9i 50? meridian 18 February 2015 Client Market Services NZX Limited Level 1, NZX Centre 11 Cable Street WELLINGTON Dear Sir/Madam Meridian Energy Limited (MELCA) Interim Report (for the six months to 31 December 2014) Please find attached the financial information required by Listing Rule 10.4 together with a copy of Meridian?s half year results presentation and financial statements for the six months ended 31 December 2014. Attached: 1. NZX Appendix 1 2. Interim Report for the six months ending 31 December 2014 3 NZX Appendix 7 detailing the ordinary dividend of 4.8 cents (NZD) per share to be paid on 15 April 2015 to those shareholders on the company's share register as at 31 March 2015 4. NZX Appendix 7 detailing the special dividend of 1.4 cents (NZD) per share to be paid on 15 April 2015 to those shareholders on the company?s share register as at 31 March 2015 ASX Listing Rule 4.2A.2A Directors? declaration Half year results presentation Media Announcement Investor Letter. @5199" Yours sincerely [/Olw @694? Jason Stein General Counsel and Company Secretary Meridian Energy Limited 1lPage Appendix 1 (NZX Listing Rule 10.3.1) Preliminary Announcement - Half Year Results Appendix 1 Stock Exchange listings: NZX (MELCA) ASX (MEZCA) 1. Half year reporting periods Reporting period: six months to 31 December 2014 Previous reporting period: six months to 31 December 2013 2. Results for announcement to the market Six months to 31 December 2014 (NZ$m) Percentage change 1,333.5 +21.5% Profit from ordinary activities after tax attributable to security holders 117.1 +0.2% Net profit attributable to security holders 117.1 +0.2% Energy Margin1 480.2 +7.5% 324.3 +20.9% 114.8 +38.3% Operational results Revenue from ordinary activities EBITDAF 2 Underlying Net Profit after Tax3 1 Energy Margin is a non-GAAP measure representing Energy Sales Revenue less Energy Related Expenses and Energy Distribution Expenses. 2 EBITDAF is a non-GAAP financial measure, defined as earnings before interest, taxation, depreciation, amortisation, changes in fair value of financial instruments, gain/(loss) on sale of assets and joint venture equity accounting earnings 3 Underlying Net Profit after Tax is a non-GAAP measure representing Net Profit after Tax adjusted for the effects of non cash fair value movements and other one-off items. PG 1 Appendix1 (NZX Listing Rule 10.3.1) Preliminary Announcement - Half Year Results Six months to 31 December 2014 (NZ$m) Six months to 31 December 2013 (NZ$m) 117.1 116.9 -0.3 -1.7 25.8 -39.5 -8.3 -8.3 -15.2 2.4 Impairment of Assets 0.5 - Adjustments before Tax 2.5 -47.1 -4.8 13.2 -2.3 -33.9 114.8 83.0 Amount per security (NZ cents) Imputed amount per security (NZ cents) 4.8000 1.8700 Underlying NPAT Reconciliation Net Profit after Tax Net Change in Fair Value of Financial Instruments (Operating) Net Change in Fair Value of Financial Instruments (Financing) Premiums Paid on Electricity Options (less interest) Net (Gain)/Loss on Sale of Assets Net Income Tax on Adjustments Adjustments after Tax Underlying Net Profit after Tax Dividends Interim ordinary dividend Record Date 31 March 2015 Payment Date 15 April 2015 Special dividend 1.4000 Record Date 0.5400 31 March 2015 Payment Date 15 April 2015 For commentary on the operational results please refer to the media announcement and interim results presentation. Appendix 1 should be read in conjunction with the attached Condensed Interim Financial Statements for the six months 31 December 2014. PG 2 Appendix1 (NZX Listing Rule 10.3.1) Preliminary Announcement - Half Year Results 3. Net tangible assets per security 31 December 2014 (NZ cents) 31 December 2013 (NZ cents) 168 175 Net tangible asset per security, after deferred tax 4. Control of entities gained or lost during the period Name of Entity Sold / dissolved Principal Activity Interest held by Group Whisper Tech (UK) Limited 11/09/14 Non-trading - Meridian Energy USA Incorporated 08/10/14 Development - ARC Innovations Limited 01/12/14 Metering - 5. Dividends As per point 2 and NZX Appendix 7 attached 6. Dividend or distribution reinvestment plans Nil 7. Associates and joint venture entities Name of Entity Country of Incorporation Date EDDI Project JV New Zealand 01/05/12 Dam Management Systems 50% 01/07/13 Irrigation Development 68% Hunter Downs New Zealand Development Company Principal Activity Interest held by Group 8. Accounting standards The group financial statements have been prepared in accordance with the New Zealand PG 3 Appendix1 (NZX Listing Rule 10.3.1) Preliminary Announcement - Half Year Results equivalent to International Accounting Standard 34: Interim Financial Reporting (NZ IAS 34) and include condensed notes to the group financial statements. The group financial statements also comply with International Accounting Standard IAS 34: Interim Financial Reporting (IAS 34). 9. Audit This report is based on the unaudited interim group financial statements. Deloitte has provided a review report on the financial statements, which is attached. PG 4 Better energy MERIDIAN ENERGY LIMITED INTERIM REPORT for the six months ended 31 December 2014 Image to be graded 01 ny C omp a w ie v r e ov hlight s ig an d h 04 ry Summa p of Grou nce a m r p e r f o 09 The nu mbers 4.8 CENTS PER SHARE Interim ordinary dividend Company overview and highlights 1.4 CENTS PER SHARE Additional special dividend Meridian Energy is New Zealand’s largest electricity generator and is committed to generating electricity from 100% renewable resources – wind and water. Meridian generates approximately 30% of New Zealand’s electricity from its integrated chain of dams and power stations on the Waitaki River and Manapōuri power station in Southland, the largest hydro power station in New Zealand, and from five wind farms around the country. Meridian supports a number of environmental programmes, operates Community Funds associated with each of its assets and runs a national sponsorship programme that supports organisations that make a big difference to Kiwis, such as KidsCan, Living Legends and South Island Rowing. Through the Meridian and Powershop brands, Meridian retails electricity to more than 273,000 customer connections, including homes, farms and businesses throughout New Zealand. Powershop has 30,800 residential and commercial customer connections in Victoria, Australia. Our focus is on continuing to achieve high levels of service and delivering value to our customers. The Meridian Group employs approximately 770 full-time-equivalent employees and has offices across New Zealand, including the company’s head office in Wellington and an office in Melbourne. Meridian owns and operates Mt Millar wind farm in South Australia and Mt Mercer wind farm in Victoria. 1 Megawatts. One MW is enough to light 10,000 x 100-watt light bulbs. Hy dro Total in sta ll e d c ap a c it y 2 , 3 3 8 MW Wind Total installed capacity 617 MW 1 1 Meridian Energy Limited Interim Report for the six months ended 31 December 2014 13.2 % IN THIS REPORT Growth in operating cash flows 38.3 % 3.7 % Growth in underlying net profit after tax 2 Report from our Chair and Chief Executive 4 Summary of Group performance 9 Condensed Interim Financial Statements 3.8 % Higher retail sales volumes Higher NZ generation AUCKLAND TE UKU HAMILTON MT MILLAR MT MERCER MELBOURNE TE ĀPITI MILL CREEK MASTERTON WELLINGTON WEST WIND CHRISTCHURCH ŌHAU A ŌHAU B ŌHAU C TWIZEL WAITAKI AVIEMORE GENERATION ASSETS HYDRO STATION MANAPŌURI WIND FARM WHITE HILL WAITAKI HYDRO SCHEME OFFICES BENMORE MERIDIAN POWERSHOP 1 Report From our Chair and Chief Executive Meridian continued to perform well, with the New Zealand market showing some small signs of overall growth. All key measures of financial performance were ahead of the same period last year: EBITDAF was ahead by 20.9% and Underlying NPAT by 38.3%. Total generation for the six months was up by over 6% on the previous corresponding period, ref lecting strong first quarter hydro generation in New Zealand and the contribution made by the completed Mt Mercer (Victoria) and Mill Creek (Wellington) wind farms. This, together with strong irrigation demand and favourable business sales compared with last year, saw Meridian’s total Energy Margin increase by 7. 5%. that the remaining imputation credits held by the company would otherwise be lost in May this year, when the final payment under the instalment receipt structure is made and the Crown transfers the underlying shares to shareholders. This special dividend, which will also be 100% imputed, will ensure that all of the remaining imputation credits are used before the change in ownership triggers the loss of those credits. A tight rein was kept on operating costs and these were down 10.1% on the same period last year and with the backing out of listing costs from last year, this period’s expenses were 3.7% lower. As part of the Board’s consideration of capital management, it has changed the company’s dividend policy to a higher percentage of free cash f low, which is discussed in the following section relating to capital management. This all f lowed through to strong operating cash f lows that were 13. 2% ahead of last year. Instalment receipts Dividend We are pleased to announce a dividend of 4 .8 cents per share, which is imputed to 100%. This is in excess of the forecast provided in the prospectus. In addition, the Board has taken the opportunity to declare a special dividend of 1.4 cents per share. The reason for this is 2 We are pleased that the instalment receipts have continued to perform well, with an increase of 76% from listing through to 31 December 2014 . In the 2014 calendar year the company was second on the NZX 50 in terms of share price appreciation but first on the basis of total shareholder return (which includes dividends). While the company’s performance has played a part in this increase, there is no doubt that regulatory stability following the election and the continued low international interest rate environment and resultant pursuit of yield have been significant contributors. Instalment receipt holders will be aware that the second instalment (50 cents) is due for payment on or before 15 May this year. This is a payment to the Crown, not Meridian. However, Meridian is working with the Crown to implement a seamless process to manage these changes. Holders should expect to receive initial communications in early April 2015. Capital management In August last year we announced that the Board would review the capital structure of the company, given its conservative gearing ratios. Over the period Meridian has continued to perform well financially, the risk of wholesale change to the electricity market structure in the immediate future has receded and there are limited attractive growth opportunities that would require significant capital in the foreseeable future. In these circumstances, the Board believes it is appropriate to signal an intention to Meridian Energy Limited Interim Report for the six months ended 31 December 2014 return capital to shareholders, provided the Tiwai Point smelter owners do not terminate their electricity agreement. The first step the Board has taken is to amend the company’s dividend policy by increasing the percentage of free cash f low paid out (as defined in the policy) on average from 70%-80% to 75%-90%. All other elements of the dividend policy remain unchanged. Furthermore, the Board intends to return an additional $625m to shareholders over the next five years. The Board will remain f lexible as to how capital is returned but at this point it is envisaged that this will be by either an annual on-market share buyback programme, special dividends, or a combination of both. The Board intends to advise shareholders of the programme for the 2016 financial year at the full year results announcement in August. At that point the decision of New Zealand Aluminium Smelters (NZAS) regarding the Tiwai Point electricity agreement will be known, and clearly, if the decision is to terminate, or there has been a material adverse change to the company’s financial position or any other relevant issue has arisen, the Board will revisit its decision to proceed with all or part of the planned capital distribution. Delivering on our strategy The Mill Creek and Mt Mercer wind farm projects were completed during the last six months. In aggregate they were delivered with exemplary health and safety performance and 4% under their original budgets. In line with our stated aim of improving the core business, Meridian’s metering business was sold in December 2014 to a subsidiary of Vector Limited and commitments were entered into to replace all our New Zealand customers’ legacy meters. This programme involves the replacement of over 125,000 meters and is scheduled for completion in the first half of 2017. This will provide cost savings to Meridian as well as enable us to offer far more sophisticated pricing plans to our customers. While Australia provides challenges in the generation space (see comments below) we continued the push into the Victorian retail market with the Powershop brand. Customer numbers are now over 30,000 and we will start operations in New South Wales in the first quarter of this calendar year. Retail market remains highly competitive While sales volumes were up, as previously noted, the number of customer connections reduced during the half year. Total installation control points (ICPs) were 273, 572 , down 3,136 on the beginning of the financial year. This movement was largely in the residential space where there has been a lot of aggressive sales activity. Meridian is already very well positioned price wise in most networks, with our prices being at, or close to, the bottom of the range. The launch of our new website in December 2014 ref lects our strategy to move customer engagement online to improve service, reduce overall cost and continue our position as a leader in sustainability. In the interim report last year we noted that it was unlikely there would be any networkwide increases in the energy component of our New Zealand customers’ bills before at least June this year. This will prove correct. We continue to review our pricing. Operations Hydro generation produced 89. 3% of Meridian’s New Zealand generation in the period, with the contribution from wind up 12% on the previous corresponding period. November was in fact a record month for wind generation – up more than 3% on the previous record, even after allowing for the new generation from Mill Creek. In December we marked the 10th anniversary of the first wind farm we built – Te Āpiti wind farm in Manawatū. This highlighted the level of involvement that we have had and continue to have with communities living near our assets. In the nine years that the Te Āpiti community fund has been running , we have funded dozens of community projects and initiatives. In Australia, generation volumes at 273GWh ref lected the contribution of the Mt Mercer wind farm, which has had all turbines operational since June last year. One issue that arose during the period was a problem with the coolers on some of the Manapōuri power station transformers, which led to the decision to replace two transformers and procure a third as a spare. The replacement programme is well under way. The first transformer, which was delivered immediately before Christmas, was made operational on 12 January. This was a major exercise involving complex engineering , design and project management with strict overriding requirements in terms of environmental protection and adherence to health and safety policies. It is a tribute to the people involved, including our suppliers and subcontractors, that the project was delivered seamlessly. The second transformer is expected to be installed in early March 2015, which will restore the station to full capacity. Regulation The Electricity Authority’s (EA’s) transmission pricing review is on track and we look forward to the publication of the EA’s final issues paper on this topic in mid-2015. The other regulatory issue we are closely monitoring is the Australian Government’s review of the Renewable Energy Target (RET). The RET is mired in politics and the political parties involved have been unable to reach any compromise that might deliver some degree of certainty for participants in the Australian renewable energy industry. As has been previously noted, it is difficult to quantify what, if any, impact this review might have on the value of our Australian assets until there is some resolution of this matter. Tiwai Point As previously advised, the Tiwai Point smelter owners have the option to give Meridian notice of their intention to terminate the electricity agreement on 1 July this year, in which case the current supply arrangements would cease on 31 December 2016. At this point, we have no clarity on where NZAS stands on this decision. While it is pleasing to see the New Zealand dollar depreciate against the US dollar, which is positive for the smelter, international aluminium prices have been volatile. However, on our assessment, the plant is in a significantly better financial position than it was at the time the contract was renegotiated in August 2013. On balance, we remain hopeful that the smelter will continue in operation but the decision is not ours. The reality is that uncertainty around the future of the smelter is something the industry just has to live with as NZAS has ongoing termination rights under the contract. Hydro conditions As we write, the farming communities in both the North and South Islands are going through a difficult period as a result of drought conditions but our storage lakes are still getting reasonably regular inf lows from small weather systems. So while we are always very watchful, at this point we do not see anything in our current hydro position that is of significant concern. Community involvement During the past six months we have shared some important milestones with KidsCan as its principal partner. In July for instance, we participated in an event that celebrated handing out the 100,000th raincoat to children in lower decile schools, which is part of the overall programme to meet the physical and nutritional needs of less fortunate Kiwi kids. More recently, the founder and chief executive of KidsCan, Julie Chapman, was named as a finalist for the New Zealander of the Year Award. This is fantastic recognition of all of the good work that Julie and her team have done over many years. 