Acquired Generation Spot Revenue Net VAS Position Market Related Costs Energy Margin Source: Meridian Meridian Energy Limited Annual Results 2017 36 FY17 NZ energy margin movement. NEW ZEALAND ENERGY MARGIN $M Contracted sales revenue +$17M Spot exposed revenue -$37M Net cost of acquired generation +$20M +59 -96 +35 -18 +4 +27 -4 +1 941 -11 938 Energy Margin 30 Jun 16 Retail Contracted Sales (net) Wholesale Contracted Sales Cost to Supply Contracted Sales Meridian Generation Spot Revenue Cost of Acquired Generation Future Contract Close Outs Net VAS Position Acquired Generation Spot Revenue Market Related Costs Energy Margin 30 Jun 17 Source: Meridian Meridian Energy Limited Annual Results 2017 37 Other revenue. FINANCIAL YEAR ENDED 30 JUNE $M Retail service revenue (ﬁeld services etc) Arc Innovations Damwatch Energy for Industry Miscellaneous1 Farming Lease income Carbon credits Total other revenue 2017 2016 2015 2014 2013 6 - 2 - 11 - 0 - 19 6 - 5 - 5 - 1 0 17 8 3 5 - 7 1 1 0 25 10 6 5 - 2 3 1 0 27 8 6 5 0 4 2 2 3 30 1. Includes revenue related to Flux Federation. Also includes settlement of insurance proceeds in the year ended 30 June 2015 Meridian Energy Limited Annual Results 2017 38 Funding. DEBT MATURITY PROFILE AS AT 30 JUNE 2017 $M Available facilities maturing Drawn debt maturing (face value) 200 357 22 213 454 10 2018 2019 2020 Financial Year ending 30 June 67 18 2021 105 2022 2023+ Source: Meridian •  Total borrowings as at 30 June 2107 of $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 •  Committed bank facilities of $1,599M as at 30 June 2017, of which $441M were undrawn •  Net ﬁnance costs were 1% lower than FY16 SOURCES OF FUNDING AS AT 30 June 2017 NZ$ bank facilities drawn/undrawn EKF - Danish export credit 11% 30% Retail Bonds Floating rate notes US private placement Commercial paper 25% 6% 7% 21% Source: Meridian 1. As deﬁned by Standard and Poor’s, see the following page for a breakdown of net debt Meridian Energy Limited Annual Results 2017 39 Funding metrics. •  Net debt/EBITDAF is the principal metric underpinning S&P credit rating •  S&P calculation of net debt/EBITDAF includes numerous adjustments to reported numbers; •  Borrowings adjusted for the impact of ﬁnance and operating leases •  Cash balances adjusted for restricted cash •  A cash buﬀer at 25% of unrestricted cash and cash equivalents FINANCIAL YEAR ENDED 30 JUNE $M 2017 2016 2015 2014 Drawn borrowings 1,158 1,136 991 1,146 Finance lease payable Operating lease commitments 47 71 48 59 52 37 49 42 Less: cash & cash equivalents (80) (118) (69) (276) Add back: restricted cash Add back: cash buﬀer 51 7 18 25 22 12 7 67 Net debt EBITDAF 1,254 1,168 1,045 1,035 653 650 618 585 Net debt to EBITDAF (times) 1.9 1.8 1.7 1.8 Meridian Energy Limited Annual Results 2017 40 Fair value movements. NET CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS 150 $94M $18M 100 50 0 -50 -100 2013 2014 2015 Financial Year ended 30 June -$33M -$21M •  Meridian uses derivative instruments to manage interest rate, foreign exchange and electricity price risk •  As forward prices and rates on these instruments move, non-cash changes to their carrying value are reﬂected in NPAT -$83M 2016 •  Accounting standards only allow hedge accounting if speciﬁc conditions are met, which creates NPAT volatility 2017 Source: Meridian •  $55M positive change in fair value of treasury instruments in FY17 from rising forward interest rates •  $76M negative change in fair value of electricity and other hedges in FY17 from changing forward electicity prices Meridian Energy Limited Annual Results 2017 41 Income statement. FINANCIAL YEAR ENDED 30 JUNE $M New Zealand energy margin Australia energy margin Other revenue Energy transmission expense Employee and other operating expenses EBITDAF Depreciation and amortisation Impairment of assets Gain/(loss) on sale of assets Net change in fair value of electricity and other hedges Net ﬁnance costs Net change in fair value of treasury instruments Net Proﬁt before tax Income tax expense Net Proﬁt after tax 2017 2016 2015 2014 2013 938 75 19 (130) (249) 653 (264) (10) (4) (76) (77) 55 277 (80) 197 941 68 17 (128) (248) 650 (236) 4 (1) (15) (78) (68) 256 (71) 185 900 54 25 (123) (238) 618 (239) (38) 19 (1) (78) (32) 249 (2) 247 891 33 27 (129) (237) 585 (220) - 7 (9) (73) 27 317 (87) 230 865 51 30 (115) (246) 585 (220) (25) 107 51 (114) 43 427 (132) 295 Meridian Energy Limited Annual Results 2017 42 Underlying NPAT. FINANCIAL YEAR ENDED 30 JUNE $M Net Proﬁt after tax Underlying adjustments Hedging instruments Net change in fair value of electricity and other hedges Net change in fair value of treasury instruments Premiums paid on electricity options net of interest Assets (Gain)/loss on sale of assets Impairment of assets Total adjustments before tax Taxation Tax eﬀect of above adjustments (2) (20) Release of capital gains tax provision Tax depreciation on powerhouse structures - - Underlying net proﬁt after tax 218 233 2017 2016 2015 2014 2013 197 185 247 230 295 76 (55) (12) 4 10 23 15 68 (12) 1 (4) 68 1 32 (15) (19) 38 37 (13) (28) (34) 209 9 (27) (20) (7) - (51) (43) (18) (107) 25 (45) (194) 10 - - 195 62 - - 163 Meridian Energy Limited Annual Results 2017 43 Cash ﬂow statement. FINANCIAL YEAR ENDED 