Meridian Energy Limited (MEL) Earnings Call Transcript

[Foreign Language]. Welcome to all of you who are able to join us today and those who are watching online. Welcome to the annual meeting of Meridian Energy 2026. We look forward to talking further with you today. [Foreign Language]. [Presentation]. We invite you to join with us today to appreciate all that has happened in the past year and to look forward into the future with the past [indiscernible]. [Foreign Language].

[Foreign Language]. Apologies, shareholders, I'm going to do this sitting down. My back is giving me a bit of dip. So apologies for that. We welcome you all to our Meridian's 2026 Annual Meeting. Haere Mai to those who are joining us today, both in person at our offices here in Wellington and to those of you online. Welcome to the meeting to Anthony Smith and Daniel Lock from our auditors, Deloitte, and in Beaumont and Sophie Chester from our lawyers, Ross McVay. We also welcome Daniel Medley from the treasury representing McCrow. For those of you here in person, in the unlikely event of an emergency, please follow Meridian staff instructions. If the fire alarm sounds, our emergency exits are located near the rear of the seating area, down the stairs and out the way you entered this building. Please do not use the lifts. Our staff are here to show you the way. Our fire evacuation point is on Custom House Key across the road on the foot path outside Pradera. In the event of an earthquake, please drop, cover and hold. Once the shaking is stopped, please follow all Meridian staff instructions. The bathrooms are by our reception where you arrived today. Meridian staff members are here to guide you and assist I now declare the 2026 Annual Shareholder Meeting open. The meeting has been duly convened, and a quorum is present. The minutes of last year's meeting have been posted on Meridian's website and are held by the Company Secretary. Today's meeting is being held in person and online via the Computershare online meetings platform. All online attendees can watch a live webcast of the meeting and read company documents associated with the meeting. In addition, shareholders and proxies can ask questions and submit votes. For those of you attending virtually, if you have a question to submit, during the live meeting, please select the Q&A tab on the right of your screen at any time. Please type your question into the field and press send. Your question will be immediately submitted. Should you require any assistance, you can type your query and one of the Computershare team will assist via the chat function. Alternatively, you can call computer share on 0800-650-034. Please note that while you can submit questions from now on, I won't address them until the relevant time in the meeting. Your questions may be moderated or if we receive multiple questions on the same topic they could be amalgamated together. And finally, if we run out of time to answer all your questions in this session, we will answer them by e-mail. At the conclusion of the Chief Executives review, we will address questions on the operations of the business. Please keep any questions on today's ordinary resolutions until we get to the formal part of the meeting. Voting today will be conducted by way of poll on all items of business. To provide all attendees enough time to vote, I will shortly open the online voting for the formal resolutions to be considered today. These relate to the reelection of current directors, David Carter, Fraser Whineray and myself. At that time, if you are eligible to vote at this meeting, you will be able to cast your vote under the vote tab. To vote, simply select your voting direction from the options on the screen. Your vote will have been cast when the tech appears. To change your vote, you simply select change your vote. You can change your vote at any time until I declare voting is closed. Persons attending the meeting who are not shareholders, proxy holders or corporate representatives of a shareholder may not vote. That includes bondholders. Voting is now open on all items of business. The resolutions are open in the vote tab. Please submit your questions and your votes at any time. I will give you a warning before I close the voting. I will begin my chair address today by introducing the Meridian board and some of the management team. This year, some of our Board members are present in the Wellington office, some are online. For those in the room, I ask you to raise your hands as I call your name, David Carter, Fraser Whineray, Graham Cockroft. The breadth of experience around the Board table remains a considerable strength enabling us to bring diverse perspectives to the opportunities and challenges facing both Meridian and the wider sector. There was one board change during the year. Michelle Henderson, step down to take up the role of General Manager and Chief Executive at New Zealand aluminum smelters. On behalf of the Board, I would like to sincerely thank Michelle for her contribution and service and wish you every success. The Board also appointed Kyle Rory has our next future director during the year, effective from November 3, 2025. This program of the Institute of Directors is designed to grow the next generation of directors in Altira. Future directors attend Board meetings and contribute to discussion but they do not have voting rights and are not involved in decision-making. In August of this year, we also announced that Fraser Whineray had been appointed to the Board as Non-Executive Director with effect from 28th September 2026. The Fraser brings deep executive leadership experience and governance experience across the energy, infrastructure and primary industry sectors as well as in capital markets. Fraser retires and will seek shareholder approval for his election at this meeting today. Also present with me today are Chief Executive, Mike Roan; Chief Financial Officer, Mandy Binnie and the rest of the Meridian executive team apart from Guy Waipara and Clear Shore. They are all otherwise present in the room today. Now talking about the 2026 year. It's been an important year for us, a year in which we recovered strongly from a challenging 2024, '25, we continue to invest in the future and stayed focused on serving our customers and communities well and delivering long-term value for shareholders. This year, we focused on 3 core priorities: maintaining financial discipline, supporting customers through ongoing cost of living pressures and continuing to build out our renewable generation development program. The financial year for FY '20 -- financial results for FY 2026 represents our ability to adapt in a changing operating environment. The decline of domestic gas as a transition fuel has altered the outlook for the sector, reinforcing the importance of long-term investment, practical resilience measures and clear signals for capital to keep flowing into new renewable generation development. The fact of the matter remains that the best antidote for higher prices is