STOCK EXCHANGE LISTINGS: NEW ZEALAND (MCY) / AUSTRALIA (MCY)
NEWS RELEASE
Mercury Investor Roadshow Presentations
15 November 2017 - Mercury will be giving presentations at a series of international investor meetings during
November 2017.
The presentation materials are attached.
ENDS
For further information: Media – Craig Dowling 0272 105 337 Investors – Tim Thompson 0275 173 470
ABOUT MERCURY NZ LIMITED
Mercury’s mission is energy freedom. Our purpose is to inspire New Zealanders to enjoy energy in more wonderful ways and
our goal is to be New Zealand’s leading energy brand. We focus on our customers, our people, our partners and our country;
maintain a long term view of sustainability; and promote wonderful choices. Mercury is energy made wonderful.
Visit us at: www.mercury.co.nz
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Mercury Investor Roadshow
WILLIAM MEEK
Chief Financial Officer FRASER WHINERAY Chief Executive
15 November 2017
TIM THOMPSON
Head of Treasury & Investor Relations F
or p
erso
nal u
se o
nly
DISCLAIMER
This presentation has been prepared by Mercury NZ Limited and its group of companies (“Company”) for informational purposes. This disclaimer applies to this document and the verbal or written comments of any person presenting it.
Information in this presentation has been prepared by the Company with due care and attention. However, neither the Company nor any of its directors, employees, shareholders nor any other person gives any warranties or representations (express or implied) as to the accuracy or completeness of this information. None of the Company, its directors, employees, shareholders or any other person shall have any liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it.
This presentation may contain projections or forward-looking statements regarding a variety of items. Such projections or forward-looking statements are based on current expectations, estimates and assumptions and are subject to a number of risks, and uncertainties, including material adverse events, significant one-off expenses and other unforeseeable circumstances, such as, without limitation, hydrological conditions. There is no assurance that results contemplated in any of these projections and forward-looking statements will be realised, nor is there any assurance that the expectations, estimates and assumptions underpinning those projections or forward looking statements are reasonable. Actual results may differ materially from those projected in this presentation. No person is under any obligation to update this presentation at any time after its release or to provide you with further information about the Company.
A number of non-GAAP financial measures are used in this presentation. You should not consider any of these in isolation from, or as a substitute for, the information provided in the audited consolidated financial statements, which are available at www.mercury.co.nz.
The information in this presentation is of a general nature and does not constitute financial product advice, investment advice or any recommendation. The presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any security and may not be relied upon in connection with the purchase or sale of any security. Nothing in this presentation constitutes legal, financial, tax or other advice.
DISCLAIMER 2
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3
MERCURY AT A GLANCE
Market Capitalisation of
$4.5b1 2nd largest NZ gentailer
11th largest NZX50 company by market
capitalisation
100% RENEWABLE GENERATOR, RETAILER AND METERING PROVIDER
~7,000GWh generation per annum from flexible hydro and baseload geothermal
~390,000 customers
2nd largest NZ meter data and services
provider
Dual listing on the NZX and ASX
MCY.NZ / MCY.AX Minimum 51% legislated government
ownership
~20% foreign holding
Corporate credit rating from S&P of
BBB+/Stable Debt of $1.1b
FY2018 EBITDAF guidance of
$515m Based on above-average hydrology and flat operating expenditure
FY2018 ordinary dividend guidance of
$15.0c Ordinary net dividend yield of 4.4%1 (6.1% gross2)
12 month total net dividend yield including special dividend of 6.0%1 (8.3% gross2)
MERCURY
1 At 1 November 2017 2 Including full imputation
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> Electricity markets globally seek to balance Reliability, Pricing and Renewability – the ‘Electricity Trilemma’
> New Zealand has achieved a ‘Trifecta’:
> Opportunity exists in New Zealand to broaden this advantage to reduce reliance on imported fossil fuel
NEW ZEALAND’S COMPETITIVE ADVANTAGE IN ELECTRICITY
INDUSTRY 4
NZ ranks 3rd lowest out of 25 large
energy-consuming countries for
energy security risk
‘Among the most
competitive markets
in the world’
3rd highest level of
renewable electricity generation in the OECD
