Meridian’s profit more than quadruples to $429m as big four power companies’ profits top $1b

Wednesday, 28 August 2024

Meridian’s result confirms the big four power firms will once again pay out more to shareholders than they invested in their networks.

The country’s big four power companies more than doubled their net profits to just under $1.1 billion in the year to June, from $530 million last year.

Meridian Energy, the largest of the companies, was the last to post its annual result on Wednesday morning.

It more than quadrupled its net profit to $429m after an abnormally low profit of $95m last year that was impacted by one-offs.

Its operating profit, which is a better measure of its performance, was up 16% to $905m, and its “underlying net profit” rose 14% to $359m.

The results have been posted with the industry in the cross-hairs of politicians, who are concerned by high wholesale prices and factory closures.

Japanese ambassador Osawa Makoto has warned the Government volatile power prices are a threat to foreign investment in New Zealand, suggesting that Japanese owned timber mills in the country need relief.

The Electricity Authority and Commerce Commission announced on Wednesday they had established an “Energy Competition Task Force” to improve the performance of the electricity market.

That could include creating a backstop power to ban gentailers from discriminating in favour of their own retail customers, but only “if other interventions are not effective”.

The big four gentailers have stepped up their investment in new generation in the past few years, but not to a level that matches their pay-outs to shareholders.

Between them, the four firms will pay out just over $1.3b in dividends to shareholders this year, with Meridian confirming a 17% increase in its annual pay-out to 21 cents per share.

The four companies invested less than that, about $1b, in capital expenditure in new generation during the year.

The ratio would have been worse were it not for Contact Energy, the only one of the four companies which is not 51% state-owned, which has been investing relatively heavily in new generation.

Data from Citigroup indicates that, between 2010 and 2014, listed companies globally invested nearly double the amount they paid in dividends — US$2.6 trillion versus US$1.4t.

That stands in contrast to the less than 50:50 ratio for New Zealand’s big four power companies last year.

Minister for Regulation David Seymour said it was a fair question whether power firms had got the balance right between pay-outs and investment in new generation.

“But I don't think it helps for politicians to try and guess what that right amount is because, actually, the politicians don't always know either,” he said.

How the Government plans to deal the electricity supply crisis.

Meridian, Mercury, Contact Energy and Genesis have a combined market value of about $34b on the NZX.

Meridian Energy chief executive Neal Barclay said its “strong and improved operating result” had allowed it to invest $349m in new and existing generation assets during the year.

That figure was up by $3m from the previous year, but it is forecasting capital expenditure will drop back to between $295m and $325m this financial year.

In 2020, Meridian’s capital expenditure had sat at just $64m, only $19m of which was in new generation.

Of the big four gentailers, Meridian invested the least last year relative to its payout to shareholders.

Chief financial officer Mike Roan told The Post there would be “swings and roundabouts” as not every power company invested at the same time.

Meridian had been rebuilding its development team “from scratch” over the past few years and planned to invest $3b over the six years to 2030, versus $1b over the past five years, he said.

Meridian chief executive Neal Barclay says the significant impact of high prices on some customers was “not an outcome this sector wants”.

Meridian said in a statement to investors that while it had a strong year, inflows into its hydro-electric catchments since May had been the lowest on record and, as a result, the 2025 financial year currently looked to be “far more challenging”.

Commenting on wholesale power prices, Barclay said that “while a very small number of electricity users have direct exposure to the wholesale market, unfortunately some of them have been significantly impacted”.

“It’s a tough economic environment and this is not an outcome this sector wants for any business,” he said.

Barclay said Meridian had taken steps to look after larger commercial and industrial customers rolling off existing contracts by offering to extend their current pricing through to the start of November.

Associate Energy Minister Shane Jones said last week he would bring forward “various proposals” as the Regional Development Minister, making clear one option he was mulling would be to operationally separate the power firms’ generation and retail arms.

But there has been no indication other ministers, including Energy Minister Simeon Brown, are on-board with the idea of major structural reforms.

Barclay welcomed the creation of the Energy Competition Task Force on a conference call to analysts but questioned whether the Electricity Authority had “missed the point a bit” with regard to high power prices, by making only passing mention of gas shortages.