Meridian Energy has fattened its dividend and is hinting of a possible return of capital next year after beating prospectus forecasts in its first annual result since the Government sold down its stake in the generator/retailer.
The company has declared a full-year dividend of 13c a share, including a 2cps special dividend funded from asset sales and the $54 million proceeds of closing out aluminium hedge contracts no longer required after Meridian's contract with New Zealand Aluminium Smelters was renegotiated.
That compares with a prospectus forecast of 10.5cps and when the accompanying imputation credits are included it represents a gross dividend yield of 17.6 per cent on the initial $1 instalment and 11.7 per cent on the final $1.50 share price set at the initial public offering.
Earnings before interest, tax, depreciation, amortisation and fair value (Ebitdaf) at $585 million were 6.7 per cent ahead of prospectus forecast, in line with guidance the company gave in February.
For half of the prior year Meridian's largest customer, NZAS, was paying the higher prices required by the contract which has been renegotiated and in the latest year the company incurred one-off costs associated with its float. Adjusting for those factors it recorded a like-for-like Ebitdaf increase of 14.4 per cent on the year before.
Chief executive Mark Binns said the directors were considering ways of optimising Meridian's balance sheet which could take the form of a share buy-back or special dividend. He would not be drawn on its potential size and any decision would be announced next February.
One key uncertainty surrounding that decision is whether the owners of the Tiwai Pt smelter decide to keep it going. They have the option of notifying Meridian on July 1 next year if they wish to shut it down at the end of 2016. If they opt for closure it would lead to a period of electricity price uncertainty as the smelter represents about 14 per cent of national power consumption.
It would depend on aluminium prices, the exchange rate and how the smelter fitted into Rio Tinto's overall portfolio of assets, Binns said.
As a decision from Rio Tinto would not occur before a February decision on whether to proceed with a capital payout, if the Meridian board decided to proceed with one it would likely be conditional on what would happen to the smelter.
Another uncertainty relevant to any decision on a return of capital is the outcome of next month's election as Labour and the Greens have foreshadowed radical changes to the way wholesale electricity prices are set. Details on how that would work remained scant, Binns said.
"We think the market has worked pretty well. Some areas could be improved like the transparency of bills and on-line switching."
Work by the Electricity Authority has found that across the sector 90 per cent of power price increases over the past three years reflected higher transmission and lines company charges, and the other 10 per cent higher energy prices.
Labour's energy spokesman David Shearer said electricity companies had been quick to blame lines companies for any price increases.
"Today's results show they are doing very nicely, thanks," he said.
"Demand for more profit will continue to rise now that our energy companies have been privatised. Those profits will continue to be taken out of consumer's pockets."