to continue to introduce more electrons into the system. Many of our actions happen behind the scenes, but it is our job to maintain a business that can continue to perform on a balanced basis for our customers, our communities and our investors through both normal conditions and times of stress. During a demanding period for the company in the wider sector, our people collaborated effectively made difficult decisions and took a long-term sector-wide perspective. The Board is very conscious that this year's performance has been achieved during a period when many households and businesses continue to face financial pressure. The cost of energy remains an important issue and rightly attracts public attention scrutiny. As I said earlier, we remain confident that the most effective long-term solution is to creating further affordability is investment in new generation. Increasing supply is simply the best way to put downward pressure on wholesale prices over time. while improving energy security. We know that New Zealand is want to see lower power prices and encouragingly, the substantial investment being committed across the sector and net that's already in play is beginning to have an impact. We're seeing positive signs with wholesale forward prices easing during this year, enabling us to reduce prices for commercial and industrial consumers as their contracts come up for renewal. We've also made public commitments to residential and small business customers into next year. However, we do not set all of the elements that make up someone's bill. Customers will see at least 3 more years of regulated increases in lines and transmission charges, and we don't control lows. If New Zealand is to meet its electricity needs and support economic growth, it must continue to attract new investment into new generation. This matters for both energy security and as I've said, the prices that customers face. Large renewable developments require long investment horizons, significant capital commitments and confidence in future market settings and returns. Stable policy settings and efficient consenting pathways both play a very important role and ensuring the necessary investment occurs. As a country, New Zealand has a tremendous advantage, which we should leverage, we already operate one of the world's most renewable electricity systems providing strong foundations from which to electrify more of the economy. This creates a significant opportunity not only to reduce emissions, but also to support productivity attract new investment and strengthen our international competitiveness as a country. Meridian is absolutely committed to playing its part to support the country's long-term prosperity and security. To this end, we have formed and are growing a team task with helping attract New Zealand -- sorry, international companies to New Zealand with possibilities that include further smelters, mineral processing and green fertilizer. Data centers are in the mix too. Each of these opportunities would deliver significant demand growth and more importantly, create jobs and support regional and the wider economic growth for the country. Of course, any new electricity user needs to be introduced in a way that protects the reliability and affordability for all New Zealanders. And for us, that is a prerequisite. One of the most significant milestones for us this year was securing resource consent for the continued operation of the WitechiPower scheme for the next 35 years. This scheme has been at the heart of New Zealand's electricity system for generations and remains a strategic asset for both Meridian and the country. More recently, we've also committed to a $0.5 billion generational investment in the Waitaki power station itself. Securing long-term certainty over the future operation of the station provides confidence for customers, investors, local communities, EE and the wider economy. It also supports the ongoing role of renewable hydro generation within our energy system, at a time when resilience, reliability and decarbonization are all critical. This year also brought important external recognition of our long-standing commitment to sustainability. We were pleased to be included in the S&P Dow Jones best-in-class World Index. Meridian is the only New Zealand company currently represented in this index and only the second New Zealand company ever and 1 of just 10 electricity utilities globally. This recognition reflects years of disciplined work to build a business capable of delivering both strong commercial performance alongside environmental and social outcomes. It reinforces our belief that sustainability and long-term shareholder value creation go hand in hand. I will conclude my address by speaking to our shareholder returns that we've delivered in FY '26. The Board has maintained a close focus on ensuring Meridian continues to deliver sustainable long-term returns while retaining the financial strength needed to fund growth. The significant improvement in our financial performance this year reflects disciplined execution, favorable operating conditions and the benefits of strategic decisions made during a more challenging period. While we're pleased with the recovery, we remain mindful that electricity markets will continue to experience volatility and and that resilience must remain at the core capability of the business. Recognizing the strength of this year's performance, the Board declared a final ordinary dividend of $0.61 a share which is up $0.07 on the previous year. Combined with the interim dividend, this brings total ordinary dividends declared for FY '26 to $0.225 a share. Returns to shareholders remain important, and so too is maintaining a balance sheet strength required to fund future investment. Our development pipeline remains one of the most significant in the sector, and the Board remains committed to ensuring the company is well positioned to fund growth opportunities while maintaining a financial discipline. In closing, New Zealand is at an important point in the energy transition. The choices made over the coming decade will influence the affordability, security and sustainability of our energy system for generations. We believe the opportunity before us is clear to continue to invest in renewable generation and support the further electrification of the economy. Doing so requires investment, partnership with stakeholders and a willingness to think beyond short-term cycles in pursuit of long-term outcomes. Meridian's purpose, clean energy for a fairer and healthier world has never felt more relevant. It provides a clear connection between the role we play for customers, consumers, investors and the country. And equally important are the values that shape how we work, how we show up every day. The behaviors that enable our people to navigate complexity, build trust and make decisions that create long-term value. Thank you for continuing to invest and support the company I'll now ask our Chief Executive, Mike Roan, to address the meeting.

