MEL - Meridian Energy

[Harvey Specter]

I will be interested in comments on lack of full imputation credits in MEL divvy. CEN divvy had none at all. A lot has been said of GNE having a potential imputation shortfall. Next Tuesday will be revealing.

I missed that in the original announcement. Final dividend only imputed to 55% and the special dividend unimputed. No comment otherwise so I assume the 55% imputed is the new normal for them?

[Hoop]

I missed that in the original announcement. Final dividend only imputed to 55% and the special dividend unimputed. No comment otherwise so I assume the 55% imputed is the new normal for them?

My above post #1278 will probably answer why the lack of full imputation credits

[Traderx]

Hi folks

It seems to me the that big question we as investors in the NZ Gentailers must grapple with is the believability of a few key ratios.

As we know most Gentailers are paying out dividends at much higher levels than their NPAT. They now talk a lot about free cash flow and reference back their dividends to proportion of free cash flow rather than proportion of NPAT.

Meridian in the period just ended had depreciation and amortisation of $239m and stay in business capex of merely $65m. From this gap they pay out vast divvies.

To me this is both an engineering and an accounting question. I don't believe "stay in business capex" is a IFRS/GAAP etc measure so we should be pretty cautious I would have thought. Do you think an event such as the realisation of the Tekapo canal remediation works would have been forecast by the financial accountant who came up with this years "stay in business capex" number?

Given the nature of MEL's assets when things go wrong in an engineering sense they tend to be very large things. Do you think therefore we should rely more on the depreciation line or the stay in business capex line when thinking about how much real $$ we made in the year and the relativity between that and divvies?

[Snoopy]

To me this is both an engineering and an accounting question. I don't believe "stay in business capex" is a IFRS/GAAP etc measure so we should be pretty cautious I would have thought. Do you think an event such as the realisation of the Tekapo canal remediation works would have been forecast by the financial accountant who came up with this years "stay in business capex" number?

Traderx you make some valid points. But for those that don't know, the Tekapo canal remediation project was carried out by Genesis Energy, because Genesis Energy bought that bit of the network from Meridian a few years ago.

SNOOPY

[Jantar]

....... Do you think therefore we should rely more on the depreciation line or the stay in business capex line when thinking about how much real $$ we made in the year and the relativity between that and divvies?

This is an issue I have had many times with bean counting people who are trying to work out a SRMC for various types of plant. Accounting practice requires hydro stations to have a depreciation figure next to them. In reality, hydro stations do not depreciate at all. The electrical plant has a design life of around 30 years before refurbishment. Mechanical plant around 50 years. So it looks like a 2 - 3 % depreciation figure would be valid.

But the real cost of hydro stations are the dams and civil works, and these have a life of hundreds, or even thousands of years. The overall effect is that hydro stations have a negative depreciation rate. But try and explain that to the bean counters.

[PSE]

Hi folksIt seems to me the that big question we as investors in the NZ Gentailers must grapple with is the believability of a few key ratios.As we know most Gentailers are paying out dividends at much higher levels than their NPAT. They now talk a lot about free cash flow and reference back their dividends to proportion of free cash flow rather than proportion of NPAT.Meridian in the period just ended had depreciation and amortisation of $239m and stay in business capex of merely $65m. From this gap they pay out vast divvies.To me this is both an engineering and an accounting question. I don't believe "stay in business capex" is a IFRS/GAAP etc measure so we should be pretty cautious I would have thought. Do you think an event such as the realisation of the Tekapo canal remediation works would have been forecast by the financial accountant who came up with this years "stay in business capex" number?Given the nature of MEL's assets when things go wrong in an engineering sense they tend to be very large things. Do you think therefore we should rely more on the depreciation line or the stay in business capex line when thinking about how much real $$ we made in the year and the relativity between that and divvies?

Hi Trader X this is a good question and one we have explained at length especially on the GNE thread, it is very important for investors to understand that as Jantar says the hydro stations do not depreciate or have an extremely long life.The accounting needs to follow the technical reality and it seems at this point it still does not.I think the Tekapo canal has always been an issue, but now GNE's issue. A great point in MEL's favour is that it is pure hydro and wind, I don't think they have any problems like Tekapo with their other assets.So in the case of MEL unless someone knows about any other problem assets, I am not familar enough with the portfolio but I reckon free cash flow should really be considered profit in the MEL case (allowing for mechanical and electrical depreciation as Jantar recommends. Still not cheap enough to interest me.

[PSE]

Electrical should be depreciated at a 30 year life, as the skills required to achieve the 60 year life have been obliterated in the holocaust that was corporotisation of the electricity system.We have loads of accountants now but no engineers, we have gone from world leading to third world.

[mouse]

Electrical should be depreciated at a 30 year life, as the skills required to achieve the 60 year life have been obliterated in the holocaust that was corporotisation of the electricity system.We have loads of accountants now but no engineers, we have gone from world leading to third world.

Financial Assistance Disclosure Notice. It seems Meridian have $1,443,594 worth of incentives to hand out to Key People. Look at the list. Not an Engineer amongst them. In fact, does Meridian even have a Chief Engineer on the staff? I find it pretty frightening that a major engineering company does not seem to have an engineer in top management.

[xafalcon]

Financial Assistance Disclosure Notice. It seems Meridian have $1,443,594 worth of incentives to hand out to Key People. Look at the list. Not an Engineer amongst them. In fact, does Meridian even have a Chief Engineer on the staff? I find it pretty frightening that a major engineering company does not seem to have an engineer in top management.

MEL is not alone, this seems to be the current HR fad in business - having a senior management team comprised of high EQ people who build a cross-functional staff which theoretically produce a better combined output. I do not subscribe to this theory, because certain personality types generally align with certain occupations. It simply discourages the pioneering engineers & scientists from pushing their boundaries because they are often high IQ with lower EQ, which currently limits their likelihood of promotion.

To me, "HR" appears analogous to "Y2K". Both seem to be much more closely aligned with preserving their role than improving business outcomes

[horus1]

Meridian is a cash generation machine , no development plans ,. It seems to me that the shutting down of Otahuhu and huntly coal meens Tiwai will shut at least one potline in 2 years. I couldn't agree more about the lack of engineers in top management, they generally like building value not destroying it . The key to value is the forward price and volume path ;the cost of new generation is falling hence the value of Meridian will fall in the next 5 years. Stay away.