Low hydro inflows hit Meridian's cash profits, dividend maintained

The spillway of the Meridian-owned Benmore Dam. Photo / Richard Robinson

Meridian Energy, New Zealand's largest electricity company has reported a fall in underlying profits, hit by low lake levels and a lower price paid to its largest customer, the Tiwai Point Aluminum Smelter.

The Wellington-headquartered company, majority-owned by the Government, said underlying new profit after tax fell $84 million or 27 per cent to $232m for the year to June 30.

Earnings before interest, tax, depreciation, amortisation and fair value adjustments dropped $124m to $729m. The results were largely expected by financial markets, after inflows to its hydro lakes in the lower South Island were well below average over summer.

Meridian said if it included the movement of hedge instruments, which gave it a positive boost of $248m but do not change its cash position, its net profit after tax was $428m.

In a statement, the company said it continued to grow retail sales, which were up 14 per cent on a year earlier.

However, drought conditions meant New Zealand's hydroelectricity production was down 12 per cent on a year ago. Meridian said the inflows to its hydro catchments between November 2020 and April 2021 were the third lowest on record.

"Drought conditions during the second half of the financial year dampened our cash earnings by reducing generation and increasing hedge costs but that is just part and parcel of being a hydro generation company in New Zealand," chief executive Neal Barclay said.

Meridian Energy chief executive Neal Barclay. Photo / Doug Sherring

"Also, the price we negotiated with the owners of Tiwai Point Aluminum Smelter to extend operations to 2024 reduced during the second half of the year. Whilst both events were significant and impacted financial performance, the underlying drivers of future business value remained strong, in particular growth in customer sales and our commitment to build the Harapaki wind farm."

Meridian maintained its final dividend of 11.2 cents per share.