3 Summary of Group performance Higher energy margin and lower costs drove a lift in profits and operating cash flow to underpin enhanced dividends to investors. Net Profit after Taxation (NPAT) GROUP UNDERLYING NPAT* GROUP NPAT** Financial Year Ended 30 June Financial Year Ended 30 June 2015 2015 117.1 2014 116.9 114.8 2014 83.0 2013 111.6 88.3 2012 0 50 Dec YTD 100 150 200 Jun YTD * NPAT minus the effects of one-off and/or infrequently occurring events, impairments and changes in fair value of financial instruments. 4 250 $M 2015 112.9 121.8 65.4 84.7 2011 95.6 Financial Year Ended 30 June 173.3 2012 9.2 7.2 123.4 GROUP EBITDAF*** 2013 74.4 98.9 2011 $M Meridian’s NPAT for the six months to 31 December 2014 (HY2015) was $0. 2m higher than the same period last year. This included negative fair value movements on financial instruments of $25. 5m. If this non-cash 0 accounting adjustment is excluded, along with one-off items such as the $8.1m gain on the sale of Arc Innovations, Underlying NPAT improved by $31.8m (38. 3%) on the six months to 31 December 2013 (HY2014). 50 Dec YTD 218.4 100 150 200 Jun YTD ** NPAT includes unrealised gains/(losses) on financial instruments. 250 300 324.3 2014 268.2 2013 277.1 2012 294.3 $M 307.7 182.3 353.3 2011 350 317.1 0 100 Dec YTD 200 300 306.6 400 500 600 Jun YTD *** Earnings before interest, tax, depreciation, amortisation, change in fair value of financial instruments, impairments, gain/(loss) on sale of assets and joint venture equity accounted earnings. 700 Meridian Energy Limited Interim Report for the six months ended 31 December 2014 MERIDIAN GROUP INCOME STATEMENT 6 MONTHS ENDED 31 DEC 2014 6 MONTHS ENDED 31 DEC 2013 12 MONTHS ENDED 30 JUN 2014 New Zealand Energy Margin 454.9 434.9 891.5 International Energy Margin 25.3 11.7 31.9 480.2 446.6 923.4 16.5 12.7 27.3 (60.6) (66.7) (129.3) ($ MILLIONS) Total Energy Margin Other Revenue Energy Transmission Expense Gross Margin 436.1 392.6 821.4 Employee and Other Operating Expenses (111.8) (124.4) (236.1) EBITDAF 324.3 268.2 585.3 Depreciation and Amortisation of Intangible Assets (116.5) (105.3) (220.0) Impairment of Assets (0.5) - - Net Gain/(Loss) on Sale of Assets 15.2 (2.4) 6.6 Net Change in Fair Value of Financial Instruments 0.3 1.7 (8.4) (0.6) (0.2) (0.4) 222.2 162.0 363.1 Net Finance Costs (40.8) (37.5) (73.7) Net Change in Fair Value of Financing Instruments (25.8) 39.5 27.0 Net Profit Before Tax 155.6 164.0 316.4 Tax (38.5) (47.1) (86.6) Net Profit After Tax (NPAT) 117.1 116.9 229.8 Net Changes in Fair Value of Hedging Instruments 25.5 (41.2) (18.6) Premiums Paid on Electricity Options (less Interest) (8.3) (8.3) (20.1) 0.5 - - Gain/(Loss) on Sale of Assets (15.2) 2.4 (6.6) Adjustments Before Taxation 2.5 (47.1) (45.3) Equity Accounted Joint Ventures Operating Profit Impairment of Assets Income Tax Adjustments Underlying Net Profit After Tax (4.8) 13.2 10.1 114.8 83.0 194.6 5 MOVEMENT IN EBITDAF 350 NZ Energy Margin +$20.0M 300 18.9 (3.9) 7.3 (0.4) (1.9) Contracted Sales Net VAS Position Net Cost of Buy-Side Hedges Spot Exposed Revenues Other Market Costs 13.6 3.8 International Energy Margin Other Revenue 12.6 324.3 Staff & Other Operating Expenses EBITDAF 31 Dec 2014 6.1 268.2 250 200 EBITDAF 31 Dec 2013 EBITDAF EBITDAF in HY2015 was $324 . 3m, $56.1m (20.9%) higher than in HY2014 . The HY2015 result included $5. 2m of insurance proceeds relating to the Christchurch earthquake of February 2011 and benefited from no repeat of $8. 3m of IPO costs that were incurred in HY2014 . On a like-for-like basis, removing these items, EBITDAF improved by 15.4% on HY2014 . This improvement was driven by both an uplift in Meridian’s energy margin and a reduction in operating costs. 3,000 2,500 2,000 1,500 1,000 500 0 JAN Meridian’s New Zealand retail sales volumes were up 107.7GWh on HY2014, mainly ref lecting growth in the SME and agribusiness customer base. Stiff competition meant that average price per MWh fell by 1%, with most of the fall relating to commercial and industrial customers rolling off fixedterm contracts. Meridian’s residential customers saw no network-wide energy price increases in the period. FEB MAR APR MAY 2009 Mean Energy Margin In New Zealand the completion of the Mill Creek wind farm increased wind generation by 92GWh. Hydro generation was also up slightly on strong first quarter inf lows. Higher generation enabled Meridian to sell higher volumes of hedge contracts. In addition, the volume of acquired generation through buyside hedges in HY2015 was down on HY2014, which had included hedge contracts entered into to cover risks associated with the large number of HVDC outages in that period. Transmission Expenses MERIDIAN’S WAITAKI STORAGE STORAGE (GWh) 150 $M JUN 2010 JUL AUG 2011 SEP OCT 2012 NOV 2013 DEC 2014 NEW ZEALAND GENERATION VOLUMES (GWh) Financial Year Ended 30 June 2015 6,902 2014 6,651 2013 6,050 2012 6,190 6,496 6,020 4,806 6,804 2011 GWh 0 6,848 5,000 Dec YTD 10,000 15,000 Jun YTD NEW ZEALAND RETAIL ELECTRICITY SALES VOLUMES (GWh) 6 MONTHS ENDED 31 DEC 2014 6 MONTHS ENDED 31 DEC 2013 YEAR ENDED 30 JUN 2014 310 286 546 Meridian Residential, SME, Agri 1,570 1,484 2,864 Meridian Corporate 1,113 1,116 2,344 Total Contracted Sales Volumes 2,993 2,886 5,754 Powershop MERIDIAN AND POWERSHOP NEW ZEALAND CUSTOMER CONNECTIONS DEC 2014 104,043 JUN 2014 107,895 JUN 2013 106,085 JUN 2012 116,580 JUN 2011 109,565 ICPs 0 42,040 35,369 100,000 Powershop NI 13,632 114,721 12,963 122,834 12,521 129,651 21,169 50,000 13,510 113,957 38,308 Meridian NI 6 113,979 41,224 150,000 Meridian SI 12,391 200,000 250,000 Powershop SI 300,000 350,000 Meridian Energy Limited Interim Report for the six months ended 31 December 2014 Increased demand in New Zealand along with full HVDC availability and reduced output from thermal generators meant that Meridian’s average wholesale price in HY2015 was $64 . 2MWh compared with $39.7MWh in HY2014 . This increased both Meridian’s generation revenue and the cost of supplying its retail customers. The net effect of higher retail, sell-side hedge and generation volumes along with lower acquired generation and higher wholesale prices was an increase of $20.0m (4 .6%) in New Zealand energy margin. International energy margin increased by $13.6m, more than doubling on the prior comparative period. This included 179GWh of increased generation on the completion of the Mt Mercer wind farm. The gain on generation volumes was partially offset by weaker wholesale prices net of hedges, ref lecting continuing uncertainty in the Australian regulatory environment. The full launch of Powershop in Victoria also contributed to overall International energy margin with over 30,000 customers signed up by 31 December 2014 . FINANCIAL YEAR AVERAGE NEW ZEALAND WHOLESALE PRICE RECEIVED FOR GENERATION ($/MWh) 2015 2014 2013 2012 2011 Q1 $58.3 $48.6 $62.4 $83.6 $47.5 Q2 $70.6 $31.5 $34.8 $71.2 $54.8 Half Year $64.2 $39.7 $47.7 $77.6 $51.2 Q3 $94.7 $83.4 $109.9 $35.4 Q4 $65.6 $80.8 $153.3 $35.6 Full Year $60.1 $64.9 $100.7 $43.3 MERIDIAN GENERATION  HYDRO NEW ZEALAND3 PLANT 6 MONTHS ENDED 6 MONTHS ENDED CAPACITY 31 DEC 2014 31 DEC 2013 MW GWh2 GWh YEAR ENDED 30 JUN 2014 GWh Ōhau A 264 630 520 1,168 Ōhau B 212 522 439 981 Ōhau C 212 519 434 973 Benmore 540 1,260 1,014 2,314 Costs Aviemore 220 521 431 960 Energy transmission expenses fell by $6.1m in HY2015 compared with HY2014 . This ref lected lower than anticipated final costs on the HVDC upgrade. Next year’s Transpower charges are anticipated to rise. Waitaki 90 267 243 526 800 2,444 2,910 4,981 2,338 6,163 5,991 11,903 PLANT 6 MONTHS ENDED 6 MONTHS ENDED CAPACITY 31 DEC 2014 31 DEC 2013 MW GWh GWh YEAR ENDED 30 JUN 2014 GWh Employee and other operating costs reduced by $12 .6m compared with the same period last year. Adjusting for last year’s IPO expenses still saw a reduction of $4 . 3m (3.7%) in costs. This was achieved despite additional maintenance costs in respect of the two new wind farms and operational costs associated with Powershop Australia. Manapōuri Total Hydro Generation  WIND NEW ZEALAND Te Uku 64 121 116 211 Te Āpiti 91 163 174 325 Mill Creek 60 92 - 1 Below EBITDAF, net finance costs increased by $3. 3m (8.8%), ref lecting finance lease interest on transmission connection assets and the end of capitalisation of interest on build projects. The completed wind farms along with the new generation control system also added $11. 2m (10.6%) to depreciation and amortisation charges. West Wind 143 272 273 534 White Hill 58 91 97 173 416 739 660 1,244 Mt Millar 70 89 101 185 Non-cash fair value movements on derivatives were largely driven by changes in the value of interest rate hedges. The drop in the forward interest rate curve since June 2014 caused a $25. 5m fall in the market value of these hedges. This has no cash impact on Meridian. Mt Mercer 131 184 5 100 Total Australia Wind 201 273 106 285 Total Wind Generation 617 1,012 766 1,529 Total New Zealand Wind AUSTRALIA4 2 Gigawatt hours. One GWh is equivalent to enough electricity for 125 average New Zealand homes for one year. 3 Includes Meridian’s own use generation volumes. 4 After the application of the marginal loss factor prescribed by the Australian Energy Market Operator. 7 Operating cash flow and investment expenditure GROUP INVESTMENT EXPENDITURE Net cash flow from operating activities was $25.3m (13.2%) higher than in HY2014. This reflects the improvement in EBITDAF, partially offset by higher income tax payments. 2015 With the completion of Mill Creek and Mt Mercer early in the half year, investment expenditure at $106. 5m was $62 .4m lower than in HY2014. Both projects were completed under budget. Excluding the costs of these projects, Meridian’s remaining capital expenditure was $23.9m in the half year. 2011 MERIDIAN GROUP SUMMARY CASH FLOW ($ MILLIONS) Net Cash Flow from Operating Activities Financial Year Ended 30 June 106.5 2014 93.4 183.3 208.4 2012 $M 146.9 168.9 2013 0 100 Dec YTD 320.2 228.6 44.0 200 300 400 500 600 Jun YTD 6 MONTHS ENDED 6 MONTHS ENDED 31 DEC 2014 31 DEC 2013 216.8 YEAR ENDED 30 JUN 2014 191.5 432.8 Net Cash Flow from Investing Activities (67.1) (161.9) (253.4) Net Cash Flow from Financing Activities (194.8) (158.5) (282.2) (45.1) (128.9) (102.8) Net Decrease in Cash and Cash Equivalents Dividends An ordinary interim dividend of 4 .8 cents per share and a special dividend of 1.4 cents per share has been declared for the six months ending 31 December 2014 . Both dividends are to be fully imputed. 31 DEC 2014 (NZ CENTS) NET TANGIBLE ASSETS PER SECURITY Net Tangible Assets per Security 168 31 DEC 2013 (NZ CENTS) 175 CONTROL OF ENTITIES GAINED OR LOST DURING THE PERIOD NAME OF ENTITY SOLD/DISSOLVED PRINCIPAL ACTIVITY INTEREST HELD BY GROUP 11/09/14 Non-trading - Meridian Energy USA Incorporated 8/10/14 Development - ARC Innovations Limited 1/12/14 Metering - Whisper Tech (UK) Limited ASSOCIATES AND JOINT VENTURE ENTITIES NAME OF ENTITY 8 COUNTRY OF INCORPORATION DATE PRINCIPAL ACTIVITY INTEREST HELD BY GROUP EDDI Project JV New Zealand 01/05/12 Dam Management Systems 50% Hunter Downs Development Company New Zealand 01/07/13 Irrigation Development 68% Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 The numbers Condensed Interim Financial Statements 10 Income Statement 11 Statement of Comprehensive Income 12 Statement of F inancial Position 13 Statement of Changes in Equity 15 Statement of Cash Flows 17 Notes to the F inancial Statements 17 18 22 As se ts an d Lia bil iti es Cl as sif ied as He ld for Sa le 23 Pr op er ty, Pla nt an d Eq uip me nt 23 De fer re d Ta x 24 Bo rro wi ng s 25 Fin an cia l Ri sk Ma na ge me nt 27 Fin an cia l In str um 30 C om mi tm en Summary of Accounting Policies 31 Su bs eq ue nt Ev en Segment Reporting 31 Co nt in ge nt As se ts an d Lia bil iti es 20 Gain/(Loss) on Sale of Assets 21 Finance Costs 21 Income Tax Expense en ts ts ts 32 Review Repo rt of the Auditor–General 22 Equity 22 Dividends 9 Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Income Statement GROUP NOTE UNAUDITED UNAUDITED AUDITED 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2014 31 DEC 2013 30 JUN 2014 $M $M $M Operating Revenue Energy Sales Revenue 1,317.0 1,085.2 2,481.5 Energy Related Services Revenue 7.9 6.8 15.8 Other Revenue 8.6 5.9 11.5 1,333.5 1,097.9 2,508.8 Energy Related Expenses (595.9) (426.2) (1,130.5) Energy Distribution Expenses (240.9) (212.4) (427.6) Energy Transmission Expenses (60.6) (66.7) (129.3) Employee Expenses (43.8) (47.3) (90.5) Other Operating Expenses (68.0) (77.1) (145.6) (1,009.2) (829.7) (1,923.5) 324.3 268.2 585.3 15.2 (2.4) 6.6 Total Operating Revenue Operating Expenses Earnings Before Interest, Tax, Depreciation, Amortisation, Change in Fair Value of Financial Instruments and Other Significant Items (EBITDAF) Gain/(Loss) on Sale of Assets 3 Equity Accounted Earnings of Joint Ventures Amortisation of Intangible Assets Depreciation Impairment of Assets Net Change in Fair Value of Financial Instruments Gain/(Loss) (Operational) 13 Operating Profit (0.6) (0.2) (0.4) (11.8) (11.1) (21.4) (104.7) (94.2) (198.6) (0.5) - - 0.3 1.7 (8.4) 222.2 162.0 363.1 (45.4) (41.7) (82.2) 4.6 4.2 8.5 Finance Costs and Other Finance Related Income/(Expenses) Finance Costs 4 Interest Income Net Change in Fair Value of Financial Instruments (Loss)/Gain (Financing) 13 Profit Before Tax Income Tax Expense (25.8) 39.5 27.0 155.6 164.0 316.4 (38.5) (47.1) (86.6) 117.1 116.9 229.8 117.1 116.9 229.8 Basic Earnings per Share ($) 0.05 0.05 0.09 Diluted Earnings per Share ($) 0.05 0.05 0.09 Profit After Tax 5 Profit After Tax Attributable to: Shareholders of the Parent Company Earnings per Share from Operations Attributable to Equity Holders of the Company During the Year: 10 The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Statement of Comprehensive Income GROUP NOTE Profit After Tax for the Period UNAUDITED UNAUDITED AUDITED 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2014 31 DEC 2013 30 JUN 2014 $M $M $M 117.1 116.9 229.8 Net Loss on Available for Sale Investments (0.8) (1.2) (1.4) Net Loss on Cash Flow Hedges (0.2) (2.8) (14.6) Other Comprehensive Income Items that may be reclassified subsequently to Profit or Loss: Reclassify Foreign Currency Translation Reserve to Profit or Loss (1.5) - 4.9 Exchange Differences Arising from Translation of Foreign Operations (1.3) (12.9) (15.1) Income Tax relating to items that may be reclassified Other Comprehensive Income for the Period Net of Tax Total Comprehensive Income for the Period Net of Tax 10 0.3 1.1 4.7 (3.5) (15.8) (21.5) 113.6 101.1 208.3 113.6 101.1 208.3 Total Comprehensive Income for the Period Attributable to: Shareholders of the Parent Company The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. 