[Foreign Language]. Welcome, everyone, I am Mike Roan, Meridian's CEO. I'll set in solidarity with Mark and rather than jumping up to the Lepton. But it's a pleasure to speak with you today and reflect on a period in which Meridian's delivered a strong financial result. We've advanced our strategy and strengthened the foundations of the business for the future. And when I stood before you last year at this meeting, Meridian was emerging from 1 of the most challenging periods it's faced in a long time. I said then I remain confident in Meridian's future, and this year's performance shows why. For the year ended 30 June 2026, Meridian delivered EBITDA of more than $1 billion operating cash flows of $810 million and underlying net profit of $308 million. And those outcomes drove the increase in full year dividend of $0.225 per share, which is the highest shareholders have received since the company was listed. But as always, the numbers only tell part of the story. Marin's are stronger, more resilient and capable business than it was 12 months ago. and the performance also reflects disciplined execution across the business, stronger retail revenue, improvements in portfolio design, better operational availability and careful management of market conditions. These factors combined to strengthen Meridian's financial resilience at the same time as we continue to invest at pace in the renewable and firming assets that New Zealand needs. We're obviously operating in a sector that's changing, and it's changing pretty quickly. Affordability pressures remain very real for a lot of customers. and at the same time, electricity is becoming the fuel of today's modern economy. So we need to continue to balance delivery today with investment tomorrow if we are to land good outcomes for shareholders and customers. Meridian has got an important role to play in supporting New Zealand's energy independence, strengthening system resilience and enabling long-term economic growth. We've made substantial progress in reducing risk and strengthening the long-term earnings resilience of the business. As you can see from the graph on this page, the addition of the Huntley Strategic Energy reserve contract, the 20-year demand response arrangement with Insys and the additional storage now available at Lake Pukaki have materially improved Meridian's flexibility. Compared with our portfolio in fin year '25, the volume of available risk management options has roughly doubled and is now broader, more diverse and more within our control. Now that gives us confidence to keep growing our customer base and building value for shareholders. And while each of the elements is valuable, I'd like to call out the 20% increase in available storage at Pukaki that's been secured. Not only does improve protection from Meridian and New Zealand against dry year risk, but it lowers average wholesale electricity prices, which is great for customers, and it creates additional value for shareholders by allowing us to improve coordination between the Waitaki and wire catchments. At the same time, we're investing in the next generation of renewable assets that will support New Zealand's growing demand for electricity and Meridian's future growth. One of the most significant successes of the year were securing resource consent for the continued operation of the Waitaki power scheme for the next 35 years. The Waitaki scheme has been at the heart of New Zealand's electricity system for generations and remains a strategic asset for Meridian and the country. As I mentioned before, Meridian was also granted access to an additional 5 meters of storage at Lake Pukaki to the end of 2028 and to help us manage system security while new generation is built. In talking of building new generation, we currently have 2 projects under construction, the 130-megawatt Rokaka solar farm and the 200-megawatt Stage 1 Todahui-Solafarm, a joint venture we've got with Nova. Consents were also secured for the 90-megawatt Mount Monroe wind farm and the 120-megawatt Bunny thought solar farm. And the proposed WainaEnergy Park was admitted to the fast-track process. As Mark noted, we've also very recently committed $0.5 billion to upgrading the Waitaki power station to ensure that it supports future generations of kiwis and shareholders. Not only does it feel good to do that, it made good financial sense. So there's a lot