Source: Accenture, Ministry of Business, Innovation & Employment, United States Chamber of Commerce
PRICING RENEWABILITY
RELIABILITY
STABLE
REGULATORY
ENVIRONMENT
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AUSTRALIA’S ‘ELECTRICITY TRILEMMA’
Source: Ministry of Business, Innovation & Employment, Australian
Government - Department of Industry, Innovation and Science
0
10
20
30
40
50
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
TW
h
NEW ZEALAND’S GENERATION MIX
Hydro Geothermal Wind Coal Gas Other Solar
0
50
100
150
200
250
300
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
TW
h
AUSTRALIA’S GENERATION MIX
Hydro Wind Coal Gas Other Solar
Reliability
> Coal plant retirements and growing intermittent
generation have reduced system stability
> Significant outages and unplanned load-shedding including a South Australia state-wide blackout in November 2016
Pricing
> Wholesale and retail price increases driven by thermal
retirement and gas price linkage to international LNG
market
> ‘it is simply not good enough that some families and businesses cannot always afford to turn on their lights, heating and equipment’ – Malcolm Turnbull, August 2017
Renewability
> Renewable generation contribution of 17%
> Policy uncertainty has slowed investment into renewable
generation projects
INDUSTRY 5
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REGULATORY STABILITY
INDUSTRY 6
Celebrating 20 years of the market delivering reliability, renewability and choice for customers
> Electricity sector fully deregulated in the early 1990s with introduction of competitive wholesale and retail markets
> Generation investment entirely market-led with no payments for reserve capacity (energy-only wholesale market)
> Full retail competition with low barriers to entry
> Independent regulatory oversight of market and network monopolies from the Electricity Authority (EA)1 and Commerce Commission2
> Government sets overall policy direction and is separated from rule-making and regulatory oversight
> Labour-led coalition government continues strong support for renewable electricity with a target of 100% by 2035
> Coalition agreement flagged broad review of retail pricing inclusive of transmission and distribution costs
Water
> No charge for non-consumptive application of water for hydro generation
> Local and central government focus on water quality and water allocation for consumptive uses
Climate
> NZ Emissions Trading Scheme (ETS) places increased cost on emitting generation sources
> Emission units trading at ~NZ$20/t (equivalent to ~$8/MWh for a CCGT post removal of transitional arrangements by 20193)
1 Regulator for the competitive sectors of the electricity industry 2 New Zealand’s primary competition regulator and regulator for the monopoly
businesses within the electricity industry (Transpower and distribution businesses) 3 Transitioning from 1 unit for 2 tonnes of CO2 to 1 unit for 1 tonne of CO2
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0
5
10
15
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
No
min
al c/k
Wh
Financial Year
RESIDENTIAL PRICE Energy Lines Wholesale (12mth rolling)
INDUSTRY
0%
5%
10%
15%
20%
25%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
An
nu
ali
sed
Ch
urn
(%
)
Financial Year
CHURN Total Churn
Trader Churn
7
LONG-TERM INDUSTRY TRENDS
CAGR: 2.7%
9.0
9.5
10.0
0
20
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
GW
TW
h
Financial Year
DEMAND Demand Max. Generation Capacity (RHS)
0.0
0.5
1.0
1.5
2.0
2.5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EB
ITD
AF
($b
)
Financial Year
SECTOR EARNINGS
CAGR: 3.3%
CAGR: 4.6%
CAGR: 0%
Source: TPIX, MBIE,
Electricity Authority
Source: Company reports, MBIE,
Pricing Manager (NZX)
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STRONG UNDERLYING DRIVERS FOR ELECTRICITY DEMAND
MARKET DYNAMICS 8
> System Operator (Transpower) forecasting demand
growth of ~1%
> Normalised demand* down 0.9% in FY2017 led by reduced industrial and irrigation demand
> Supportive drivers of demand growth include:
> High net migration
> GDP per capita growth
> Adverse drivers of demand growth include:
> Reductions in per household consumption due to efficiency
> Medium-term trend of de-industrialisation
> Solar remains a niche customer proposition
> No explicit solar subsidy except for variable lines charges
> Solar installed in 16,000 or 0.8% of total customer connections
* normalised for temperature
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Urban* Rural* Dairy Tiwai Industrial Irrigation
GW
h
FY2012 FY2013 FY2014
FY2015 FY2016 FY2017
-3%
-2%
-1%
0%
1%
2%
3%
4%
30,000
32,000
34,000
36,000
38,000
40,000
42,000
44,000
FY
2002
FY
2003
FY
2004
FY
2005
FY
2006
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
GW
h
Annual Growth Rate (RHS)
Consumption (LHS)