11 Meridian Energy Limited Condensed Interim Financial Statements as at 31 December 2014 Statement of Financial Position GROUP NOTE UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M 6 1,597.2 1,598.6 1,598.6 Reserves 2,920.3 3,036.5 3,035.1 Total Equity 4,517.5 4,635.1 4,633.7 231.0 252.4 276.4 Shareholders’ Equity Share Capital Represented by: Current Assets Cash and Cash Equivalents Accounts Receivable 217.1 180.7 182.7 8 7.0 47.2 26.5 25.1 14.4 17.5 13 26.6 33.6 19.5 506.8 528.3 522.6 Other Assets 0.4 0.5 0.4 Equity Accounted Joint Ventures 0.1 - 0.2 45.7 55.5 54.0 Assets Classified as Held for Sale Other Assets Derivative Financial Instruments Total Current Assets Non-Current Assets Intangible Assets Property, Plant and Equipment 9 6,852.9 6,809.3 6,929.0 Deferred Tax Asset 10 19.9 11.6 20.4 Derivative Financial Instruments 13 123.2 68.0 63.2 Total Non-Current Assets 7,042.2 6,944.9 7,067.2 Total Assets 7,549.0 7,473.2 7,589.8 Current Liabilities Liabilities Classified as Held for Sale 0.1 1.0 1.3 232.7 176.8 235.6 8 Payables and Accruals Current Tax Payable Current Portion of Term Borrowings 11 41.6 47.5 57.1 133.7 62.2 133.4 0.6 - 0.6 Finance Lease Payable Derivative Financial Instruments 24.7 43.9 37.9 433.4 331.4 465.9 13 Total Current Liabilities Non-Current Liabilities Deferred Tax Liability 10 1,343.3 1,354.6 1,349.7 Term Borrowings 11 1,053.2 1,063.9 959.1 14.1 - 0.6 Term Payables Provisions Finance Lease Payable Derivative Financial Instruments 7.2 - 7.0 47.2 - 48.6 133.1 88.2 125.2 Total Non-Current Liabilities 2,598.1 2,506.7 2,490.2 Total Liabilities 3,031.5 2,838.1 2,956.1 Net Assets 4,517.5 4,635.1 4,633.7 13 For and on behalf of the Board of Directors who authorised the issue of the Financial Statements on 17 February 2015. Chris Moller Jan Dawson Chairman, 17 February 2015 Chair of Audit and Risk Committee, 17 February 2015 12 The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Statement of Changes in Equity SHARE CAPITAL SHARE OPTION RESERVE REVALUATION RESERVE FOREIGN CURRENCY TRANSLATION RESERVE CASH FLOW HEDGE RESERVE AVAILABLE FOR SALE RESERVE RETAINED EARNINGS TOTAL EQUITY GROUP UNAUDITED $M 1,598.6 0.2 3,073.8 (23.4) (1.4) 0.6 (14.7) 4,633.7 - - - - - - 117.1 117.1 - - - - (0.2) - - (0.2) - - - - - (0.8) - (0.8) Reclassify Foreign Currency Translation Reserve to Profit or Loss - - - (1.5) - - - (1.5) Exchange Differences Arising from Translation of Foreign Operations - - - (1.3) - - - (1.3) Income Tax Relating to Other Comprehensive Income - - - - 0.1 0.2 - 0.3 Total Comprehensive Income for the Period - - - (2.8) (0.1) (0.6) 117.1 113.6 Movement in Share Options - 0.2 - - - - - 0.2 NOTE Balance at 1 July 2014 Profit for the Period Cash Flow Hedges: Net Loss Taken to Equity Available for Sale Reserve: Net Loss Taken to Equity Acquisition of Treasury Shares 6 (1.4) - - - - - - (1.4) Dividends Paid 7 - - - - - - (228.6) (228.6) 1,597.2 0.4 3,073.8 (26.2) (1.5) - (126.2) 4,517.5 Balance at 31 December 2014 SHARE CAPITAL REVALUATION RESERVE FOREIGN CURRENCY TRANSLATION RESERVE CASH FLOW HEDGE RESERVE AVAILABLE FOR SALE RESERVE RETAINED EARNINGS TOTAL EQUITY GROUP UNAUDITED $M 1,600.0 3,073.9 (13.2) 8.9 1.6 16.8 4,688.0 - - - - - 116.9 116.9 - - - (2.8) - - (2.8) - - - - (1.2) - (1.2) Exchange Differences Arising from Translation of Foreign Operations - - (12.9) - - - (12.9) Asset Revaluation Reserve Transferred to Retained Earnings - (0.1) - - - 0.1 - Income Tax Relating to Other Comprehensive Income - - - 0.8 0.3 - 1.1 Total Comprehensive Income for the Period - (0.1) (12.9) (2.0) (0.9) 117.0 101.1 (1.4) - - - - - (1.4) NOTE Balance at 1 July 2013 Profit for the Period Cash Flow Hedges: Net Loss Taken to Equity Available for Sale Reserve: Net Loss Taken to Equity Acquisition of Treasury Shares 6 Dividends Paid 7 Balance at 31 December 2013 - - - - - (152.6) (152.6) 1,598.6 3,073.8 (26.1) 6.9 0.7 (18.8) 4,635.1 The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. 13 Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Statement of Changes in Equity  (continued) SHARE CAPITAL SHARE OPTION RESERVE REVALUATION RESERVE FOREIGN CURRENCY TRANSLATION RESERVE CASH FLOW HEDGE RESERVE AVAILABLE FOR SALE RESERVE RETAINED EARNINGS TOTAL EQUITY GROUP AUDITED $M 1,600.0 - 3,073.9 (13.2) 8.9 1.6 16.8 4,688.0 - - - - - - 229.8 229.8 - - - - (14.6) - - (14.6) - - - - - (1.4) - (1.4) Reclassify Foreign Currency Translation Reserve to Profit or Loss - - - 4.9 - - - 4.9 Exchange Differences Arising from Translation of Foreign Operations - - - (15.1) - - - (15.1) Asset Revaluation Reserve Transferred to Retained Earnings - - (0.1) - - - 0.1 - Income Tax Relating to Other Comprehensive Income - - - - 4.3 0.4 - 4.7 Total Comprehensive Income for the Period - - (0.1) (10.2) (10.3) (1.0) 229.9 208.3 Movement in Share Options - 0.2 - - - - - 0.2 (1.4) - - - - - - (1.4) NOTE Balance at 1 July 2013 Profit for the Period Cash Flow Hedges: Net Loss Taken to Equity Available for Sale Reserve: Net Loss Taken to Equity Acquisition of Treasury Shares 6 Dividends Paid 7 Balance at 30 June 2014 14 - - - - - - (261.4) (261.4) 1,598.6 0.2 3,073.8 (23.4) (1.4) 0.6 (14.7) 4,633.7 The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Statement of Cash Flows GROUP NOTE UNAUDITED UNAUDITED AUDITED 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2014 31 DEC 2013 30 JUN 2014 $M $M $M Operating Activities Cash was Provided from: Receipts from Customers 1,002.4 963.5 2,083.4 4.6 4.2 8.5 1,007.0 967.7 2,091.9 (685.9) (677.9) (1,480.5) Interest Paid (40.7) (39.9) (80.0) Income Tax Paid (63.6) (58.4) (98.6) (790.2) (776.2) (1,659.1) 216.8 191.5 432.8 15.4 4.7 41.1 - 0.2 0.2 Sale of Subsidiaries 20.1 2.1 20.1 Sale of Investments 3.9 - 1.0 39.4 7.0 62.4 (101.2) (151.7) (283.7) Interest Received Cash was Applied to: Payments to Suppliers and Employees Net Cash Inflows from Operating Activities Investment Activities Cash was Provided from: Sale of Property, Plant and Equipment 9 Finance Lease Receivable Cash was Applied to: Purchase of Property, Plant and Equipment Capitalised Interest (0.4) (3.6) (9.3) Purchase of Intangible Assets (4.0) (13.4) (21.7) Purchase of Investments (0.5) (0.2) (0.6) Finance Lease Payable (0.4) - (0.5) (106.5) (168.9) (315.8) (67.1) (161.9) (253.4) 203.7 80.4 133.7 203.7 80.4 133.7 Net Cash Outflows from Investing Activities Financing Activities Cash was Provided from: Proceeds from Borrowings Cash was Applied to: Shares Purchased for Long Term Incentive Dividends Paid 7 Term Borrowings Paid (1.0) (1.0) (1.0) (228.6) (152.6) (261.4) (168.9) (85.3) (153.5) (398.5) (238.9) (415.9) Net Cash Outflows from Financing Activities (194.8) (158.5) (282.2) Net Decrease in Cash and Cash Equivalents (45.1) (128.9) (102.8) Cash and Cash Equivalents at Beginning of Period 276.4 382.8 382.8 - - (1.8) Effect of Exchange Rate Changes on Net Cash (0.3) (1.5) (1.8) Cash and Cash Equivalents at End of Period 231.0 252.4 276.4 Cash Removed on Sale of Subsidiaries The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. 15 Meridian Energy Limited Condensed Interim Financial Statements for the six months ended 31 December 2014 Statement of Cash Flows  (continued) GROUP RECONCILIATION OF PROFIT AFTER TAX FOR THE PERIOD TO CASH FLOWS FROM OPERATING ACTIVITIES NOTE Profit after Tax for the Period UNAUDITED UNAUDITED AUDITED 6 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED 31 DEC 2014 31 DEC 2013 30 JUN 2014 $M $M $M 117.1 116.9 229.8 Adjustments for Operating Activities Non-Cash Items: Amortisation of Intangible Assets Depreciation Movement in Deferred Tax Total Net Change in Fair Value of Financial Instruments Loss/(Gain) 13 Cash Receipt on Closeout of Aluminium Commodity Swap Cash Payments of Option Premiums Share Based Payments Equity Accounted Earnings of Joint Ventures 11.8 11.1 21.4 104.7 94.2 198.6 (9.6) (7.6) (17.8) 25.5 (41.2) (18.6) - 54.6 54.6 (8.6) (8.9) (21.2) 0.2 - 0.2 0.6 0.2 0.4 124.6 102.4 217.6 (15.2) 2.4 (6.6) Items Classified as Investing Activities: (Gain)/Loss on Sale of Assets Finance Lease Interest Impairment of Assets 3 - 0.1 - 0.5 - - (14.7) 2.5 (6.6) 0.4 1.6 1.9 0.4 1.6 1.9 (34.4) 74.9 71.8 (7.6) (3.1) (5.0) Items Classified as Financing Activities: Amortisation of Prepaid Debt Facility Fees Changes in Working Capital Items (Increase)/Decrease in Accounts Receivable (Increase) in Other Assets (Decrease) in Payables and Accruals (2.9) (99.9) (39.2) (Decrease)/Increase in Current Tax Payable (15.5) (3.8) 5.8 Working Capital Items included in Investing Activities 55.3 - (53.2) Working Capital Items included in Financing Activities and Other Non-cash items (5.5) - 9.9 Net Cash Flow from Operating Activities 16 (10.6) (31.9) (9.9) 216.8 191.5 432.8 The Summary of Accounting Policies and Notes to the Condensed Interim Financial Statements form an integral part of these Condensed Interim Financial Statements. Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 Contents 1 Summary of Accounting Policies 7 Dividends 12 Financial Risk Management 2 Segment Reporting Assets and Liabilities Classified as Held for Sale Financial Instruments Gain/(Loss) on Sale of Assets 8 13 3 14 Commitments 4 Finance Costs 9 Property, Plant and Equipment Income Tax Expense 10 Deferred Tax 5 6 Equity 15 Subsequent Events 16 Contingent Assets and Liabilities 11 Borrowings 1. Summary of Accounting Policies Reporting Entity and Statement of Compliance Meridian Energy Limited is a profit-oriented entity domiciled in New Zealand, registered under the Companies Act 1993 and is a Financial Markets Conduct reporting entity for the purposes of the Financial Reporting Act 2013 and the Financial Markets Conduct Act 2013. Meridian Energy Limited is majority owned by Her Majesty the Queen in Right of New Zealand (the “Crown”) and is dual listed on the New Zealand Stock Exchange (NZX) and the Australian Securities Exchange (ASX). The Company is bound by the requirements of the Public Finance Act 1989. Meridian Energy Limited’s core business is the generation, trading and retailing of electricity and wider complementary products and services. The condensed interim financial statements (the Group financial statements) are presented for Meridian Energy Limited and its subsidiaries (together referred to as “Meridian” or the “Group”) at, and for the six months ended 31 December 2014. The financial statements were authorised for issue by the Directors on 17 February 2015. Basis of Preparation Judgements and Estimations These unaudited condensed interim financial statements have been prepared using New Zealand Generally Accepted Accounting Practice (NZ GAAP), accounting policies consistent with International Financial Reporting Standards (IFRS) and New Zealand equivalents to IFRS (NZ IFRS) and in accordance with IAS 34: Interim Financial Reporting and NZ IAS 34: Interim Financial Reporting as appropriate for a profit-oriented entity. The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The application of these is consistent with that used in the preparation of the Group’s financial statements for the year ended 30 June 2014. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The financial statements have been prepared on the basis of historical cost modified by the revaluation of certain assets and liabilities. The accrual basis of accounting has been used unless otherwise stated. These financial statements are presented in New Zealand dollars rounded to the nearest million ($m). The accounting policies and methods of computation set out in the Group financial statements for the year ended 30 June 2014 have been applied consistently to all periods presented in the financial statements. The application of new or amended standards has had no material impact on the amounts recognised in the financial statements. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are in relation to the valuation of generation structures, plant assets and derivatives. In addition, accounting judgements are made in respect of the hedge designation and valuation of certain financial instruments, assessments of hedge effectiveness and the determination of useful lives of property, plant and equipment. 17 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 2. Segment Reporting Meridian has determined the operating segments based on the reports reviewed by the Chief Executive to assess performance, allocate resources and make strategic decisions. He considers the business from the perspective of three reportable segments, being Wholesale, Retail and International. Performance of the operating segments is measured on an EBITDAF basis. The following balance sheet items are not allocated to operating segments as they are not reported to the Chief Executive at a segmental level: - Assets - Liabilities The revenue from external parties is measured in a manner consistent with that in the Income Statement. Meridian transacted the equivalent of approximately 37% (December 2013: 40%, June 2014: 38%) of its generation output to a single counterparty through a Contract for Difference (CfD). The revenues received from this customer are attributable to the Wholesale segment. The accounting policies of the reportable segments are the same as those applied in the preparation of the Group financial statements for the year ended 30 June 2014. The Retail segment purchases electricity from the Wholesale segment at an average annual fixed price of $80-$85 per MWh for electricity, which is sold to customers on fixed price, variable volume agreements and electricity purchased for customers on spot agreements at the prevailing wholesale spot market rates. Wholesale Segment The Wholesale segment encompasses activity associated with Meridian’s generation of electricity and the sale into the wholesale electricity market, the purchase of electricity from the wholesale electricity market to sell to large industrial customers and the Retail segment, the development of New Zealand renewable energy generation opportunities and activities such as risk management and dam consultancy services. On 1 December 2014, Arc Innovations Limited, a wholly owned subsidiary of the Parent, was sold as a going concern. International Segment The International segment comprises Meridian’s Australian operations, which generate, sell and retail electricity into the relevant markets. On 15 May 2014, CalRENEW-1 LLC, a controlled entity involved in the solar generation of electricity, was sold as a going concern. Retail Segment The Retail segment encompasses activity associated with the purchase of electricity from the Wholesale segment, the retail sale of electricity to retail customers and the provision of metering services. Unallocated Unallocated encompasses the activities and centrally based costs that support the Wholesale, Retail and International segments, and includes non-operating subsidiaries. The segment information provided to the Chief Executive for the reportable segments for the six months ended 31 December 2014 is as follows: INTER-SEGMENT ITEMS $M WHOLESALE $M RETAIL $M INTERNATIONAL $M UNALLOCATED $M TOTAL $M Energy Sales Revenue 948.6 567.2 36.6 - (235.4) 1,317.0 Energy Related Expenses (554.3) (271.8) (5.2) - 235.4 (595.9) - - (240.9) Operating Revenue Energy Distribution Expense - (234.8) (6.1) Energy Margin 394.3 60.6 25.3 - - 480.2 Other Revenue 3.4 8.8 - 26.6 (22.3) 16.5 Energy Transmission Expense (58.9) - (1.7) - - (60.6) Gross Margin 338.8 69.4 23.6 26.6 (22.3) 436.1 Employee Expenses (13.3) (15.8) (3.4) (11.6) 0.3 (43.8) Other Operating Expenses (23.7) (27.6) (8.3) (9.6) 1.2 (68.0) EBITDAF 301.8 26.0 11.9 5.4 (20.8) 324.3 948.6 567.2 36.6 - (235.4) 1,317.0 3.4 8.8 - 26.6 (22.3) 16.5 (235.4) - - (22.3) 257.7 - 716.6 576.0 36.6 4.3 - 1,333.5 Reconciliation of Operating Revenue Energy Sales Revenue Other Revenue Inter-Segment Revenue Revenue from External Customers 18 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 2. Segment Reporting  (continued) The segment information provided to the Chief Executive for the reportable segments for the six months ended 31 December 2013 is as follows: INTER-SEGMENT ITEMS $M WHOLESALE $M RETAIL $M INTERNATIONAL $M UNALLOCATED $M TOTAL $M Energy Sales Revenue 768.4 568.0 12.5 - (263.7) 1,085.2 Energy Related Expenses (396.4) (292.9) (0.6) - 263.7 (426.2) - (212.2) (0.2) - - (212.4) Energy Margin 372.0 62.9 11.7 - - 446.6 Other Revenue 4.3 9.1 - 5.3 (6.0) 12.7 Energy Transmission Expense (64.8) - (1.9) - - (66.7) Gross Margin 311.5 72.0 9.8 5.3 (6.0) 392.6 Operating Revenue Energy Distribution Expense Employee Expenses (14.8) (16.3) (4.6) (12.1) 0.5 (47.3) Other Operating Expenses (25.0) (28.0) (4.1) (20.5) 0.5 (77.1) EBITDAF 271.7 27.7 1.1 (27.3) (5.0) 268.2 768.4 568.0 12.5 - (263.7) 1,085.2 4.3 9.1 - 5.3 (6.0) 12.7 (263.7) (1.0) - (5.0) 269.7 - 509.0 576.1 12.5 0.3 - 1,097.9 INTER-SEGMENT ITEMS $M TOTAL $M Reconciliation of Operating Revenue Energy Sales Revenue Other Revenue Inter-Segment Revenue Revenue from External Customers The segment information provided to the Chief Executive for the reportable segments for the year ended 30 June 2014 is as follows: WHOLESALE $M RETAIL $M INTERNATIONAL $M UNALLOCATED $M Energy Sales Revenue 1,862.9 1,120.6 37.4 - (539.4) 2,481.5 Energy Related Expenses (1,063.7) (603.0) (3.2) - 539.4 (1,130.5) - (425.3) (2.3) - - (427.6) 799.2 92.3 31.9 - - 923.4 Operating Revenue Energy Distribution Expense Energy Margin Dividend and Other Revenue 9.8 19.7 - 12.2 (14.4) 27.3 Energy Transmission Expense (126.6) - (2.7) - - (129.3) Gross Margin 682.4 112.0 29.2 12.2 (14.4) 821.4 Employee Expenses (28.3) (32.1) (8.0) (23.0) 0.9 (90.5) Other Operating Expenses (51.0) (55.5) (10.2) (30.8) 1.9 (145.6) EBITDAF 603.1 24.4 11.0 (41.6) (11.6) 585.3 1,862.9 1,120.6 37.4 - (539.4) 2,481.5 9.8 19.7 - 12.2 (14.4) 27.3 (539.4) - - (14.4) 553.8 - 1,333.3 1,140.3 37.4 (2.2) - 2,508.8 Reconciliation of Operating Revenue Energy Sales Revenue Dividend and Other Revenue Inter-Segment Revenue Revenue from External Customers 19 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 2. Segment Reporting  (continued) Information Relating to Geographical Area Operations UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 1,296.9 1,085.4 2,471.4 36.6 10.8 34.8 - 1.7 2.6 1,333.5 1,097.9 2,508.8 UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M EBITDAF for Reportable Segments 339.7 300.5 638.5 Unallocated and Inter Segment EBITDAF (15.4) (32.3) (53.2) Total Group EBITDAF 324.3 268.2 585.3 Impairment of Assets (0.5) - - Gain/(Loss) on Sale of Assets 15.2 (2.4) 6.6 Equity Accounted Earnings of Joint Ventures (0.6) (0.2) (0.4) (11.8) (11.1) (21.4) (104.7) (94.2) (198.6) Total Revenue in: New Zealand Australia United States of America Reconciliation of EBITDAF to Profit before Tax provided as follows: Amortisation of Intangible Assets Depreciation Net Change in Fair Value of Financial Instruments (Loss)/Gain (25.5) 41.2 18.6 Finance Costs and Other Finance Related Expenses (40.8) (37.5) (73.7) Group Profit before Tax 155.6 164.0 316.4 UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 3. Gain/(Loss) on Sale of Assets Gain/(Loss) on Sale of Property, Plant and Equipment 4.6 (2.4) 11.3 Gain on Sale of Investments Available for Sale 1.0 - 0.2 Gain/(Loss) on Sale of Subsidiaries 9.6 - (4.9) Total Gain/(Loss) on Sale of Assets 15.2 (2.4) 6.6 Gain/(Loss) on Sale of Subsidiaries On 1 December 2014 the Group disposed of its entire interest in Arc Innovations Limited, a wholly owned subsidiary of the Parent, based on final completion financial statements. This resulted in a gain of $8.1m to the Group. 