going on to sustain and support growth of the business, and we're determined to build on these elements. In the next 12 months, I expect to announce final investment decisions for Mount Monroe Wind Farm to Daily wind farm and possibly Stage 2 of the Tadahui solar farm. Now the market for customers is highly competitive, but Meridian continued to grow relationships with them. Our sales volumes were up 12% year-on-year, and customer connections increased to 455,000 with growth across both Meridian and Power shop. The acquisition of Flex supported that growth and we expect our customer base to build towards 500,000 and and then 600,000 customers before 2030, once we get through the migration that challenged us and Powershop customers this winter. The migration to crack in our new retail platform has passed the halfway mark -- while there have been some customer impacts during the transition, we've listened, fixed issues and taken steps to improve the customer experience. We remain incredibly confident that the platform will improve service enhance innovation and support more efficient operations over time. As Mark said, affordability is also front of mind. Wholesale futures prices, they fell materially during early 2026. And we're seeing those lower prices flow through our commercial and industrial customers as contracts are renewed. We also made a public commitment to residential and small business customers to ensure that they had confidence over the next year as well. And we're continuing to support customers directly. Around 31,000 Meridian and Powershop customers are now on a hot water plan, saving about $120 a year by allowing hot water cylinders to be switched off during peak periods. Through our energy well-being program, we've supported around 4,000 customers experiencing hardship. An additional $7 million has been approved to extend that program through 2030 with a goal of reaching 10,000 customers. Our support for communities was also aligned with the long-term interest of shareholders. Through the decarbonization fund, we supported 37 not-for-profit organizations to electrify their operations, reduce ongoing costs and direct more funding back into the communities they serve. As such, this year, we are increasing the fund to around $3 million to reach more organizations supporting communities. Our operational performance has also improved since 2024, engineering improvements have added approximately 75 megawatts of operational capacity to our core generation assets. We optimized maintenance schedules and lifted availability through DigiGen, and we're using data and digital tools to improve maintenance, asset performance, procurement and outage planning further. Now no business outcome happens on its own. It's the product of the people who come to work every day and make Meridian what it is. Staff engagement improved during the year despite significant change in external pressures. Same time, our development program continues to grow and with it the risk profile of the business. There's more construction, more contractors on sites and more field-based work and they all increase the importance of getting health and safety right. Maridian's culture gives me confidence that our people feel empowered to slow down or stop work if conditions warrant. But this culture is not yet flowing through to our contractors as consistently as it should. -- and our injury statistics reflect that. Our regular tell contract is the same thing I tell our own people. When you're on a Meridian site. It doesn't matter what bad you're wearing, you're one of our team. and the expectations and standards are the same. So our focus is on contractor induction, clearer communications on-site and stronger critical controls. Of all the responsibilities I have as Chief Executive, keeping people safe is the most important. In closing, in my view, New Zealand's got a once-in-a-generation opportunity to use renewable electricity to lift productivity, improve energy security, reduce emissions and strengthen economic growth. Meridian has got a crucial role to play in helping make that future a reality. We're entering this financial year from a position of strength with a clear strategy a strong pipeline of opportunities and confidence in our ability to continue creating value for our shareholders. Thank you for your continued support and confidence in our company.