30 JUNE $M Receipts from customers Interest and dividends received 2017 2016 2015 2014 2013 2,250 2,348 2,348 2,083 2,390 2 2 8 9 Payments to suppliers and employees (1,596) (1,723) (1,742) (1,480) Interest and income tax paid Operating cash ﬂows Sale of property, plant and equipment Sales of subsidiaries and other assets Purchase of property, plant and equipment Capitalised interest Purchase of intangible assets and investments Investing cash ﬂows Term borrowings drawn Term borrowings repaid Shares purchased for long-term incentive Dividends and ﬁnance lease paid Financing cash ﬂows (186) 470 - 2 (33) - (21) (52) 158 (136) - (478) (456) (175) 452 - 5 (42) - (19) (56) 634 (478) (1) (502) (347) (174) 440 19 29 (131) - (16) (99) 366 (527) (2) (385) (179) 433 41 21 (284) (9) (23) (254) 134 (154) (1) (261) (548) (282) Meridian Energy Limited Annual Results 2017 (101) 44 2 (1,812) (164) 416 1 152 (245) (6) (26) (124) 1,116 (1,117) - (100) Balance sheet. FINANCIAL YEAR ENDED 30 JUNE $M Cash and cash equivalents Trade receivables Other current assets Total current assets Property, plant and equipment Intangible assets Other non-curent assets Total non-current assets Payables, accruals and employee entitlements Current portion of term borrowings Other current liabilities Total current liabilities Term borrowings Deferred tax Other non-current liabilities Total non-current liabilities Net assets 2017 2016 2015 2014 2013 80 260 91 431 7,961 58 215 118 194 94 406 7,771 47 314 69 191 74 334 276 183 64 523 383 254 129 766 7,097 6,929 6,769 47 183 54 84 55 147 8,234 8,132 7,327 7,067 6,971 311 170 98 579 1,022 1,710 272 3,004 5,082 220 214 79 513 1,000 1,617 358 2,975 5,050 208 213 57 478 863 1,400 172 2,435 236 133 97 466 959 1,350 181 2,490 275 147 98 520 1,034 1,364 131 2,529 4,748 4,634 Meridian Energy Limited Annual Results 2017 4,688 45 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 received from retail customers, less distribution costs Average wholesale contracted sales price volume weighted average electricity price received from wholesale customers, including NZAS Combined catchment inﬂows combined water inﬂows into Meridian’s Waitaki and Waiau hydro storage lakes Cost of acquired generation volume weighted average price Meridian pays for derivatives acquired to supplement generation Cost to supply contracted sales volume weighted average price Meridian pays to supply contracted customer sales Contracts for Diﬀerence (CFDs) an agreement between parties to pay the diﬀerence between the wholesale electricity price and an agreed ﬁxed price for a speciﬁed volume of electricity. CFDs do not result in the physical supply of electricity Customer connections (NZ) number of installation control points, excluding vacants FRMP GWh Historic average inﬂows Historic average storage HVDC ICP ICP switching MWh National demand NZAS Retail sales volumes Sell side derivatives ﬁnancially responsible market participant gigawatt hour. Enough electricity for 125 average New Zealand households for one year the historic average combined water inﬂows into Meridian’s Waitaki and Waiau hydro storage lakes over the last 83 years the historic average level of storage in Meridian’s Waitaki catchment since 1979 high voltage direct current link between the North and South Islands of New Zealand New Zealand installation control points, excluding vacants the number of installation control points changing retailer supplier in New Zealand, recorded in the month the switch was initiated megawatt hour. Enough electricity for one average New Zealand household for 46 days Electricity Authority’s reconciled grid demand www.emi.ea.govt.nz New Zealand Aluminium Smelters Limited contract sales volumes to retail customers, including both non half hourly and half hourly metered customers sell-side electricity derivatives excluding the sell-side of virtual asset swaps Virtual Asset Swaps (VAS) CFDs Meridian has with Genesis Energy and Mercury. They do not result in the physical supply of electricity Meridian Energy Limited Annual Results 2017 46 Disclaimer. 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 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 made as to the accuracy, completeness or reliability of the information. In addition, neither the company nor any of its directors, employees, measures may diﬀer from similarly titled measures presented by other companies and they should not be considered in isolation from, or 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 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 connection with it. This presentation may contain forward-looking statements and projections. Meridian's business, readers are cautioned not to place undue reliance on these non-GAAP ﬁnancial measures. 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 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 law or NZX or ASX listing rules, Meridian is not obliged to update this presentation after its release, even if things change materially. available at: 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. All currency amounts are in New Zealand dollars unless stated otherwise. Meridian Energy Limited Annual Results 2017 47 Thank you.

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