20 On 8 October 2014 the Group dissolved Meridian Energy USA, Inc., a controlled entity of the Parent, resulting in a gain of $1.5m to the Group. During the year ending 30 June 2014, the Group disposed of its entire interest in CalRENEW-1 LLC, a controlled entity of the Parent, resulting in a loss of $4.9m to the Group. Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 4. Finance Costs Interest on Borrowings Interest on Finance Lease Payable Less Capitalised Interest UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 42.6 45.4 87.9 3.2 - 3.7 (0.4) (3.7) (9.4) 45.4 41.7 82.2 UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 48.1 57.1 110.6 - (2.4) (6.2) 48.1 54.7 104.4 (9.6) (7.6) (17.8) (9.6) (7.6) (17.8) 38.5 47.1 86.6 155.6 164.0 316.4 43.2 45.8 88.0 Interest is capitalised during construction of assets that take a substantial period of time and where borrowing costs are directly attributable to the construction of those assets. Total interest expense for financial liabilities at amortised cost is $17.0m (31 December 2013: $16.7m, 30 June 2014: $33.4m). 5. Income Tax Expense NOTE Income Tax Expense Current Tax Expense Current Income Tax Charge Adjustments Regarding Current Income Tax of Prior Years Total Current Tax Expense Deferred Tax Expense Relating to Origination and Reversal of Temporary Differences Total Deferred Tax Expense Total Income Tax Expense 10 Income Tax Expense can be reconciled to accounting profit as follows: Profit Before Tax Income Tax at Applicable Tax Rates Tax Effect of Expenditure Not Deductible for Tax 0.2 3.7 5.5 Tax Effect of Income Not Subject to Tax (4.3) - (4.3) Income Tax (Over)/Under Provided in Prior Year (0.6) (2.4) (2.6) Income Tax Expense 38.5 47.1 86.6 Applicable Group tax rates for the current and prior financial years are 28% for New Zealand and 30% for Australia. 21 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 6. Equity Share Capital Opening Balance of Ordinary Shares issued Bonus Shares Issued Treasury Shares Acquired 1 Closing Balance of Ordinary Shares issued UNAUDITED 31 DEC 2014 SHARES UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 SHARES UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 SHARES AUDITED 30 JUN 2014 $M 2,562,034,984 1,598.6 1,600,000,002 1,600.0 1,600,000,002 1,600.0 - - 962,999,998 - 962,999,998 - (743,254) (1.4) (965,016) (1.4) (965,016) (1.4) 2,561,291,730 1,597.2 2,562,034,984 1,598.6 2,562,034,984 1,598.6 1 Related to shares held on trust for participants in the Executive Long Term Incentive plan. It includes provision for payment of the final instalment of $0.50 per share. On 19 September 2013 Meridian issued 962,999,998 bonus shares for total consideration of $1. 7. Dividends UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M 2014 Final Dividend Paid AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 228.6 - - 2014 Interim Dividend Paid - - 108.8 2013 Final Dividend Paid - 152.6 152.6 228.6 152.6 261.4 UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M Arc Innovations Limited - - 12.8 Meridian Energy USA Incorporated - 17.3 - Farm Related Assets 7.0 29.9 13.7 Total Assets Held for Sale 7.0 47.2 26.5 Arc Innovations Limited - - 1.1 Meridian Energy USA Incorporated - 0.8 - Farm Related Liabilities 0.1 0.2 0.2 Total Liabilities Held for Sale 0.1 1.0 1.3 Net Assets Classified as Held for Sale 6.9 46.2 25.2 On 17 February 2015 the Board declared a fully imputed interim dividend of $123.0m (4.8 cents per share) and a fully imputed special dividend of $35.9m (1.4 cents per share) payable on 15 April 2015. 8. Assets and Liabilities Classified as Held for Sale 22 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 9. Property, Plant and Equipment UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M Additions at Cost 44.5 146.0 346.3 Carrying Value of Disposals (including those classified as Held for Sale, excluding disposal of Subsidiaries) 10.8 7.1 29.8 Proceeds of Disposals (including those classified as Held for Sale, excluding disposal of Subsidiaries) 15.4 4.7 41.1 UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 1,329.3 1,351.5 1,351.5 (9.6) (7.6) (17.8) (9.6) (7.6) (17.8) (0.3) (1.1) (4.7) (0.3) (1.1) (4.7) 0.2 0.2 0.3 10. Deferred Tax The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon, during the current and prior reporting periods. NOTE Balance at Beginning of Period Recognised in the Income Statement: Movement in Temporary Differences 5 Recognised in Other Comprehensive Income: Movement in Temporary Differences (Equity) Effect of Retranslating Foreign Currency Opening Balances Effect of Sale of Subsidiaries 3.8 - - 1,323.4 1,343.0 1,329.3 (6.9) (3.7) (4.8) Term and Finance Lease Payables 2.5 2.9 5.7 Financial Instruments (7.2) (3.7) (10.0) Balance at End of Period The movement in temporary differences recognised in the income statement consists of the following: Property, Plant and Equipment Carried Forward Losses to be Utilised against Future Taxable Income Other - - (8.9) 2.0 (3.1) 0.2 (9.6) (7.6) (17.8) 23 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 10. Deferred Tax  (continued) Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. The following is the analysis of the deferred tax balances (after offset) for Statement of Financial Position purposes: UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M Property, Plant and Equipment – Revaluation 941.9 941.9 941.9 Property, Plant and Equipment – Accelerated Depreciation 430.1 422.8 434.1 (1.8) Term Payables Financial Instruments Other Deferred Tax Liability Carried Forward Losses to be Utilised Against Future Taxable Income Other Deferred Tax Asset 2.2 (0.4) (20.2) (8.4) (19.6) (6.7) (3.9) (6.3) 1,343.3 1,354.6 1,349.7 (19.8) (11.5) (20.3) (0.1) (0.1) (0.1) (19.9) (11.6) (20.4) 1,323.4 1,343.0 1,329.3 Carried forward losses relate to Australian operations and will be utilised against future taxable income from retail and generation activities. 11. Borrowings ORIGINAL CURRENCY UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M Borrowings – Current Unsecured Borrowings NZD 133.7 11.3 133.4 Unsecured Borrowings USD - 50.9 - 133.7 62.2 133.4 Total Current Borrowings Borrowings – Non Current Unsecured Borrowings NZD 278.6 412.8 283.2 Unsecured Borrowings AUD 178.3 254.3 306.1 Unsecured Borrowings USD 369.8 596.3 396.8 Total Non Current Borrowings 1,053.2 1,063.9 959.1 Total Borrowings 1,186.9 1,126.1 1,092.5 Meridian has committed bank facilities of $650.7m of which $357.1m were undrawn at 31 December 2014. The expiry of these facilities range from January 2017 to April 2026. Borrowings are carried at amortised cost with the exception of USD borrowings, which are in a designated hedge relationship (and are classified as Level 2 in the Fair Value Hierarchy). The total carrying value of all borrowings is considered to approximate fair value. 24 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 12. Financial Risk Management Meridian’s activities expose it to a variety of financial risks: liquidity risk, market risk (including currency risk, cash flow risk, interest rate risk, electricity and other price risk) and credit risk. Meridian’s overall risk management programme focuses on the unpredictability of financial markets and the wholesale electricity market and seeks to minimise potential adverse effects on the financial performance and economic value of the Group. In order to hedge certain risk exposures, Meridian uses derivative financial instruments such as: foreign exchange contracts (FECs) and options; cross currency interest rate swaps (CCIRSs); interest rate swaps (IRSs) including forward rate agreements and interest rate options; electricity contracts for differences (CfDs) and options; and financial transmission rights (FTRs) and options. Meridian uses sensitivity analysis to measure the amount of risk it is exposed to for: foreign exchange risk; interest rate risk; price risk; and ageing analysis for credit risk. Risk management is carried out under policies approved by the Board. Liquidity Risk Meridian maintains sufficient funding through adequate committed funding facilities and the ability to close out market positions as part of its management of liquidity risk. Due to the dynamic nature of the underlying businesses, Group Treasury maintains flexibility in funding by keeping committed surplus credit lines available of at least $200m to ensure it has sufficient headroom under normal and abnormal conditions. Market Risk Foreign Exchange Risk Meridian borrows in foreign currencies and is exposed to foreign exchange risks, primarily in respect of the US and Australian dollars. In addition, the Group incurs capital and operating expenditure denominated in foreign currencies, which exposes the Group to foreign exchange risk primarily in respect of US dollars, Australian dollars and the Euro. Meridian does not enter into FECs for speculative purposes. In respect of overseas borrowings, the Group’s policy is to hedge the foreign currency exposure of both interest and principal repayments through CCIRSs which swap all foreign currency denominated interest and principal repayments to payments in the base currency of the borrowing entity. The combination of the foreign denominated debt and the CCIRSs results in a Group exposure to base currency floating interest rates and principal repayments. The floating interest rate risk is managed as part of the interest rate risk as described in the following section. Meridian’s CCIRSs and foreign denominated borrowings are in a combination of a fair value hedge and cash flow hedge relationships. Foreign exchange movements on the borrowings and CCIRSs offset each other, therefore there is no income statement or equity impact. In respect of foreign exchange exposures on capital and operating expenditures denominated in foreign currencies, Meridian hedges the foreign exchange risk through a combination of FECs and options. Capital projects which are approved by the Board are hedged. All committed foreign currency exposures of greater than $0.1m NZD equivalent are hedged. The values of foreign currency derivatives are sensitive to changes in the forward prices for currencies. A 20% increase/decrease in the Australian dollar against the forward price of the Euro on the Group’s profit and equity on the assumption that all other variables are held constant, does not impact NPAT or Equity by more than $1.0m.A 20% increase / decrease in the New Zealand dollar against the forward price of the Australian dollar and the Euro on the Group’s profit and equity on the assumption that all other variables are held constant, does not impact NPAT or Equity by more than $0.5m. Cash Flow and Interest Rate Risk Meridian’s primary interest rate risk arises from long term borrowings which are sourced at both fixed interest rates and floating interest rates. In addition, as described in the section above, the combination of foreign denominated borrowings and the CCIRSs result in an exposure to floating interest rates in the currency of the funding’s ultimate destination. Borrowings in floating New Zealand or Australian interest rates expose Meridian to risk of changes in cash flow and the fair value of the debt issued. Meridian does not enter into interest rate swaps for speculative purposes. Interest rate risk is managed on a dynamic basis and various scenarios are simulated taking consideration of existing and forecast debt requirements, existing hedge positions, forecast interest rates and in accordance with the Board approved policies. In accordance with the Board policy, Meridian manages its exposure to interest rate risk by identifying a core level of debt and using IRSs that apply minimum and maximum bands of interest rate (hedge) cover to fix interest rates. The majority of Meridian IRSs are not designated as hedges for accounting purposes and are therefore classified as held for trading. The table below summarises the impact of increases/decreases in the forward price of interest, using the benchmark bank bill rate (BKBM), as at 31 December, on Meridian’s profit and equity on the assumption that all other variables are held constant. Sensitivity Analysis – Interest rates IMPACT ON AFTER TAX PROFIT UNAUDITED 31 DEC 2014 $M New Zealand BKBM Australian BBSY UNAUDITED 31 DEC 2013 $M IMPACT ON EQUITY AUDITED 30 JUN 2014 $M UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M -100 bps (26.6) (25.1) (24.0) (26.6) (25.1) (24.0) +100 bps 24.6 23.4 22.4 24.6 23.4 22.4 -100 bps (8.1) (8.9) (9.0) (8.1) (8.9) (9.0) +100 bps 7.7 8.4 8.5 7.7 8.4 8.5 25 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 12. Financial Risk Management  (continued) Price Risk ASX (Australian Securities Exchange), FTRs under the NZX auction process and bi-lateral derivative contracts (including options) with other electricity generators and major customers. Meridian does not enter into derivative contracts for speculative purposes. Meridian is exposed to movements in the spot price of electricity arising through the sale and purchase of electricity to and from the market. Meridian manages the net exposure to this risk by estimating both expected generation and electricity purchases required to support sales. Based on this net position, Meridian enters into derivative contracts to protect against price volatility within trading parameters set and monitored by the Board. The derivative contracts include forward electricity CfDs traded on the In addition, as Meridian’s Australian wind farms earn Renewable Energy Certificates (RECs) – in the form of Large-Scale Generation Certificates (LGCs), LGC options are used to hedge this associated price risk. The table below summarises the impact of increases/(decreases) in changes to certain assumptions on Meridian’s profit and equity, on the assumption that all other variables are held constant and Meridian’s current accounting policies are followed as stated. Post tax profit and equity would increase/(decrease) as shown in the table below due to unrealised gains/losses on CfDs. Sensitivity Analysis – Electricity Price Risk IMPACT ON AFTER TAX PROFIT IMPACT ON EQUITY UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M -10% 134.0 129.9 138.2 134.0 129.9 138.2 CfDs held for trading Electricity Prices 10% (129.1) (129.7) (133.9) (129.1) (129.7) (133.9) Interest Rates -100 bps 1.0 (0.7) 0.7 1.0 (0.7) 0.7 (discount rate) +100 bps (1.0) (1.9) (0.7) (1.0) (1.9) (0.7) Level 3 CfDs represent all material movements. Credit Risk Credit risk is managed on net exposures at Group level. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including derivatives which have a positive value, outstanding receivables and guarantees. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted and where wholesale customers are independently rated, these ratings are used. Otherwise, if there is no 26 independent rating, the Credit Management Unit assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits and provision of prudential security by wholesale customers is regularly monitored by line management. Credit risk surrounding the sales to retail customers is predominantly mitigated by the accounts being settled on a monthly basis. Retail credit management continually monitors the size and nature of the exposure and acts to mitigate the risk deemed to be over acceptable levels. The carrying amounts of financial assets recognised in the Statement of Financial Position best represents Meridian’s maximum likely exposure to credit risk at the date of this report. Meridian does not have any significant concentrations of credit risk with any one financial institution. Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 13. Financial Instruments Fair Value of Financial Instruments NZ IFRS 13 provides for a three-level fair value hierarchy that requires inputs to valuation techniques used to measure fair value to be categorised as follows: · Level 1 Inputs - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Australian Securities Exchange (ASX) level 1 inputs are utilised to measure Electricity related CfD’s · Level 2 Inputs - Either directly (i.e. as prices) or indirectly (i.e. derived from prices) observable inputs other than quoted prices included in Level 1. Interest Rate Swaps, Cross Currency Interest Rate Swaps and Foreign Exchange Contracts have level 2 inputs and are measured using discounted cash flow valuation technique · Level 3 Inputs - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). See table below for further details cash flows), three key types of inputs are used by the valuation technique. These are: · forward price curves referenced to the ASX for electricity, published market interest rates and published forward foreign exchange rates; and · discount rates based on forward interest swap curve adjusted for counterparty risk · all contracts are assumed to run for the full duration of the contract and for the term stated Where the fair value of a financial instrument is calculated as the present value of the estimated future cash flows of the instrument (discounted The following table gives information about how the fair values of financial assets and financial liabilities are determined (in particular, the valuation technique(s) and input(s) used). RELATIONSHIP OF UNOBSERVABLE INPUTS TO FAIR VALUE FINANCIAL ASSETS/ FINANCIAL LIABILITIES FAIR VALUE HIERARCHY VALUATION TECHNIQUE(S) AND KEY INPUT(S) SIGNIFICANT UNOBSERVABLE INPUTS Electricity related CfDs Level 3 Valuation technique: Discounted cash flows. Future cash flows have been calculated with reference to: Estimate of forward wholesale electricity price ranging from $55 per MWh to $98 per MWh (in real terms) – excludes observable ASX pricing For a buy contract, the higher the forward wholesale electricity price, the lower the fair value loss or the higher the gain, and for a sell contract, the higher the fair value loss or lower the fair value gain 2.25% The higher the forecast rate, the lower the gain/ loss on a contract Price Where quoted prices are not available or not relevant (i.e. for long dated and large volume contracts such as the NZAS CfD), Meridian’s best estimate of long-term forward wholesale electricity price is used. Meridian’s best estimate is based on a fundamental analysis of expected demand and the cost of new supply Forecast CPI An internal forecast of expected inflation rates Other factors London Metal Exchange (LME) quoted prices of primary aluminium Calibration factor Factor applied to forward price curve as a consequence of initial recognition differences In estimating the fair value of an asset or liability, the Group uses market-observable data to the extent it is available. Where observable inputs are not available, the Group engages third party experts to support the establishment of appropriate valuation techniques and inputs to valuation models. There have been no transfers between levels in respect of these assets and liabilities. The Audit and Risk Committee of the Company determines the overall appropriateness of key valuation techniques and inputs for fair value measurement. The Chief Financial Officer, in his report to the Board, includes explanation of fair value movements. 27 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 13. Financial Instruments  (continued) The table below shows the fair value hierarchy of the financial assets and financial liabilities measured at fair value by the Group: UNAUDITED 31 DEC 2014 $M DERIVATIVE FINANCIAL INSTRUMENTS LEVEL 1 LEVEL 2 UNAUDITED 31 DEC 2013 $M LEVEL 3 TOTAL LEVEL 1 LEVEL 2 AUDITED 30 JUN 2014 $M LEVEL 3 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets: Held for Trading Electricity Related CfDs 4.4 (0.2) 110.1 114.3 5.0 (0.1) 72.9 77.8 6.5 (0.1) 66.7 73.1 - 6.3 - 6.3 - 10.0 - 10.0 - 5.3 - 5.3 Foreign Exchange Contracts - 0.6 - 0.6 - 12.0 - 12.0 - 2.9 - 2.9 Cross Currency Interest Rate Swaps - 2.6 - 2.6 - - - - - 1.4 - 1.4 - 26.0 - 26.0 - 1.8 - 1.8 - - - - 4.4 35.3 110.1 149.8 5.0 23.7 72.9 101.6 6.5 9.5 66.7 82.7 Interest Rate Swaps Cash Flow Hedges Fair Value Hedges Cross Currency Interest Rate Swaps Total Current Non Current 26.6 33.6 19.5 123.2 68.0 63.2 Liabilities: Held for Trading Electricity Related CfDs 7.4 - 53.5 60.9 8.6 0.1 38.4 47.1 10.2 0.1 39.9 50.2 Interest Rate Swaps - 83.8 - 83.8 - 49.5 - 49.5 - 57.4 - 57.4 Foreign Exchange Contracts - 0.3 - 0.3 - - - - - - - - Foreign Exchange Contracts - 0.1 - 0.1 - 2.9 - 2.9 - 3.2 - 3.2 Cross Currency Interest Rate Swaps - 0.2 - 0.2 - 0.9 - 0.9 - 3.0 - 3.0 - 12.5 - 12.5 - 31.7 - 31.7 - 49.3 - 49.3 7.4 96.9 53.5 157.8 8.6 85.1 38.4 132.1 10.2 113.0 39.9 163.1 Cash Flow Hedges Fair Value Hedges Cross Currency Interest Rate Swaps Total Current Non Current 24.7 43.9 37.9 133.1 88.2 125.2 Held for Sale Financial Assets: Listed Securities - - - - 5.9 - - 5.9 3.7 - - 3.7 Total - - - - 5.9 - - 5.9 3.7 - - 3.7 The fair value element of borrowings which are subject to fair value hedge accounting are a level 2 valuation. 28 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 13. Financial Instruments  (continued) The table below shows the changes in the fair value of the financial instruments recognised in the Income Statement. UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M Fair Value Hedge Cross Currency Interest Rate Swaps (68.8) (26.3) (8.5) 68.8 25.7 8.0 - (0.6) (0.5) Interest Rate Swaps (25.8) 40.1 27.5 Net Change in Fair Value of Financial Instruments Gain/(Loss) – Financing (25.8) 39.5 27.0 Borrowings – Fair Value of Hedged Risk Held for Trading Held for Trading Foreign Exchange Contracts (0.2) (0.2) (0.1) CfDs 0.6 1.8 (8.2) Other (0.1) 0.1 (0.1) Net Change in Fair Value of Financial Instruments Gain/(Loss) - Operational 0.3 1.7 (8.4) (25.5) 41.2 18.6 Total Net Change in Fair Value Gain/(Loss) on Financial Instruments Included in the above is $(4.3)m (31 December 2013: $10.6m, 30 June 2014: $5.8m) related to Level 3 financial instruments held at the end of the reporting period. The table below shows a reconciliation of fair value movements in Level 3 financial instruments. UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 26.8 20.1 20.1 Included in Energy Sales Revenue (44.4) 33.3 (44.3) Net Change in Fair Value of CfDs 0.5 10.5 2.8 - (0.1) (0.2) CfDs settled during the year 44.4 (33.3) 44.3 CfDs entered into during the year 29.3 4.0 4.1 Closing Balance 56.6 34.5 26.8 Energy Derivatives (CfDs) Opening Balance Total gains/(losses) recognised in the Income Statement Total gains/(losses) recognised in the FX Translation Reserve Refer to previous Electricity price risk sensitivity analysis (in Note 12 - Financial Risk Management) for sensitivity to changes in valuation assumptions of Level 3 financial instruments (CfDs). Cash Flow Hedge Reserve The effective portion of changes in the fair values of treasury derivatives (FECs, IRSs and CCIRSs) that are designated and qualify as cash flow hedges are recognised in the cash flow hedge reserve. The movement in the cash flow hedge reserve net of tax for the six months ended 31 December 2014 is ($0.1m), (31 December 2013: ($2.0m), 30 June 2014: ($10.3m)). New Zealand Aluminium Smelters CfD Agreement On 7 August 2013, Meridian and New Zealand Aluminium Smelters (NZAS) entered into an electricity price agreement. This agreement is for a period of up to 18 years and is based on 400 to 572MW of continuous consumption at the Tiwai smelter, thereby providing NZAS price certainty for this consumption volume which NZAS purchases from the New Zealand wholesale market. The agreed energy price is subject to escalation with reference to the Consumers Price Index (All Groups) and world aluminium prices. Meridian considers that the agreement will best ensure that the electricity price NZAS pays will remain competitive for the scale of electricity consumption at the Tiwai smelter, while recognising both the commodity-price driven cycles of NZAS’s business environment and the wholesale electricity price cycles to which Meridian is exposed. The agreement has been accounted for at fair value as required by NZ IAS 39 Financial Instruments: Recognition and Measurement. Fair value changes subsequent to initial recognition are recognised in the Income Statement and have been measured using the fair value guidelines under NZ IFRS 13 Fair Value Measurement. 29 Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 13. Financial Instruments  (continued) Initial Recognition Difference An initial recognition difference arises when the modelled value of an electricity derivative differs from the transaction price (which is the best evidence of fair value). This difference can be accounted for by recalibrating the valuation model by a fixed percentage to result in a value at inception equal to the transaction price. This recalibration adjustment is then applied to future valuations over the life of the contract. Alternatively, as was done previously with the difference on the 2007 NZAS contract, it can be amortised over the life of the contract. The table below shows the aggregate initial recognition difference yet to be recognised in the Income Statement over the term of the contract: UNAUDITED 6 MONTHS ENDED 31 DEC 2014 $M UNAUDITED 6 MONTHS ENDED 31 DEC 2013 $M AUDITED 12 MONTHS ENDED 30 JUN 2014 $M 911.5 186.0 186.0 - 853.2 853.2 14.5 3.0 (0.2) (28.2) (134.1) (151.8) (1.9) (2.0) (6.8) NZAS Agreement 77.9 (28.7) 31.3 Electricity Related CfDs (2.3) (3.1) (0.2) 971.5 874.3 911.5 UNAUDITED 31 DEC 2014 $M UNAUDITED 31 DEC 2013 $M AUDITED 30 JUN 2014 $M 14.6 201.0 29.9 0.8 1.5 3.6 15.4 202.5 33.5 Opening Difference Initial Difference on New Hedges NZAS Agreement Electricity Related CfDs Volumes Expired and differences amortised during the Period NZAS Agreement Electricity Related CfDs Recalibration of Model for Future Price Estimates and Time Closing Difference 14. Commitments Capital Expenditure Commitments Property, Plant and Equipment Software Guarantees Meridian Energy Limited has provided a bank guarantee (A$37.9m) to the financiers of the Macarthur wind farm, guaranteeing that it will comply with its various obligations under the Refinancing Coordination Deed (with that guarantee expected to be released within the 2015 financial year). 30 Meridian Energy Limited has provided parent guarantees for various construction and grid connection obligations of Mt Mercer Wind Farm Pty Limited. The maximum liability under these guarantees is $186.9m (31 December 2013: $211.6m, 30 June 2014: $192.6m). Meridian Energy Limited signed a Parent Company Guarantee (PCG) on 30 April 2014 for the benefit of CalRENEW-1 Holdings LLC (holding company of SunEdison Inc). The PCG related to Meridian Energy USA Inc’s (MEUSA) sale of CalRENEW-1 LLC pursuant to a Unit Purchase Agreement (UPA). Under the PCG, the Parent guarantees MEUSA’s obligations in the UPA, which include historic payment obligations and some representations and warranties. The PCG stands for three years. Meridian Energy Limited Notes to the Condensed Interim Financial Statements for the six months ended 31 December 2014 15. Subsequent Events Dividends Other than the dividend declared on 17 February 2015 (refer to Note 7), there have been no other material events subsequent to 31 December 2014. 16. Contingent Assets and Liabilities Contingent Assets Meridian has been disputing the Inland Revenue Department’s (IRD) tax treatment relating to the depreciation of powerhouse structures. The IRD has issued a draft provisional determination for hydro electric powerhouses allowing depreciation deductions. Should this draft be finalised in its current state, it will reverse a deferred tax liability and will result in an income statement change of $34.4m. There were no other contingent assets at 31 December 2014 (31 December 2013: nil, 30 June 2014: nil). Contingent Liabilities There were no contingent liabilities at 31 December 2014 (31 December 2013: nil, 30 June 2014: nil). 31 Review Report To the Shareholders of Meridian Energy Limited We have reviewed the condensed consolidated interim financial statements of Meridian Energy Limited and its subsidiaries (“the Group”) which comprise the statement of financial position as at 31 December 2014, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the six months ended on that date, and a summary of significant accounting policies and other explanatory information on pages 10 to 31. This report is made solely to the company’s shareholders, as a body. Our review has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company’s shareholders as a body, for our engagement, for this report, or for the opinions we have formed. Board of Directors’ Responsibilities The Board of Directors are responsible for the preparation and fair presentation of the condensed consolidated interim financial statements, in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting and for such internal control as the Board of Directors determine is necessary to enable the preparation and fair presentation of the condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the condensed consolidated interim financial statements, whether in printed or electronic form. Independent Reviewer’s Responsibilities The Auditor-General is the auditor of the Group pursuant to section 5(1)(f) of the Public Audit Act 2001. Pursuant to section 32 of the Public Audit Act 2001, the AuditorGeneral has appointed Michael Wilkes of Deloitte to carry out the annual audit of the Group. Our responsibility is to express a conclusion on the condensed consolidated interim financial statements based on our review. We conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the condensed consolidated interim financial statements, taken as a whole, are not prepared, in all material respects, in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting. As the auditor of Meridian Energy Limited, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements. A review of the condensed consolidated interim financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on the condensed consolidated interim financial statements. We did not evaluate the security and controls over the electronic publication of the condensed consolidated interim financial statements. In addition to this review and the audit of the Group annual financial statements, we have carried out other engagements consisting of a carbon emissions audit, audit of the securities registers and reporting in our capacity as auditors to the supervisor for the debt securities which are compatible with the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board. In addition, principals and employees of our firm deal with the Group on arm’s length terms within the ordinary course of trading activities of the Group. These services have not impaired our independence as auditor of the Company or Group. Other than these engagements and arm’s length transactions, and in our capacity as auditor acting on behalf of the Auditor-General, we have no relationship with, or interests in, the Company or Group. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements do not present fairly, in all material respects, the financial position of the Group as at 31 December 2014 and its financial performance and cash flows for the six months ended on that date in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting. Michael Wilkes Deloitte On behalf of the Auditor-General Christchurch, New Zealand 17 February 2015 32 Directory Registered office Share Registrar – New Zealand Banker Meridian Energy Limited 33 Customhouse Quay Wellington 6011 New Zealand Computershare Investor Services Ltd Level 2 , 159 Hurstmere Road Takapuna, Auckland 0622 Private Bag 92119 Auckland 1142 Westpac Wellington New Zealand Offices T: +64 9 488 8777 F: +64 9 488 8787 Chris Moller, Chair Peter Wilson, Deputy Chair John Bongard Mark Cairns Jan Dawson Mary Devine Sally Farrier Anake Goodall Stephen Reindler 33 Customhouse Quay PO Box 10840 The Terrace Wellington 6143 New Zealand T: +64 4 381 1200 F: +64 4 381 1201 104 Moorhouse Avenue PO Box 2146 Christchurch 8140 New Zealand T: +64 3 357 9700 State Highway 8 Private Bag 950 Twizel 7944 New Zealand T: +64 3 435 0818 F: +64 3 435 0939 Australian registered office Meridian Energy Australia Pty Ltd Level 15, 357 Collins Street Melbourne VIC 3000 enquiry@computershare.co.nz www.investorcentre.com/nz Share Registrar – Australia Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford, VIC 3037 GPO Box 3329 Melbourne, VIC 3001 T: 1800 501 366 (within Australia) T: +61 3 9415 4083 (outside Australia) F: +61 3 9473 2500 enquiry@computershare.co.nz Auditor Michael Wilkes On behalf of the Office of the Auditor- General Deloitte PO Box 248 Christchurch 8140 New Zealand Directors Management team Mark Binns, Chief Executive Neal Barclay Ben Burge Paul Chambers Jacqui Cleland Alan McCauley Glen McLatchie Jason Stein Guy Waipara If you would like to comment on Meridian’s Interim Report, or if you have questions you would like answered, please email investors@meridianenergy.co.nz. T: +61 3 8370 2100 F: +61 3 9620 5235 33 xk? Vii 6' i. meridian meridiancomz APPENDIX 7 – NZSX Listing Rules EMAIL: announce@nzx.com Number of pages including this one (Please provide any other relevant details on additional pages) Notice of event affecting securities NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required. Full name of Issuer 1 Meridian Energy Limited Name of officer authorised to make this notice Contact phone number Authority for event, e.g. Directors' resolution Jason Stein Contact fax number +64 4 381 1200 Bonus Issue Nature of event Tick as appropriate If ticked, state whether: Rights Issue non-renouncable Capital change Call 17 Date / Non Taxable Taxable Dividend If ticked, state whether: 9 Conversion Special 2015 Rights Issue Renouncable Interest Full Year Interim 2 9 DRP Applies If more than one security is affected by the event, use a separate form. EXISTING securities affected by this Description of the class of securities Directors' resolution ISIN Instalment Receipts NZMELE0001S9 If unknown, contact NZX Details of securities issued pursuant to this event If more than one class of security is to be issued, use a separate form for each class. Description of the class of securities ISIN If unknown, contact NZX Number of Securities to be issued following event Minimum Entitlement Conversion, Maturity, Call Payable or Exercise Date Treatment of Fractions Enter N/A if not applicable Tick if pari passu OR Strike price per security for any issue in lieu or date Strike Price