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Late generation rebound, Australia help lift Meridian earnings

Wednesday 22nd August 2018

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A strong generation rebound in the June quarter and improved retail earnings here, in Australia and in the UK, saw Meridian Energy report a modest rise in full-year earnings.

The company, New Zealand’s biggest power generator, benefitted by adding about 1,400 new customers across both its Meridian and Powershop brands in the local market during the past year while using technology to reduce cost-to-serve by $15 per customer.

Retail volumes rose 5 percent, reflecting higher irrigation, corporate and small business volumes, and the firm also sold 43 percent more volume through derivatives.

Meridian also benefited from an inflation adjustment on its sales contract with the Tiwai Point smelter – its biggest customer - and one month of an escalation factor for higher aluminium prices.

But the firm also reported improved earnings in Australia and in the UK, where the Flux Federation business has helped Npower sign up more than 32,000 customers onto the Powershop UK platform. Revenue from the UK increased 57 percent to $11 million.

Earlier this year Meridian announced a three-year plan to shift all its customers onto the Flux platform developed for Powershop.

“Flux will enable Meridian to improve its customer experience significantly, allowing us to respond to customers’ needs and deliver products to market faster than our competition,” the firm said in its annual report.

“Meridian customers provide Flux with scale to drive growth and expansion opportunities. Accordingly, the journey for Flux is far from limited to our existing businesses. We are presently focused on supplementing the existing technical capability with account management and business development capabilities to drive an international sales and business growth strategy.”

Meridian shares fell 0.6 percent to $3.23 on the NZX today. They have gained almost 10 percent so far this year.

The company earlier today reported net profit of $201 million for the year ended June 30, up from $200 million a year earlier. Earnings before interest, tax, depreciation, amortisation and changes in financial instruments rose to $666 million, up 1.4 percent from $657 million a year earlier. Prior year earnings were restated for a change in accounting policy.

For a second year running, low South Island inflows reduced Meridian’s generation. While full-year inflows were only 2 percent below average, the severity of the dry period in the first-half was masked by unusually high inflows in the June quarter.

First-half generation was down 16 percent and Meridian called on its back-up generation swaption with Genesis Energy in July, August, December, January and February.

Chief executive Neal Barclay said the firm did well to turnaround the $25 million earnings reduction reported for the first-half.

Second-half ebitdaf was $337 million, $34 million higher than the year before. Second-half generation was also 5 percent higher, lifting full-year output to 12,528 GWh – still 6 percent less than the year before.

In Australia, full-year revenue increased almost 30 percent to $249 million. Operating earnings increased by $8 million, reflecting an 8 percent lift in output from the firm’s two wind farms and the acquisition of Trustpower’s three hydro plants there earlier this year. Total generation increased 14 percent to 581 GWh, while average prices were also 15 percent higher.

Powershop’s customer base there was largely unchanged at 100,545 at the end of June; sales volumes in the year were about 12 percent higher.

Powershop had slowed recruiting in Australia while it accessed more renewable generation there. In June the firm started also offering gas in Victoria.

Meridian noted the importance of the Australian operations in the group’s full-year performance.

“Our operations in Australia also delivered good growth and demonstrated the value of our strategy to diversify the Meridian business geographically by leveraging our core capabilities in asset management, energy markets risk management and energy retailing in that country.”


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