Meridian profit falls 13%, wins $28mln in smelter settlement

Published: Tue 23 Aug 2011 10:13 AM
Meridian profit falls 13%, wins $28mln in smelter settlement
By Pattrick Smellie
Aust 23 (BusinessDesk) – Low wholesale prices for electricity were a primary driver for a 13% drop in tax-paid profit for Meridian Energy Ltd., to $219.0 million in the year to June 30.
The state-owned generator controlled its costs, which fell 5% to 238.1 million, banked a $28.1 million settlement from its dispute with Rio Tinto over lost production at the Tiwai Point aluminium smelter in 2008, and grew its customer base 7% in competitive conditions.
But total revenue was flat at $2.053 billion and the company lost one month’s trading from the Tekapo A and B hydro stations, which it sold to its SOE competitor, Genesis Energy Ltd., as part of electricity reforms intended to make the retail market more competitive.
The Tekapo transfer saw Meridian book a one-off gain of $157.4 million in the year just gone, but underlying profit was particularly affected by flat demand, low wholesale prices, and increases in both depreciation charges and net finance costs.
Depreciation increased by $35 million following revaluation of the company’s generating assets, while increased funding costs for development pushed up net finance costs by $22.6 million, both costs going straight to the bottom line.
The picture is rosier on an earnings before interest, tax, depreciation, and amortisation, rising 2.8% to $659.9 million for the financial year, producing what chief executive Tim Lusk described as a “robust” performance in a challenging year.
The company did better on every financial measure against its Statement of Corporate Intent targets and recorded further improvements in health and safety, with lost time injuries “now well below the industry average.”
Meridian expected a “solid year ahead”, although he gave no earnings guidance other than an expectation of continuing low wholesale prices in the near term, and the loss of revenue equivalent to 1,000GWh from the loss of the Tekapo units.
While average wholesale electricity prices were 14% lower than the year before, at $41.57 per Megawatt hour, EBITDAF per MWh improved by 3.2%, despite wet weather depressing wholesale prices, and the balance sheet remains lightly geared at 19.3%, down from 22.4% last year on a net debt to equity basis.
Underlying return on equity fell to 18.5% in the year, compared with 19.8% the year before.
On the generation development front, the year ahead is dominated by activity in Australia, with Meridian preparing to invest close to A$500 million in its Macarthur wind farm joint venture in Victoria.
After paying dividends, including a special dividend, totalling $684.6 million last year, Meridian has announced a final dividend of $69.4 million, to be paid on Oct. 31.
The details of the negotiated settlement with Rio Tinto are the first to emerge since it was announced last October, and followed a dispute over payment for electricity which could not be delivered to the smelter under take or pay contracts after a Transpower transformer failed, cutting supply to one of the smelter’s three potlines.
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