available. Monies Associated with Event Ratio, e.g 1 for 2 provide an explanation of the ranking Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money. In dollars and cents Amount per security (does not include any excluded income) Source of Payment $0.0140 Retained Earnings Excluded income per security (only applicable to listed PIEs) Currency NZ Dollars Total monies $35,882,000 Supplementary dividend details NZSX Listing Rule 7.12.7 Taxation Amount per security in dollars and cents Date Payable 15 April, 2015 Amount per Security in Dollars and cents to six decimal places In the case of a taxable bonus issue state strike price $ Resident Withholding Tax $0.0010 Foreign Withholding Tax Timing $0.0025 Imputation Credits (Give details) $0.0054 FDP Credits (Give details) (Refer Appendix 8 in the NZSX Listing Rules) Record Date 5pm For calculation of entitlements - 31 March, 2015 Notice Date Entitlement letters, call notices, conversion notices mailed OFFICE USE ONLY Ex Date: Commence Quoting Rights: Cease Quoting Rights 5pm: Commence Quoting New Securities: Cease Quoting Old Security 5pm: Application Date Also, Call Payable, Dividend / Interest Payable, Exercise Date, Conversion Date. In the case of applications this must be the last business day of the week. Allotment Date For the issue of new securities. Must be within 5 business days of application closing date. Security Code: Security Code: 15 April, 2015 for APPENDIX 7 – NZSX Listing Rules EMAIL: announce@nzx.com Number of pages including this one (Please provide any other relevant details on additional pages) Notice of event affecting securities NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required. Full name of Issuer 1 Meridian Energy Limited Name of officer authorised to make this notice Contact phone number Authority for event, e.g. Directors' resolution Jason Stein Contact fax number +64 4 381 1200 Bonus Issue Nature of event Tick as appropriate If ticked, state whether: Rights Issue non-renouncable Capital change Call 17 Date / Non Taxable Taxable Dividend If ticked, state whether: 9 Conversion Interim 9 2 Rights Issue Renouncable Interest Full Year 2015 Special DRP Applies If more than one security is affected by the event, use a separate form. EXISTING securities affected by this Description of the class of securities Directors' resolution ISIN Instalment Receipts NZMELE0001S9 If unknown, contact NZX Details of securities issued pursuant to this event If more than one class of security is to be issued, use a separate form for each class. Description of the class of securities ISIN If unknown, contact NZX Number of Securities to be issued following event Minimum Entitlement Conversion, Maturity, Call Payable or Exercise Date Treatment of Fractions Enter N/A if not applicable Tick if pari passu OR Strike price per security for any issue in lieu or date Strike Price available. Monies Associated with Event Ratio, e.g 1 for 2 provide an explanation of the ranking Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money. In dollars and cents Amount per security (does not include any excluded income) Source of Payment $0.0480 Retained Earnings Excluded income per security (only applicable to listed PIEs) Currency NZ Dollars Total monies $123,024,000 Supplementary dividend details NZSX Listing Rule 7.12.7 Taxation Amount per security in dollars and cents Date Payable 15 April, 2015 Amount per Security in Dollars and cents to six decimal places In the case of a taxable bonus issue state strike price $ Resident Withholding Tax $0.0033 Foreign Withholding Tax Timing $0.0085 Imputation Credits (Give details) $0.0187 FDP Credits (Give details) (Refer Appendix 8 in the NZSX Listing Rules) Record Date 5pm For calculation of entitlements - 31 March, 2015 Notice Date Entitlement letters, call notices, conversion notices mailed OFFICE USE ONLY Ex Date: Commence Quoting Rights: Cease Quoting Rights 5pm: Commence Quoting New Securities: Cease Quoting Old Security 5pm: Application Date Also, Call Payable, Dividend / Interest Payable, Exercise Date, Conversion Date. In the case of applications this must be the last business day of the week. Allotment Date For the issue of new securities. Must be within 5 business days of application closing date. Security Code: Security Code: 15 April, 2015 for x?Q? 57? gu? 0? meridian 3c Meridian Energy Limited (?Company?) Directors? declaration in respect of the Group Financial Statements for six months ended 31 December 2014 Introduction It is a requirement of the Australian Securities Exchange Listing Rule 4.2A.2A that a declaration be given by the directors for the Company in respect of the financial statements for the Company and its subsidiaries (Meridian Group) for the six months ended 31 December 2014. This declaration must be filed with the Australian Securities Exchange. Declaration The directors of the Company hereby declare that in their opinion: 1. the Meridian Group financial statements for the six months ended 31 December 2014 and the notes to those financial statements comply with generally accepted accounting practice in New Zealand as it relates to the half year financial statements; 2. the Meridian Group financial statements for the six months ended 31 December 2014 and the notes to those financial statements give a true and fair view of the financial position and performance of the Meridian Group; and 3. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Chris Moller Chairman MERIDIAN ENERGY LIMITED 2015 INTERIM RESULTS PRESENTATION for the six months ended 31 December 2014 Disclaimer The information in this presentation was prepared by Meridian Energy with due care and attention. However, the information is supplied in summary form and is therefore not necessarily complete, and no representation is made as to the accuracy, completeness or reliability of the information. In addition, neither the company nor any of its directors, employees, shareholders nor any other person shall have liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it.  This presentation may contain forward-looking statements and projections. These reflect Meridian’s current expectations, based on what it thinks are reasonable assumptions. Meridian gives no warranty or representation as to its future financial performance or any future matter. Except as required by law or NZX or ASX listing rules, Meridian is not obliged to update this presentation after its release, even if things change materially.  This presentation does not constitute financial advice. Further, this presentation is not and should not be construed as an offer to sell or a solicitation of an offer to buy Meridian Energy securities and may not be relied upon in connection with any purchase of Meridian Energy securities.  This presentation contains a number of non-GAAP financial measures, including Energy Margin, EBITDAF, Underlying NPAT and gearing. Because they are not defined by GAAP or IFRS, Meridian's calculation of these measures may differ from similarly titled measures presented by other companies and they should not be considered in isolation from, or construed as an alternative to, other financial measures determined in accordance with GAAP. Although Meridian believes they provide useful information in measuring the financial performance and condition of Meridian's business, readers are cautioned not to place undue reliance on these non-GAAP financial measures. The information contained in this presentation should be considered in conjunction with the condensed interim financial statements, which are included in Meridian’s interim report for the six months ended 31 December 2014 and is available at: http://www.meridianenergy.co.nz/investors/reports-and-presentations/interim-results-and-reports/ All currency amounts are in New Zealand dollars unless stated otherwise. MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 2 Key financial points   Interim financials well ahead of last year   Operating cash flow +13.2%   EBITDAF +20.9%   Underlying NPAT +38.3%   Capital projects completed   Mt Mercer and Mill Creek wind farms   Generation control system   Total generation volumes +6.1%   271GWh of new wind production   Higher winter inflows this year   HVDC constraints last year MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 3 Key market points   Modest demand growth in 2014, up 1.3% NATIONAL DEMAND GWh 3,800 3,600 3,400   Retail competition remains fierce 3,200 3,000 2,800   Aluminium prices and currency rates are assessed as having a positive impact on the Tiwai Point smelter 2,600 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Range (2009-2013) 2011 2012 2013 2014   Slow progress on major regulatory decisions MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 4 Capital management   Lift in dividend policy to 75%-90% of free cash flow (from 70%-80%)   In addition, targeting a progressive return of a further $625m over next 5 years, starting in August 2015   Mechanism for this additional return will be considered on an ongoing basis   Ordinary interim dividend of 4.8 cps, fully imputed   Special interim dividend of 1.4 cps, fully imputed MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 5 Regulatory issues   The Electricity Authority is expected to publish a transmission pricing options paper in the next few weeks   A second issues paper is due in June 2015   Currently the proposed changes will mean lower transmission charges to consumers and downward pressure on retail prices   Uncertainty about the Renewable Energy Target (RET) in Australia has paralysed investment in renewable generation   Unclear when a stable, bipartisan energy policy that supports renewables may return   Meridian’s focus in Australia is on successfully rolling out a new retail experience MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 6 Projects   Major projects completed on time and under budget   Mt Mercer will eliminate half a million tonnes of carbon emissions annually   Mill Creek completion means that Wellington wind can now power 100,000 homes   New generation control system monitors 50,000 data points around our assets   Other projects progressing inside the stay in business capital envelope   Waitaki refurbishment   Manapouri transformer replacement MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 7 Powershop Australia   Over 30,000 customers in Victoria at the end of January 2015   Leverages existing NZ technology and call centre investment   Business run out of Melbourne and Wellington   Customers serviced out of Masterton   Anticipating NSW launch this quarter MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 8 New Zealand retail   Arc metering business sold and programme commenced to replace remaining 125,000 legacy meters   New Meridian website launched, improved customer join, move and bill estimate functionality   Aggressive residential competition has seen a small decline in customer connections   More successful targeted retention activity: 2.4% improvement in Meridian’s rolling retention rate since June 2014 MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 9 New Zealand retail   Annual demand up 1.3%, last 6 months up 2.9% on prior period   Reduced fuel purchase obligations mean that thermal generators are able to reduce output   The forward market has risen across all quarters, which may benefit commercial and industrial pricing   No network-wide energy price increases in April this year   Meridian’s residential pricing is close to the lowest in most major networks MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 10 Financial performance FINANCIAL PERFORMANCE AGAINST PRIOR YEAR $M 600 500 6 months to 31 December 2014 480 6 months to 31 December 2013 447 400 324 300 268 217 192 200 112 100 61 124 117 117 115 107 83 67 169 159 107 0 Energy Margin +7.5% +$33.6m Transmission -9.1% -$6.1m Operating Costs -10.1% -$12.6m EBITDAF NPAT +20.9% +$56.1m +0.2% +$0.2m Underlying NPAT +38.3% +$31.8m Operating Cash Flow +13.2% +$25.3m Investment Expenditure -36.9% -$62.4m Dividend Declared +48.0% +$51.5m   Better than prior year performance on all major financial measures   1H FY14 included $8.3m of IPO costs, not repeated in 1H 14   1H FY15 EBITDAF includes $5.2m of insurance proceeds   1H FY15 NPAT includes $15.2m of gains on asset sales – metering business and farms MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 11 Earnings   ‘Like for like’ EBITDAF (excluding insurance proceeds and IPO costs) increase of 15.4% in 1H FY14 from:   Additional generation from Mill Creek in NZ and Mt Mercer in Australia   Higher residential/SME sales volumes   Higher sell-side CFD volumes and lower acquired generation, off the back of higher NZ generation   Continued cost savings and lower HVDC charges   Higher interest costs on connection asset finance leases and end of project interest capitalisation EBITDAF1 $M 700 600 500 306.6 400 307.7 317.1 294.3 277.1 268.2 2012 2013 2014 182.3 300 200 353.3 100 0 2011 Financial Year ended 30 June Interim 2015 Final half-year UNDERLYING NPAT2 $M 250 200 95.6 150 111.6 7.2 74.4 98.9 88.3 83.0 2012 2013 2014 100 50 123.4 1Earnings before interest, taxation, depreciation, amortisation, changes in fair value of financial instruments, impairments and gain/(loss) on sale of assets 2Net Profit after Tax adjusted for the effects of non cash fair value movements and other one-off items A reconciliation between Net Profit after Tax and Underlying Net Profit after Tax is on p31 324.3 114.8 0 2011 Financial Year ended 30 June MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Interim 2015 Final half-year 18 February 2015 12 Operating cash flow and investment expenditure   Net cash flow from operating activities was $25.3m (13.2%) higher than 1H FY14 CASH FLOW FROM OPERATING ACTIVITIES $M 500   Reflects the higher energy margin and lower operating costs in 1H FY15 400   Includes higher income tax payments on improved EBITDAF 200 300 100 243.8 241.3 172.9 191.5 216.8 135.5 2012 2013 2014 2015 166.5 186.7 202.2 0 2011   Investment expenditure was $62.4m (36.9%) lower than 1H FY14   Reflects completion of Mill Creek and Mt Mercer wind projects   Both projects were completed under budget Financial Year ended 30 June Final half-year INVESTMENT EXPENDITURE $M 600 500 400 300 320.2 44.0 200   Stay in business capital expenditure of $23.9m in 1H FY15 Interim 100 228.6 208.4 93.4 146.9 183.3 168.9 2013 2014 106.5 0 2011 2012 Financial Year ended 30 June MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Interim 2015 Final half-year 18 February 2015 13 Costs   $6.1m (9.1%) decrease in Transmission costs in 1H FY15   Benefiting from lower final costs on HVDC Pole 3 project   5% increase in 2015/16 transmission costs coming TRANSMISSION COSTS $M 140 120 100 62.6 60.5 80 60 42.2 45.7 42.0 41.0 2011 2012 40 20 54.8 66.7 60.6 2014 2015 0   $12.6m (10.1%) decrease in reported Operating costs in 1H FY15   Adjusting for IPO costs, Operating costs have decreased $4.3m (3.7%) in 1H FY15   Absorbing costs from growth projects – new wind farms and Powershop Australia 2013 Financial Year ended 30 June Interim Final half-year OPERATING COSTS $M 300 250 200 123.2 113.1 129.1 111.7 114.9 114.1 116.3 124.4 111.8 2011 2012 2013 2014 2015 150 100 50 0 Financial Year ended 30 June MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Interim Final half-year 18 February 2015 14 Concluding remarks   Higher energy margin and lower costs has driven a lift in profits and operating cash flow   Inflows into catchments have been consistent, with Lake Pukaki storage (as at 17 Feb) 93% of average. Position is not adversely affecting generation outlook   Tiwai Point decision   Amended dividend policy the first step in a capital management programme, with further update in August 2015   Final instalment receipt payment of $NZ0.50 per share due in May 2015, more details at:  www.treasury.govt.nz/statesector/soes/ meridianenergyinstalmentreceipts MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 15 Additional information MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 New Zealand retail Customer connections   Small decline in ICP numbers since June 2014, reflecting aggressive residential sales activity NEW ZEALAND CUSTOMER NUMBERS ICP (000) 350 Meridian North Island Powershop Meridian South Island 300 250 34 48 130 123 110 Jun-11 51 55 115 114 117 106 108 104 Jun-12 Jun-13 Jun-14 Dec-14 56 200 Residential, SME, Agri segment   6.2% increase in volumes largely from growth in SME and agribusiness customer base 150 114 100 50 0   Average price is stable Corporate segment   4.2% decrease in average price, reflecting corporate and industrial customers rolling off fixed term contracts   Increasing ASX prices may feed through into C&I pricing RETAIL SALES VOLUMES GWh 4,000 Residential, SME, Agri Corporate 3,000 2,000 1,000 1,049 1,116 1,113 1,745 1,770 1,880 2013 2014 0 2012 Six months ended 31 December MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 17 Hydrology   Inflows for the 6 months to December 2014 were 106% of historical average   This reflects comparatively high inflows in July and August 2014   January 2015 inflows were 77% of historical average   Meridian’s Waitaki catchment storage at 31 December 2014 was 91% of historical average   By 31 January 2015, this storage position was 83% of historical average MERIDIAN'S COMBINED CATCHMENT INFLOWS GWh 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2001 2003 2005 2007 Financial Interim