Please find the PwC report on Meridian Energy's economic profit calculations by PwC.
Key points:
- Meridian reported positive economic profits in nine out of the last ten years. The estimates of economic profit vary over the period, with negative results in 2011 and higher economic profit recorded in 2019 (a year of high inflows into Meridian catchments and high wholesale electricity prices following the Pohokura outages).
- Aside from 2011 and 2019, economic profits have been largely flat but have exceeded the cost of capital by between 0 and 2%. In 2019 which was a strong year for Meridian, economic profit was around 5% over the cost of capital.
- Given the long life of Meridian’s assets and the potential impact of market changes on profitability in any given year, it is important to assess economic profit trends over time, rather than look only at isolated periods or years.
- Meridian’s business is not without risks and equity analysts forecast future earnings that are substantially lower. Additionally, if the Tiwai Aluminium Smelter were to close at the end of its current contract period (31 December 2024), economic profit could decrease significantly.