Meridian Energy beats prospectus forecast with 22% drop in full-year profit
By Jonathan Underhill
Aug. 18 (BusinessDesk) - Meridian Energy, which went public in October with a listing of installment receipts, posted a 22 percent decline in full-year profit in a market where retail electricity demand was flat and wholesale prices fell.
Profit was $229.8 million in the 12 months ended June 30, down from $295 million a year earlier, the Wellington-based company said in a statement. Operating revenue dropped to $2.51 billion from $2.7 billion.
Earnings beat the state-controlled utility's prospectus forecasts, showing a decline from 2013 that partly reflected a one-time gain in the year-earlier period from the sale of the Macarthur wind farm and accounting adjustments. Energy sales revenue fell 7.5 percent to $2.48 billion in the latest year, while energy related expenses fell 17 percent to $1.13 billion, distribution expenses rose 5.8 percent to $428 million and transmission expenses climbed 12 percent to $129 million.
"Last year’s result included earnings for six months under the then unvaried and higher priced Tiwai Point contract and five months operating earnings from the company’s interest in the Macarthur wind farm in Australia, which has since been sold," said chief executive Mark Binns.
“While inflows into our southern catchments were 111 percent of average, we experienced difficult wholesale trading conditions from February to April when inflows were around 62 percent of average. Despite this, electricity generation was up by 8.9 percent over the previous year,” Binns said. "The residential segment of the retail market remained very competitive."
Meridian's retail contracted sales rose to 5,754 gigawatts an hour from 5,660.8 GWh a year earlier, with NZAS aluminium sales rise to 5,010.7 GWh from 4,886 GWh. Operating cash flow rose about 28 percent.
The government sold installment receipts to reduce its holding in Meridian at $1 apiece last year. They last traded at $1.285, up 19 percent since listing, and are rated a 'buy' based on seven recommendations compiled by Reuters, with a median price target of $1.53. Investors must make the second 50 cent payment on the receipts in May 2015 after an initial public offering that will raise $1.88 billion in total.
In presentation slides the company said aggregate retail electricity demand "remains relatively flat" while manufacturing demand "remains subdued." Still Meridian's New Zealand customers rose 1.7 percent in the latest year and the volume of retail sales climbed 1.6 percent.
The company lifted generation by 8.9 percent including an 8 percent gain in wind generation, giving it a 35.3 percent average market share of generation. It noted lower wholesale market prices, accompanied by periods of high hydro generation. The average price it received for generation was $4.81 per megawatt hour, down 7.4 percent from a year earlier. The price Meridian paid to supply contracted sales fell 8.6 percent to $6.10/MWh.
Meridian said it is investigating the sale of its Arc metering business.
The company will pay a final dividend of 6.82 cents a share plus a special dividend of 2 cents, bringing total payments for the year to 13.01 cents, imputed to 90 percent. Meridian said it is "considering further mechanisms to ensure optimal capital structure" and will provide an update with its first-half results in February. It held off giving specific guidance other than to say it is "very focused" on meeting its prospectus forecasts.