half year Year Interim 81 year average 2009 2011 2013 2015 Final half year Full year 81 year average MERIDIAN'S WAITAKI STORAGE GWh 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Mean 2009 2012 2013 MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Aug Sep Oct Nov Dec 2010 2011 2014 18 February 2015 18 New Zealand generation   For the 6 months to December 2014, Meridian’s New Zealand generation was 3.8% higher than the same period last year MERIDIAN'S NEW ZEALAND GENERATION GWh 1,400 1,200 1,000 800   For the 6 months to December 2014, the average price Meredian received for its generation was 61.7% higher than the same period last year   Similarly, the price Meridian paid to supply contracted sales in the 6 months to December 2014 was 60.4% higher than last year 600 400 200 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY15 Hydro FY15 Wind FY14 Hydro FY14 Wind MERIDIAN'S AVERAGE GENERATION PRICE* $/MWh 140 123 114 120 101 100 79 80 60 54 49 62 59 45 69 64 57 52 55 42 40 25 48 25 20 0 FY15 Jul Aug FY14 Sep Oct Nov Dec MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Jan Feb Mar Apr May Jun *price received for Meridian's physical generation 18 February 2015 19 Dividends DATE ANNOUNCED DATE PAID AMOUNT CPS IMPUTATION % Interim Ordinary Dividend 18 February 2015 15 April 2015 4.80 100% Interim Special Dividend 18 February 2015 15 April 2015 1.40 100% 6.20 100% 2015 DIVIDENDS Total Interim Dividend INTERIM DIVIDENDS DECLARED CPS 7 Ordinary dividend 6 Special dividend 1.40 5 4 3 2 4.19 4.80 4.60 2015 actual 2015 PFI 1 0 2014 actual MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 20 Movement in EBITDAF HY14 to HY15 EBITDAF* $M 350 325 New Zealand Energy Margin +$20.0m 300 +7.3 -3.9 -0.4 +3.8 -1.9 +12.6 +6.1 +13.6 324.3 +18.9 275 268.2 250 EBITDAF 31 Dec 13 *Earnings Contracted Sales Net VAS Position Net Cost of Spot Exposed Other Market International Other Buy-Side Revenues Costs Energy Revenues Hedges Margin Transmission Staff & Other EBITDAF 31 Expenses Operating Dec 14 Expenses before interest, taxation, depreciation, amortisation, changes in fair value of financial instruments, impairments and gain/(loss) on sale of assets MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 21 EBITDAF and Net Profit After Tax HY2015 EBITDAF TO NPAT RECONCILIATION $M 350 300 -116.5 250 -8.3 -0.6 200 -40.8 150 324.3 -43.3 +14.7 +4.8 +8.3 -25.5 100 117.1 114.8 50 EBITDAF* Depreciation Premiums on Equity Financing and Electricity accounting of Expenses Amortisation options JV Taxation Underlying NPAT** Fair Value Gain on Sale/ Premiums on Movements Impairments Electricity on Financial Options Instrument's Taxation NPAT *Earnings before interest, taxation, depreciation, amortisation, changes in fair value of financial instruments, impairments and gain/(loss) on sale of assets Profit after Tax adjusted for the effects of non cash fair value movements and other one-off items A reconciliation between Net Profit after Tax and Underlying Net Profit after Tax is on p30 **Net MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 22 New Zealand energy margin   Energy margin is a non-GAAP financial measure representing Energy Sales Revenue less Energy Related Expenses and Energy Distribution Expenses   Energy margin is used to measure the vertically integrated performance of the retail and wholesale businesses. This measure is used in place of statutory reporting which requires gross sales and costs to be reported separately, therefore not accounting for the variability of the wholesale spot market and the broadly offsetting impact of wholesale prices on the cost of retail electricity purchases   Energy margin is defined as: ₊  revenues received from sales to customers net of distribution costs (fees to distribution network companies that cover the costs of distribution of electricity to customers), sales to large industrial customers and fixed price revenues from derivatives sold (Contract sales revenue) ±  the net position of virtual assets swaps with Genesis Energy and Mighty River Power ⁻  the cost of fixed cost of derivatives acquired to supplement generation and spot price risks, net of spot revenue received for generation acquired from those derivatives (Net cost of acquired generation) ±  revenue from the volume of electricity that Meridian generates that is in excess of volumes required to cover contracted customer sales (Spot exposed revenues) ±  other associated market revenues and costs including Electricity Authority levies and ancillary generation revenues (i.e. frequency keeping) MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 23 New Zealand energy margin HY2014 NEW ZEALAND ENERGY MARGIN Retail Contracted Sales NZAS Aluminium Sales Sell Side CFDs HY2013 VOLUME GWh VWAP $/MWh $M VOLUME GWh VWAP $/MWh $M 2,993.4 $101.9 $305.0 2,885.7 $102.9 $296.9 $49.9 $147.6 2,525.4 2,525.4 606.1 434.4 Wholesale Contracted Sales 3,131.5 Net VAS Position 578.81 $50.6 $158.4 2,959.8 $6.2 553.61 $10.2 Acquired Generation Revenue 530.3 $50.5 $26.8 665.0 $45.3 $30.1 Cost of Acquired Generation 530.3 -$83.7 -$44.4 665.0 -$82.7 -$55.0 Net Cost of Acquired Generation -$17.6 -$24.9 Generation Revenue 6,897.6 $64.2 $442.9 6,644.5 $39.7 $263.8 Cost to Supply Contracted Sales 6,302.3 -$69.1 -$435.2 5,940.4 -$43.1 -$255.7 Net Spot Exposed Revenue $7.7 $8.1 -$4.8 -$3.0 $454.9 $434.9 1.11 1.10 Other Market Revenue/(Costs) Energy Margin LWAP:GWAP2 1Notional 2Ratio VAS volumes between the price per unit received for Meridian’s physical generation and the price paid to supply each unit of contracted sales, inclusive of line losses MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 24 HY15 energy margin NEW ZEALAND ENERGY MARGIN Derivatives acquired to supplement generation and cover spot price risks, net of spot revenue received from those derivatives $M 700 Contracted Sales Revenue $463.4m Spot Exposed Revenue $7.7m Net Cost of Acquired Generation -$17.6m 600 Fixed price variable volume sales to residential and business 500 customers (net of distribution costs), sales to large corporate and 400 industrials and fixed price leg of derivatives sold 26.8 6.2 -4.8 -44.4 158.4 300 -435.2 442.9 Spot revenue received for Meridian’s own generation less the cost of purchases to cover contract load 454.9 200 305.0 100 0 Retail Contracted Sales (net) Wholesale Cost to Supply Meridian Cost of Acquired Contracted Contracted Generation Acquired Generation Sales Sales Spot Revenue Generation Spot Revenue MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Net VAS Position Market Energy Margin Related Costs 18 February 2015 25 Movement in energy margin HY14 to HY15 NEW ZEALAND ENERGY MARGIN $M 550 Contracted Sales Revenue Growth in SME +$18.9m and agri business customer base +8.1 450 434.9 Net Cost of Acquired Generation +$7.3m +10.6 +10.8 Higher derivative sales volumes 350 Spot Exposed Revenue -$0.4m -179.5 +179.1 -3.3 From lower acquired generation volumes and higher wholesale prices -3.9 -1.9 Higher generation and higher purchase volumes together with higher wholesale prices increased both spot revenue and costs to supply customers 454.9 250 Energy Margin 31 Dec 13 Retail Wholesale Cost to Meridian Cost of Acquired Contracted Contracted Supply Generation Acquired Generation Sales (net) Sales Contracted Spot Generation Spot Sales Revenue Revenue MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 Net VAS Position Market Related Costs Energy Margin 31 Dec 14 18 February 2015 26 Funding DEBT MATURITY PROFILE AS AT 31 DECEMBER 2014   Total borrowings as at 31 December 2014 of $1,186.9m, up $60.8m from 31 December 2013 and up $94.4m from 30 June 2014 $M 500   Net borrowings (net of cash) as at 31 December 2014 of $955.9m, up $82.2m from 31 December 2013 200   Committed bank facilities of $650.7m as at 31 December 2014, of which $357.1m were undrawn   Net finance costs increased by $3.3m (8.8%) in HY15, reflecting finance lease interest on transmission costs assets and the end of capitalisation of interest on build projects 400 157 300 200 332 275 264 100 135 157 10 0 2014 2015 2016 Available facilities maturing 2017 2018 2019+ Drawn debt maturing (face value) SOURCES OF FUNDING AS AT 31 DECEMBER 2014 NZ$ bank facilities drawn/ undrawn EKF - Danish export credit 15% 20% Renewable energy bonds/notes 10% Floating rate notes 8% US private placement NZ 13% US private placement Aust 27% A$ bank facilities drawn/undrawn MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 7% 18 February 2015 27 Funding metrics   Net debt/EBITDAF is the principal metric underpinning S&P credit rating   S&P calculation of Net debt/EBITDAF includes numerous adjustments to reported numbers   Borrowings are adjusted for the impact of finance and operating leases NET DEBT/EBITDAF (S&P VIEW) TIMES 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1.56 June 2013 1.77 1.71 June 2014 Dec 2014   Cash balances are adjusted for restricted cash   EBITDAF is adjusted for operating leases and non core revenue MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 28 Fair Value movements   Meridian uses derivative instruments to manage commodity price, interest rate and foreign exchange risk   As forward prices and rates on these instruments move, non cash changes to their carrying values are reflected in NPAT   Accounting standards only allow hedge accounting if specific conditions are met, which creates NPAT volatility CHANGE IN FV OF FINANCIAL INSTRUMENTS $M 150 100 50 53.3 93.8 18.6 0 -50 -25.5 -103.5 -100 -150 FY 2011 FY 2012 FY 2013 FY 2014 HY 2015   Net changes in the fair value of derivatives was an unrealised loss of $25.5m in HY15   This is driven by changes in the value of interest rate hedges from a drop in the forward interest rate curve   This compares to an unrealised gain of $41.2m in HY14 and $18.6m in FY14 MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 29 Group income statement 6 MONTHS ENDED 31 DEC YEAR ENDED 30 JUNE 2014 $M 2013 $M 2014 $M 2013 $M New Zealand Energy Margin 454.9 434.9 891.5 865.1 International Energy Margin 25.3 11.7 31.9 50.7 Other Revenue 16.5 12.7 27.3 29.7 Energy Transmission Costs (60.6) (66.7) (129.3) (115.3) Employee and Other Operating Costs (111.8) (124.4) (236.1) (245.4) EBITDAF 324.3 268.2 585.3 584.8 Impairment of Assets (0.5) - - (24.8) 15.2 (2.4) 6.6 106.6 (0.6) (0.2) (0.4) 0.1 (116.5) (105.3) (220.0) (219.7) 0.3 1.7 (8.4) 51.1 Net Finance Costs (40.8) (37.5) (73.7) (113.5) Net Change in Fair Value of Financial Instruments (Financing) (25.8) 39.5 27.0 42.7 Net Profit before Tax 155.6 164.0 316.4 427.3 Income Tax Expense (38.5) (47.1) (86.6) (132.2) Net Profit after Tax 117.1 116.9 229.8 295.1 SUMMARY GROUP INCOME STATEMENT Gain/(Loss) on Sale of Assets Equity Accounted Earnings of Joint Ventures Depreciation and Amortisation of Intangible Assets Net Change in Fair Value of Financial Instruments (Operational) MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 30 Group underlying NPAT 6 MONTHS ENDED 31 DEC YEAR ENDED 30 JUNE UNDERLYING NPAT RECONCILIATION 2014 $M 2013 $M 2014 $M 2013 $M Net Profit after Tax 117.1 116.9 229.8 295.1 Net Change in Fair Value of Financial Instruments (Operational) (0.3) (1.7) 8.4 (51.1) Net Change in Fair Value of Financial Instruments (Financing) 25.8 (39.5) (27.0) (42.7) Premiums paid on Electricity Options (less Interest) (8.3) (8.3) (20.1) (18.5) Impairment of Assets 0.5 - - 24.8 Gain on Sale of Assets (15.2) 2.4 (6.6) (106.6) 2.5 (47.1) (45.3) (194.1) Income Tax Expense (4.8) 13.2 10.1 61.7 Underlying Net Profit after Tax 114.8 83.0 194.6 162.7 Adjustments before Tax MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 31 Group cash flow statement 6 MONTHS ENDED 31 DEC YEAR ENDED 30 JUNE 2014 $M 2013 $M 2014 $M 2013 $M 1.002.4 963.5 2,083.4 2,390.0 4.6 4.2 8.5 2.1 Payments to Suppliers and Employees (685.9) (677.9) (1,480.5) (1,811.8) Interest and Income Tax Paid (104.3) (98.3) (178.6) (163.6) 216.8 191.5 432.8 416.7 15.4 4.7 41.1 0.6 Finance Lease Receiveable/Payable (0.4) 0.2 (0.3) - Sale of Subsidiaries and Investments 24.0 2.1 21.1 152.0 (101.2) (151.7) (283.7) (244.8) Capitalised Interest (0.4) (3.6) (9.3) (5.7) Purchase of Intangible Assets and Investments (4.5) (13.6) (22.3) (26.2) Net Cash Outflows from Investing Activities (67.1) (161.9) (253.4) (124.1) Proceeds from Borrowings 203.7 80.4 133.7 1,115.9 (228.6) (152.6) (261.4) (99.8) (1.0) (1.0) (1.0) - Term Borrowings Paid (168.9) (85.3) (153.5) (1,117.4) Net Cash Outflows from Financing Activities (194.8) (158.5) (282.2) (101.3) SUMMARY GROUP CASH FLOW STATEMENT Receipts from Customers Interest and Dividends Received Net Cash Inflows from Operating Activities Sale of Property, Plant and Equipment Purchase of Property, Plant and Equipment Dividends Paid Shares Purchased for Long Term Incentive MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 32 Group balance sheet 6 MONTHS ENDED 31 DEC YEAR ENDED 30 JUNE SUMMARY GROUP BALANCE SHEET 2014 $M 2013 $M 2014 $M 2013 $M Cash and Cash Equivalents 231.0 252.4 276.4 382.8 Accounts Receiveable 217.1 180.7 182.7 254.5 Other Current Assets 58.7 95.2 63.5 128.8 506.8 528.3 522.6 766.1 45.7 55.5 54.0 54.8 6,852.9 6,809.3 6,929.0 6,769.0 143.6 80.1 84.2 147.5 7,042.2 6,944.9 7,067.2 6,971.3 Payables and Accruals 232.7 176.8 235.6 274.8 Current Portion of Term Borrowings 133.7 62.2 133.4 146.7 Other 67.0 92.4 96.9 99.0 433.4 331.4 465.9 520.5 Deferred Tax Liability 1,343.3 1,354.6 1,349.7 1,364.2 Term Borrowings 1,053.2 1,063.9 959.1 1,033.5 201.6 88.2 181.4 131.2 Total Non-Current Liabilities 2,598.1 2,506.7 2,490.2 2,528.9 Net Assets 4,517.5 4,635.1 4,633.7 4,688.0 Current Assets Intangible Assets Property, Plant and Equipment Other Non-Current Assets Non-Current Assets Current Liabilities Other MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 33 Glossary Acquired generation volumes buy-side electricity derivatives excluding the buy-side of virtual asset swaps Average generation price the volume weighted average price received for Meridian’s physical generation Average retail contracted sales price volume weighted average electricity price received from retail customers, less distribution costs Average wholesale contracted sales price volume weighted average electricity price received from wholesale customers, including NZAS Combined catchment inflows combined water inflows into Meridian’s Waitaki and Manapouri hydro storage lakes Cost of acquired generation volume weighted average price Meridian pays for derivatives acquired to supplement generation Cost to supply contracted sales volume weighted average price Meridian pays to supply contracted customer sales Contracts for Difference (CFDs) an agreement between parties to pay the difference between the wholesale electricity price and an agreed fixed price for a specified volume of electricity. CFDs do not result in the physical supply of electricity Customer connections installation control points, excluding vacants GWh gigawatt hour. Enough electricity for 125 average New Zealand households for one year Historic average inflows the historic average combined water inflows into Meridian’s Waitaki and Manapouri hydro storage lakes over the last 81 years Historic average storage the historic average level of storage in Meridian’s Waitaki catchment since 1979 HVDC high voltage direct current link between the North and South Islands of New Zealand ICP installation control points, excluding vacants ICP switching the number of installation control points changing retailer supplier in New Zealand, recorded in the month the switch was initiated MWh megawatt hour. Enough electricity for one average New Zealand household for 46 days NZAS New Zealand Aluminium Smelters Limited National demand Transpower’s Daily Demand reporting, adjusted for embedded generation from Meridian’s Te Uku, White Hill and Mill Creek wind farms Retail sales volumes contract sales volumes to retail customers, including both non half hourly and half hourly metered customers Sell side derivatives sell-side electricity derivatives excluding the sell-side of virtual asset swaps Virtual Asset Swaps (VAS) CFDs Meridian has with Genesis Energy and Mightly River Power. They do not result in the physical supply of electricity MERIDIAN ENERGY LIMITED RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 18 February 2015 34 Meridian delivers higher earnings 18 February, 2015 Meridian Energy delivered a solid interim result for the six months to 31 December 2014, with higher earnings compared to the same period last year. Meridian was ahead of the same period last year on all financial measures with Net Profit After Tax (NPAT) of $117.1m, while Underlying NPAT (which excludes the effects of non-cash fair value movements, gains on sale of assets, impairments and other one off items) was $114.8m. Performance against last year Meridian Chief Executive Mark Binns said that it was gratifying that earnings were up against the previous period on all measures. Compared with the same period last year, earnings before interest and taxation, depreciation and amortisation and fair value adjustments (EBITDAF) was up 20.9% and underlying NPAT was up 38.3%. The result was due to an increase in generation volumes and wholesale prices, improved retail sales volume in irrigation and business sales and a decrease in operating costs. “It was especially pleasing to note that total electricity demand in the period had shown a 1.3% lift on the previous corresponding period following a