Edward White on Tuesday, 4 October 2011 www.energynews.co.nz

Arc Innovations valued at $40 million; new CEO appointed

Meridian Energy has established Arc Innovations as a wholly-owned subsidiary and appointed a new chief executive. Dale Alloway has been appointed to run the company, replacing Simon Clarke who is due to take up the role of general manager of information and communication technologies at TrustPower after leading Arc since March 2009. "It is an exciting time to be leading Arc," Alloway says. "The company can be proud of its growth in recent years but there are some big opportunities and healthy competition in the industry right now." Alloway has been general manager at geological modelling software company ARANZ Geo. Previous experience includes time at Telecom as manager of its next generation systems. Meridian has given Arc a new ‘independent subsidiary status' effective this week. As part of that process, Meridian sold it the assets employed and says the metering business now has a market capitalisation of $40 million.

New structure

The time is right for Arc, previously a business unit of the generator, to have greater independence, says Andrew Robertson, Meridian's general manager of business development. "I think it is quite important for the industry to see Arc as an independent business that is capable of providing services, not only to Meridian but also to others," he says. Arc, which has rolled out more than 130,000 smart meters throughout the country, sees its best growth prospects in providing services to other energy retailers. Currently around 30 per cent of its business is in that market. As part of the change, Mark Bowman, previously an Arc advisory board member, will be the independent chair of a new board. Meridian's departing chief executive Tim Lusk, strategy and performance manager Jason MacDonald and Robertson are all directors. Enable Networks chief executive Steve Fuller is the other independent director. "It is about greater focus and transparency on management of costs and revenue, the kind of support that can be provided from a board with the kind of domain expertise that we've got in our independent chair and our other independent member," Robertson says. "And, importantly for Arc, greater arm's length separation between it and Meridian, so that it can do more, and better, business with Meridian's competitors.

" Divestment?

The new ‘independent subsidiary' status brings Arc in line with the governance structure of other Meridian subsidiaries, including dam engineering specialists Damwatch, online electricity retailer Powershop and process technology experts Energy for Industry. In July, Meridian sold its Right House unit, which it had formed in 2008 to offer a ‘one stop shop' offering energy efficiency advice for new builds and renovations. No price was given at the time for the transaction which saw all 80 staff retained under the new ownership. Meridian incurred a $21.5 million impairment on the sale. Lusk and chief financial officer Paul Chambers, speaking at the company's annual results briefing in August, said Meridian had been going through its portfolio of non-core businesses and considering whether to hold them, look for an exit point, or "tidy up" the investments. The answer for each would be different, Lusk said at the time, adding that the investment in some of those 'disruptive' technologies, or new complementary technologies, were very important to Meridian going forward. While Arc's new ownership structure does "create options" for potential divestment, Meridian has "no plans" to divest it at this stage, Robertson says. "It is an exciting time for Arc. It is highly competitive, but we think that competition and having a number of strong players in the metering sector in New Zealand is important and ultimately will benefit customers." The new structure will not impact on existing service arrangements between Arc and Meridian and other retailers, the company says.

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