Meridian earnings strong, but smelter deal cuts value nearly $500m

Meridian Energy has turned in a strong 53 percent increase in underlying net profit after tax of $162.7 million, but has had to write down the total value of its assets by $476 million to reflect the lower power prices it will get from the Tiwai Point aluminium smelter.

The new smelter deal, announced last week, returns the prices to be paid by the smelter under new contracts that came into force on Jan. 1, but which majority owner Rio Tinto sought to renegotiate after a fall in global aluminium prices that followed the global financial crisis.

The writedown is the last piece of the puzzle as the government seeks to partially privatise Meridian in a share float that is expected to see the country's largest power company by value list on the NZX by the middle of next month.

Today's announcements from Meridian carry no detail on the float of up to 49 percent of the company, and no indication whether the total $252.4 million in dividends for the last financial year will be repeated in future years.

Net profit after tax of $295.1 million was 295.6 percent up on the previous year's NPAT of $74.6 million, but includes a one-off gain of $101 million from Meridian's sale of its 50 percent share of the Macarthur wind farm development in Victoria, Australia.

By selling its interest in Macarthur prior to partial privatisation, Meridian appears to have ensured that taxpayers get the benefit of its involvement in the project rather than sharing the proceeds with private shareholders post-float.

However, dividends for the financial year far outstrip the $71.3 million interim dividend paid in 2012 and the final dividend of $69.4 million in 2011.

Reflecting both the Macarthur sale and the smelter contract writedowns, total assets in the Meridian balance sheet are recorded at $6.77 billion at balance date 2013, compared with $7.96 billion a year earlier.

Meridian was last independently valued in 2011, at $6.5 billion, suggesting its value now may be around $6 billion and could yield around $3 billion in a 49 percent float.

It's widely expected New Zealand retail investors will be given the option to pay for their shares in instalments to try and sweeten a float that could be difficult to make popular after the failure of the MightyRiverPower share price to rise above its listing price of $2.50 in recent weeks.

The result also includes a $17.9 million writedown on the value of the North Bank hydro tunnel project, which Meridian has put on hold in the absence of demand growth in the New Zealand electricity market, and a further $5.7 million writedown on the value of solar energy projects in the US, which it is quitting.

Trading results showed a 5.5 percent increase in total operating revenue to $2.71 billion, reflecting a year in which low hydro inflows through much of the period were book-ended by large inflows, while a total of 42 days were affected by the loss of the ability to send electricity across the Cook Strait cable because of upgrade work.

A 33 percent increase in transmission charges kicked in during the years, and an 8 percent increase in operating costs, relating to development and float costs, and the fact that performance bonuses were not paid to executives in the previous financial year.

(BusinessDesk)