Meridian Interim Report For the period to 31 December 2010 Overview Performance Summary Notes Meridian Group 6 MONTHS 6 MONTHS YEAR ENDED ENDED PERIOD ENDED 1 Net profit/(loss) after tax includes unrealised Performance in Brief 31 DEC 2010 31 DEC 2009 CHANGE 30 JUN 2010 gains/(losses) on financial instruments. 2 Underlying net profit/(loss) after tax excludes Net Profit/(Loss) After Tax $m1 84.7 142.5 (57.8) 184.0 unrealised fair value movements and other one-off items. Underlying Net Profit/(Loss) After Tax $m2 123.4 118.7 4.7 251.9 3 EBITDAF – earnings before interest, taxation, EBITDAF $m3 353.3 297.4 55.9 641.7 depreciation, amortisation and financial instruments. EBITDAF $ per MWh4 51.9 43.4 8.5 46.3 4 EBITDAF per megawatt hour (MWh) generated by our New Zealand hydro power stations and wind farms. EBITDAF EBITDAF Increase Injury Rates Reduced $353.3m 19% 47% Earnings before interest, taxation, depreciation, amortisation 19% increase compared with the same Lost-time frequency rate has improved and financial instruments period last year by 47% to 1.8 since December 2009 Retail Development Total Retail ICPs North Island ICPs Powershop ICPs Te Uku 262,923 13% 48% wind farm Customer installation control points (ICPs) Increase in North Island ICPs Growth of Powershop ICPs since Started to generate power in November 2010 since June 2010 June 2010 – now 24,024 customers – full commissioning expected ahead of plan Plant Capacity and Generation Total GWh* Generated Total GWh Generated Total GWh Generated Total Plant Capacity (MW) 6 Months Ended Dec 2010 6 Months Ended Dec 2009 Annual 2010 New Zealand 2,756 6,804 6,854 13,862 International 75 90 – 12 * Gigawatt hours 6,331 558 5 hydro wind solar Hydro GWh generation Wind GWh generation Solar GWh generation Contents Message from the Chairman and Chief Executive 2 Highlights 4 Performance Summary 8 Condensed Interim Financial Statements 16 Review Report from the Auditor-General 35 Directory 36 Benmore Hydro Dam, Waitaki Valley – the Benmore Refurbishment Programme is on track for completion in early 2011. Message from the Chairman & Chief Executive 2 The first half of the 2011 financial year saw Meridian deliver a number of significant milestones consistent with our vision of being the global reference company in renewable energy. Financial Performance Meridian continues to maintain a strong Electricity Industry Act financial position with total assets of We recorded a net profit after tax (NPAT) $8.8 billion and a gearing ratio of 22.9%, Meridian is committed to implementing of $84.7 million and an underlying net which is within Statement of Corporate successfully the measures set out in the profit after tax of $123.4 million for the Intent (SCI) target levels. Electricity Industry Act. These include interim period. the sale of the Tekapo A and B power An interim dividend of $94.2 million stations to Genesis Energy and entering This represents a 4% increase in has been declared for distribution into Virtual Asset Swap (VAS) agreements underlying NPAT and a 41% reduction with respect to the six months ending (long-term swaps of electricity) between in NPAT on the same period last year. 31 December 2010. Meridian in the South Island and Genesis This NPAT performance was affected by Energy and Mighty River Power in the increased depreciation following the Investments North Island. revaluation of our generation assets at Our commitment to invest in new During December 2010 Meridian was 30 June 2010 and non-cash accounting renewable generation continues as we given a Ministerial Direction to sign the adjustments for fair value movements further develop our renewable generation VAS agreements, which took effect from on financial instruments. portfolio and future development pipeline. 1 January 2011 for a period of 15 years. Earnings before interest, taxation, In New Zealand, the Te Uku wind farm The Ministerial Directions relating to the depreciation, amortisation and financial project near Raglan started generating Tekapo sale are expected in the first half instruments (EBITDAF) were $353.3 million, power and is close to full commissioning. of 2011. an increase of 19% on the same period The Environment Court hearing on our last year. This included $28.1 million (net During the period the Government Mokihinui hydro proposal on the West of legal expenses) recieved, following the announced that it would be selling the Coast of the South Island is expected in diesel-fired electricity power plant settlement reached between Meridian the first half of 2012. We also continue and RTA Power (NZAS) concerning liability at Whirinaki by tender rather than to consult on and progress a number transferring it to Meridian. for electricity during the 2008 pot line of projects through the resource outage at the Tiwai smelter. This outcome management framework. sees us looking forward to continuing our Our People positive working relationship with our We have purchased two pre-consented Meridian and its people did not escape the sites in Hawke’s Bay with a view to utilising largest