Thank you, Mike. Now this question time for meters pertaining to the management of the business. And in the first instance, I'll invite questions from the floor from people who are shareholders who are present here today. If I could ask that when you ask your question, you first state your name so that we have a record for the minutes. Are there any questions from the floor?

David Bell, shareholder. Considering what's happening at the other end of lengthen care at the moment with people who work there and people who want to work there, not asking for a detailed answer, but what's your analysis of the various policies threats and opportunities which might come out of various eventual governments, breakup of retail and wholesale, et cetera, et cetera. Just a high-level thought on what's going on, what what the threats and opportunities are.

Well, as you'll appreciate, we have no control over the outcomes. And indeed, it won't be the election that determines what we may be facing into. It will be what happens post coalition negotiations. So it's just too difficult at the moment for us to be able to tell we're absolutely focused on the things that we can control, which is around affordability and reliability of supply into the sector. it's uncertain. We'd love to have some policy certainty because regularly, there are various initiatives and questions raised and reviews raised, but I'd just point out that there have been several over the last few years and all have suggested that actually the system, the market is doing its job, but we'll just have to wait and see. Thank you. Any other questions from the floor No. Are there any questions online?

Van Clement. I just wanted to check with you the expectations -- you're putting downward pressure on the wholesale electricity price, what is your expectation with respect to the outcome to customers? And how realistic is that going to be in effecting change that favors with customer.

Do you want to answer that? The one thing that I would say is, as I explained earlier, we can only control 2 elements of the bill, which is the generation portion and a very small retail margin, which is effectively for administration. The other bits we don't control at all. So we can only talk to roughly 1/3 or 30-ish, 38% of the bill. But do you want to address that, Mike?

Yes. I mean, -- the last couple of years has been very, very tough for people generally. And the electricity sector has been through massive change. And it was unexpected. I don't know if people remember what happened in 2024, but New Zealand lost access to guess that we relied on to make electricity and that sent electricity prices a lot higher. We've spent, as an industry, the last 2 years investing in new generation assets to overcome that loss of gas. And what we have seen is we've seen wholesale prices for -- since earlier this year, recognizing the contribution those investments make by about 40%, as both Mark and I mentioned, those falls and wholesale prices are already flowing through to our commercial and industrial customers that are up for contracts. So they're seeing reductions in contract price of up to 30% as they recontract depending on the contract period that they enter into. And given the work that we've put in, it enabled us to make commitments to our customers around the element of price that we have an impact over to give our customers confidence that prices weren't going to increase in the way that they've seen them over the last couple of years. So what I would say is the next couple of years, we've got increasing confidence in the environment in which we're operating to help manage the affordability concerns that customers have got outside of the lines and transmission increases that have been regulated and mandated that Mark said they're outside of our control, they're regulated by the Commerce Commission. But we have restored balance within the sector. And our focus is actually moving to how do we support economic growth. So how do we support job creation and growth of the economy.

Which is a much more positive conversation Right. Nothing online Right. Okay. So we'll move to the formal resolution set out in the notice of meeting, and I will outline the voting procedures. Those online will note a new icon has appeared on your screen. Selecting this icon will bring up the list of resolutions and present you with the voting options. To cast your vote, you simply select one of the options. There's no need to hit a submit or an enter button as the vote is automatically recorded. For those of you that are present here today, please cast your vote and place your voting form in the boxes located at the back of the room at the end of the meeting. Persons attending the meeting who are not shareholders, proxy holders or corporate representatives of a shareholder may not vote and that includes bondholders. Many shareholders who are not attending the meeting have already voted at the request of the Shareholders' Association, the announcement of the postal and proxy count will be deferred until after the resolutions have been considered by the meeting. In relation to Resolution 1, it's my pleasure to introduce and move the resolution to reelect David Carter as a Director of the company. David joined the Board in July 2023, and here on the safety, sustainability and Operational Risk Committee and the People, Remuneration and Culture Committee of the Board. The Board considers David to be an independent director and unanimously recommends that shareholders vote in favor of his reelection. David, would you like to address the meeting, please.

[Foreign Language] If the land is well, sea is well, then the people are well. My name is David Carter, and I serve as an independent director on the Meridian Board. After graduating in the United States with a doctor of engineering. I returned to New Zealand and have worked as a consulting engineer ever since. During my career, I've delivered projects across Southeast Asia, the Pacific and across a wide range of sectors, from hydro canals in Indonesia, the $3 to $4.5 billion desalination plants of Victoria. I'm really passionate about ensuring the prosperity of ASTRO, such it's a place where my children can envisage the future. A key enabler of that prosperity is delivering affordable and abundant renewable energy for our nation and this lies at the heart of Meridian's purpose. Meridian has a significant pipeline of renewable energy projects, both partway through construction as well as in the consenting phase, including our upcoming repower and refurbishment of the Waitaki power station. And I consider my experience to be directly relevant to the delivery of those projects. I've been honored to serve on the Meridian board for the last 3 years and hereby put myself forward for reappointment.

Thank you, David. I now move that David Carter, who retires by rotation and is eligible for reelection, be reelected as a Director of the company. Is there any discussion?

No.

I've moved the resolution. I've now put the resolution. Shareholders should complete voting for the resolution. I will now pause to allow you time to finalize your vote. Thank you, David. I will now pass to David to introduce the second resolution given that I'm the subject of that resolution.