period of flat or declining demand,” said Mr Binns. Dividends and Capital Management Meridian will pay an interim dividend of 4.8 cents per share which is 4% higher than the dividend forecast in the Prospectus. In addition, Meridian will pay a special dividend of 1.4 cents per share. This will utilise imputation credits that would otherwise be lost upon the final payment on the instalment receipts and the subsequent transfer of shares from the Crown to shareholders, in May this year. Both dividends will be imputed to 100% and paid on 15 April 2015. As indicated in August last year, the Board has reviewed the company’s capital structure given its conservative gearing ratios and the limited likely requirement for capital to fund substantial growth in the foreseeable future. PG 1 The initial step is an immediate amendment to the dividend policy to increase the percentage of free cash flow paid out on average from 70%-80% to 75%-90%. All other elements of the dividend policy remain unchanged. In addition, Meridian intends to return $625m to shareholders over the next five years. The Board will remain flexible as to how this is achieved but the anticipated form of return will be either an annual on-market share buyback programme, special dividends, or a combination of both. The capital return will follow the final instalment receipt process and will be subject to the owners of the Tiwai Point smelter not terminating the electricity agreement, or there not being any adverse event in the interim. Details of the initial capital return programme for FY16 will be announced in August at the FY15 results announcement. Outlook While significant parts of the country are experiencing drought conditions, the southern lakes which feed Meridian’s power stations are receiving regular inflows from small weather systems. As at yesterday, storage in Lake Pukaki, the principle storage lake for Meridian, is 93% of average. It is not anticipated that continuing dry conditions will affect the year end result. However, the outlook could change depending on how long the current situation continues. In Australia, Meridian’s Powershop retail brand, which now has over 30,000 customers in Victoria, will enter the NSW market in the first quarter this year. For media queries, please contact: Paul Clearwater External Communications 027 282 0016 For Investor Relations queries, please contact: Owen Hackston Investor Relations Manager 021 246 4772 PG 2 Better energy Dear Investor Our interim results for the six months ended 31 December 2014 are now available and show a lift in profits and operating cash flow, which supports an enhanced dividend. 4.8 CPS 1.4 CPS 13.2 % 38.3 % Interim ordinary dividend Growth in operating cash flow 3.7 % Higher retail sales volumes Additional special dividend Growth in underlying net profit after tax 3.8 % of the Pay m e nt lm e nt f in al in st a re c e ip t eridian If you hold M ipts on rece instalment you will 4 May 2015, l pay the fina be liable to f receipt o instalment r share NZ$0.50 pe e ust be mad Payment m 15 0 2 5 May between 6-1 e ation can b More inform ere dh downloade Higher NZ generation 1 From our Chair and Chief Executive Meridian continued to perform well, with the New Zealand market showing some small signs of overall growth. All key measures of financial performance were ahead of the same period last year. Total generation for the six months was up by over 6% on the previous corresponding period, reflecting strong first quarter hydro generation in New Zealand and the contribution made by the completed Mt Mercer (Victoria) and Mill Creek (Wellington) wind farms. This, together with strong irrigation demand and favourable business sales compared with last year, saw Meridian’s total Energy Margin increase by 7.5%. A tight rein was kept on operating costs and these were down 10.1% on the same period last year. This all flowed through to strong operating cash flows that were 13. 2% ahead of last year and EBITDAF that was 20.9% ahead. We are pleased to announce a dividend of 4.8 cents per share, which is in excess of the forecast provided in the prospectus. In addition, the Board has taken the opportunity to declare a special dividend of 1.4 cents per share. Both these dividends will be imputed to 100%. We are pleased that the instalment receipts have continued to perform well, with an increase of 76% from listing through to 31 December 2014. In the 2014 calendar year the company was first on the NZX 50 in terms of total shareholder return (which includes dividends). Instalment receipt holders will be aware of the second instalment (50 cents) being due for payment on or before 15 May this year. This is a payment to the Crown. However Meridian is working with the Crown to implement a seamless process to manage these changes. Holders should expect to receive initial communications in early April 2015. CHRIS MOLLER, CHAIR MARK BINNS, CHIEF EXECUTIVE 2 In August last year we announced that the Board would review the capital structure of the company, given its conservative gearing ratios. Over the period Meridian has continued to perform well financially, the risk of wholesale change to the electricity market structure has receded and there are limited attractive growth opportunities that would require significant capital in the foreseeable future. In these circumstances, the Board believes it is appropriate to signal an intention to return capital to shareholders, provided the Tiwai Point smelter owners do not terminate their electricity agreement. The first step the Board has taken is to amend the company’s dividend policy by increasing the percentage of free cash flow paid out (as defined in the policy) on average from 70%-80% to 75%-90%. All other elements of the dividend policy remain unchanged. Furthermore, the Board intends to return an additional $625m to shareholders over the next five years. The Board will remain flexible as to how capital is returned but at this point it is envisaged that this will be by either an annual on-market share buyback programme, special dividends, or a combination of both. The Board intends to advise shareholders of the programme for the 2016 financial year at the full year results announcement in August. At that point the decision of New Zealand Aluminium Smelters (NZAS) regarding the Tiwai Point electricity agreement will be known, and clearly, if the decision is to terminate, or there has been a material adverse change to the company’s financial position, the Board will revisit its decision to proceed with all or part of the planned capital distribution. The Mill Creek and Mt Mercer wind farm projects were closed out during the last six months. In aggregate they were delivered with exemplary health and safety performance and 4% under their original budgets. In line with our stated aim of improving the core business, Meridian’s metering business was sold in December 2014 to a subsidiary of Vector Limited and commitments were entered into to replace all our New Zealand customers’ legacy meters. While Australia provides challenges in the generation space, we continued the push into the Victorian retail market with the Powershop brand. Customer numbers are now over 30,000 and we will start operations in New South Wales commencing in the first quarter of this year. The launch of our new website in December 2014 reflects our strategy to move customer engagement online to improve service, reduce overall cost and to continue our position as a leader in sustainability. In the interim report last year we noted that it was unlikely there would be any network-wide increases in the energy component of our New Zealand customers' bills before at least June this year. This will prove correct. We continue to review our pricing. One issue that arose during the period was a problem with the coolers on some of the Manapōuri power station transformers, which led to the decision to replace two transformers and procure a third as a spare. The replacement programme is well underway. The first transformer, which was delivered immediately before Christmas, was made operational on 12 January. The second transformer is expected to be installed in early March 2015, which will restore the station to full capacity. The Electricity Authority’s (EA's) transmission pricing review is on track and we look forward to the publication of the EA’s final issues paper on this topic mid-2015. The other regulatory issue we are closely monitoring is the Australian Government’s review of the Renewable Energy Target (RET). The RET is mired in politics and the political parties involved have been unable to reach any compromise that might deliver some degree of certainty for participants in the Australian renewable energy industry. As previously advised, the Tiwai Point smelter owners have the option to give Meridian notice of their intention to terminate the electricity agreement on 1 July this year, in which case the current supply agreements would cease on 31 December 2016. On balance, we remain hopeful that the smelter will continue in operation but the decision is not ours. The reality is that uncertainty around the future of the smelter is something the industry just has to live with as NZAS has ongoing termination rights under the contract. As we write, the farming communities in both the North and South Islands are going through a difficult period as a result of drought conditions but our storage lakes are still getting reasonably regular inflows from small weather systems. So while always watchful, at this point we do not see anything in our current hydro position that is of concern. More information on the company’s latest financial performance can be downloaded here. We thank you for your continued support as an investor in Meridian Energy. Waitaki – powering on The Waitaki hydro power station is still going strong 80 years after it first started producing electricity − and thanks to a $40 million refurbishment programme, it will continue to power New Zealand for generations to come. Set on the border of Canterbury and Otago, the Waitaki dam has stood the test of time, which is a tribute to those who designed and built the power station with pick, shovel and wheelbarrow back in the 1930s. Now about halfway through the four-year programme, the refurbishment project has three major goals: to refurbish plant and infrastructure in order to reduce maintenance costs and improve performance, to upgrade critical safety systems to modern standards and lastly to implement improvements that will limit the interruption to Meridian and our customers in case of a major earthquake. The equipment has remained steadfast over 80 years of use, with the two original 15MW generators, which were enough to meet almost half of the South Island’s electricity demand back in the 1930s, still operating at the original output. These two generators, G1 and G2 , were cleaned, tightened and rebalanced, and are now operating more smoothly than ever. ‘Generator 3’, or G3, which was one of the five additional generators installed between 1940 and 1954, is undergoing a major refit and repair after seizing up in 1998. This is not an easy task considering its rotor weighs nearly 120 tonnes and the turbine weighs in at around 38 tonnes. Once recommissioned, G3 will bring the total station capacity back up to its rated 105MW or enough electricity for about 60,000 average homes. Other important works have included making sure that the powerhouse, where all generators are located, is stable enough to withstand a major earthquake. Using 3-D modelling , we were able to see how the powerhouse’s walls and roof would perform under the massive stress of an earthquake. Rather than just strengthening the powerhouse’s walls, we took a more innovative approach. The outer wall will have the ability to flex independently of the roof, avoiding the possibility of the roof collapsing. After 80 years of wear and tear from the constant flow of water, erosion work is also being carried out, both downstream of the power station below the switchyard and on the jetty that protrudes out of the powerhouse. Another important piece of work has involved replacing the old carbon dioxide fire system with a new, safer system. The new fire system is a major improvement for health and safety as it is designed to suppress a fire while also providing breathable oxygen. An important design feature of the dam is the function of its under-dam drainage systems. A multimillion dollar upgrade is underway to enhance the extent of this drainage and ensure that the pumping systems and dam galleries remain serviceable and accessible following a large seismic event. This work will ensure that the time taken to reinstate electricity production from Waitaki dam following a significant earthquake will be as short as possible. The Waitaki power station is a tribute to the skills and energy of our forbears and with the efforts of our current team, the station will continue to power on for many years to come. 3 Keeping the lights on Ensuring that we provide electricity from our hydro dams and wind farms reliably and safely is one of our main priorities. We recently completed an upgrade of the system that controls all of our generation assets around the country to make sure that we continue to do so. The Generation Control System (GCS) is a critical piece of information technology infrastructure as it monitors and controls all of our hydro and wind generation assets (except Te Āpiti wind farm) and lake and canal control gates from a central hub. The system works around the clock to make sure we reach A powerful partnership our commitments and responsibilities as the largest generator of electricity in the country. Long gone are the days when we had staff on the ground monitoring and operating our hydro dams around the clock − these days, it is all done centrally by one generation controller. The current system that the controller operates now monitors some 50,000 data points around our assets such as water flow, water levels and vibration in machines. The controller also works closely with our energy traders who offer generation capacity to the market and the system operator at Transpower, so that Meridian can dispatch energy into the national grid for supply into people’s homes, farms and businesses. Completed in July of this year, the $19 million GCS upgrade gives Meridian a greater level of safety and reliability when controlling our assets. When it comes to customers like meat processing company Wilson Hellaby Ltd (WHL), they are discovering that Meridian has a lot more advice and expertise to offer their business than just supplying power. Bruce Fyfe, WHL Group General Manager Commercial, says that he was originally of the belief that electricity was “the ultimate in commodities”, meaning that the price of power was the sole determinant behind choosing an electricity supplier. Since becoming a Meridian customer two years ago, he has since changed this view. WHL uses the same amount of electricity as around 2 , 300 typical New Zealand homes per year. It uses much of its electricity on cooling chillers and freezers, mostly during the day. The company’s total utility bill is second only to its labour costs, which means that any advice or tools that can help it become more energy efficient the better. One of the key factors that has changed Bruce’s mind is the value that Meridian has added through its approach to account management. “Our account manager has been proactive in working The three-year project was delivered on time and on budget while meeting all of its performance and testing objectives. Meridian was only the third company in the world at the time to get this system upgrade. “It’s a testament to the hard work, dedication and exceptional team work by people at Meridian and our vendor partners that we delivered such a high quality result. It was also impressive that we achieved such a complicated project on time, on cost and on scope with zero impact to our generation and customers.” says Meridian General Manager of Markets and Production, Neal Barclay. The project team consisted of Siemens, which supplied the software, PSC, our New Zealand-based GCS integrator, Fujitsu, our ICT supplier, and a number of other contractors and consultants. with us to address opportunities to improve our performance. His electrical engineering background is very useful and we value the input. “As a customer we do not need an account manager that wants to take us out for lunch, what we need is an expert that will help us save money and operate more effectively – in Meridian we have found that,” says Bruce. This approach has changed Bruce’s perception of purchasing power. “I now value the account management role and the ‘value’ our electricity supplier can add to our business through their knowledge and expertise in the market and industry. This is a significant change for me and the experience with Meridian was not matched by our previous suppliers,” he says. Together with Meridian, WHL has been able to address energy efficiency issues and is now working on a full site energy audit with a list of recommended options to improve. The company is also looking to redevelop its site and will be working closely with Meridian when it comes to designing a new factory to optimise electricity efficiency and heat recovery. Click here to download the full Meridian Interim Report for the six months ended 31 December 2014 4