customer. impacts of the Christchurch earthquake. both sites in the design of one wind This event saw staff work through farm project. In addition we continue Excluding this settlement, EBITDAF personal and professional challenges to investigate new sites with a view to increased by $27.8 million (9%) on last to ensure business continuity was securing some of New Zealand’s best year’s result, which was pleasing. A key maintained at a time when our customers renewable development options for the driver of this result was improved margins depended on us. derived from careful management of the long-term. No more so than when the Manchester company’s net contracted position. Internationally, our Australian growth Street building housing our Christchurch- strategy is progressing to plan as we Storage levels, while down on last year’s, based contact centre was physically commence construction of the Macarthur remained above the long-term average. wind farm in Victoria, a joint venture affected by the quake. Despite personal The second quarter saw declining inflows between Meridian and Australia’s largest disruption, our contact centre team and an increase in wholesale electricity renewable generator, AGL Energy. relocated to our Wellington office and prices against the same period last year. We have also appointed a Chief Executive continued to maintain high standards to lead our Australian operations. of service and support in the days A series of major inflow events beginning immediately following the quake. We late in December 2010 reduced wholesale Our solar programme continues to acknowledge the resilience, engagement prices significantly towards the end of be an integral part of our renewable and professionalism all Meridian people the period. development strategy. demonstrated at this difficult time. The Te Uku wind farm project, near Raglan, North Island, New Zealand started to generate power in November 2010 – full commissioning is scheduled for the second half of the financial year. 3 Our July 2010 engagement survey results revealed a pleasing improvement in overall staff engagement. These results are assisting us to launch and refine a range of initiatives to support our people to deliver on our business goals. Outlook for the Year The slow recovery of the New Zealand economy, coupled with a high level of retail competition for electricity customers, will remain a real challenge Chris Moller Chairman for us to navigate during the rest of the year. We continue to manage our hydro storage position responsibly as we move into autumn. Meridian enters the second half of the year in a strong position with full lakes. However, recent hydrology conditions highlight the volatile nature of inflows. We are on track to achieve our SCI financial targets. Tim Lusk Chief Executive Highlights 4 Wholesale We saw a marked increase in activity Meridian Retail’s in-house Christchurch- on the Australian Securities Exchange, based contact centre continued to Meridian started this financial year the agreed platform for New Zealand perform strongly. Notably, despite the with above-average hydro storage electricity futures’ trading. We support major impact the earthquake had on our levels, which continued throughout the the building of a liquid hedge market Manchester Street base and staff, six-month period. This, combined with the and see this greater liquidity allowing we continued to deliver a high standard continuation of soft electricity demand, participants to better manage their risk of service and support. In the first meant average wholesale electricity spot positions and enhancing retail competition. prices remained relatively low during the few days directly after the quake, majority of this period, albeit higher than The construction and commissioning all vulnerable and priority customers in for the same period last year. of Pole 3 of the high-voltage direct-current the Christchurch area were called multiple (HVDC) link between the North and times as we moved swiftly to ensure that However, December 2010 saw unusually South Island remains an important those who depended on electricity supply high average wholesale prices owing to step in helping to address current were identified and supported. an extended period of below-average transmission constraints limiting the Arc Innovations (our electricity metering inflows and a dry outlook. This period also capacity of this link. coincided with a period of significant, service business) provided valuable although scheduled, thermal power Our Benmore Refurbishment Programme real-time services assessing safety station outages. These higher prices is on track for completion in early 2011. and assisting with restoring electricity abruptly changed late in December 2010 The Benmore upgrade, the first major to our customers following the following significant inflows that pushed upgrade in the power station’s 46-year Christchurch earthquake, at a time prices down to low levels by the end of history, is part of our ongoing programme when infrastructure was fully tested the reporting period.