ANNUAL ELECTRICITY DEMAND
TEMPERATURE ADJUSTED SEGMENT ELECTRICITY DEMAND
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2,000
2,500
3,000
3,500
4,000
4,500
Jun
-08
Dec-0
8
Jun
-09
Dec-0
9
Jun
-10
Dec-1
0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Jun
-14
Dec-1
4
Jun
-15
Dec-1
5
Jun
-16
Dec-1
6
Jun
-17
Alu
min
ium
(N
Z$
/t)
ALUMINIUM PRICE
3 month futures
> NZAS represents 13% of New Zealand annual electricity demand1
> Indications are that NZAS unlikely to be closed in the near term
> Aluminium futures currently trading at 6 year highs at ~NZ$3,000/t
> Mercury relatively best placed to deal with resultant wholesale market uncertainty following the closure of NZAS
> 100% renewable North Island generation close to major North Island load centres
> Wholesale price separation due to increased losses, transmission constraints and North Island reserve requirements
NEW ZEALAND ALUMINIUM SMELTER (NZAS)
MARKET DYNAMICS 9
Mercury generation assets
NZAS
HAYWARDS
BENMORE
AUCKLAND •
HVDC
Approximate breakeven price
1 Financial contract exists between NZAS and Meridian for 572MW through to
31 December 2030 with a right to terminate by NZAS with 12 months notice
6 year high
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RE-BALANCED ELECTRICITY SUPPLY
MARKET DYNAMICS 10
> Supply and demand balance has tightened after a period of over-supply, as illustrated by the 2016 – 2018 NZ hydro risk curves increasing in magnitude from the 2012 - 2015 curves
> More balanced supply and demand has increased price sensitivity to changes in storage levels
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2010 2011 2012 2013 2014 2015 2016 2017 2018
GW
h
NZ HYDRO RISK CURVE
Nominal Full
Mean - all records
Controlled Storage
1% risk
2% risk
4% risk
6% risk
8% risk
10% risk
Retirement of
thermal capacity Low demand growth, new
generation commissioned
Over-supply
Period of sustained high
hydro inflows
Source: Electricity Authority, EMI – Historical hydro risk curves
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MERCURY 11
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MERCURY 12
100% renewable generation with two low-cost complementary fuel sources in base-load geothermal and peaking hydro
North Island generation is uniquely located close to major load centres and not dependent on the inter-island transmission link (HVDC)
Waikato Hydro System is the largest group of peaking stations in the North Island
Rain-fed North Island hydro catchment with inflows correlated with winter peak demand (unlike South Island)
Building a track record of customer-led innovation and rewarding loyalty
Long-term commercial partnerships with Maori landowners and other key stakeholders
MERCURY’S COMPETITIVE ADVANTAGE
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R² = 0.0403
$0
$50
$100
$150
$200
$250
$300
-400 -200 0 200 400
OT
A W
ho
lesale
Pri
ce (
$/M
Wh
)
Delta to Storage Average (GWh)
NI MONTHLY HYDRO STORAGE VS PRICE
Jan 1999 to Jun 2016
FY2012
FY2014
FY2017
FY2018
R² = 0.4217
$0
$50
$100
$150
$200
$250
$300
-1500 -1000 -500 0 500 1000 1500
OT
A W
ho
lesale
Pri
ce (
$/M
Wh
)
Delta to Storage Average (GWh)
SI MONTHLY HYDRO STORAGE VS PRICE
Jan 1999 to Jun 2016
FY2012
FY2014
FY2017
FY2018
~30% of annual average generation
83% of total energy storage
72% of average annual inflows
Source: NZX Hydro, Pricing Manager (NZX)
13 MERCURY
MERCURY’S HYDRO ADVANTAGE
> Large South Island (SI) hydro catchments and associated hydrology drives wholesale prices
> High South Island hydro storage will result in low wholesale prices (and vice versa)
> Mercury’s North Island (NI) hydro catchment has low correlation to wholesale prices
> High Mercury hydro storage can occur with high wholesale prices (and low storage with low wholesale prices)
~15% of annual average generation
17% of total energy storage
28% of average annual inflows
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0%
5%
10%
15%
20%
25%
30%
Jul-1
5
Oct-
15
Jan
-16
Ap
r-16
Jul-1
6
Oct-
16
Jan
-17
Ap
r-17
Jul-1
7
An
nu
al
Ch
urn
NATIONAL ANNUALISED CHURN RATE
(12mth rolling)
All Retailers
Mercury
Mercury Brand
}
> In a highly competitive retail market, Mercury is focused on promoting and rewarding customer loyalty
> Mercury premise churn rate significantly below market
> Customer satisfaction1 based on Mercury’s survey increased through FY2017 from 60% to 64%
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
Sw
itch
es
NATIONAL SWITCHING Mercury
Mercury Brand
Prior 12mth Mercury Switches
Net Switches
0%
10%
20%
Jul-1
5
Oct-
15
Jan
-16
Ap
r-16
Jul-1
6
Oct-
16
Jan
-17
Ap
r-17
Jul-1
7Sw
itch
es
Wit
hd
raw
n2
SUCCESS IN A COMPETITIVE RETAIL MARKET
14
All switches
Trader switches3
Source: Electricity Authority, EMI – Market share trends and switching breakdown
1 Based on Mercury’s monthly survey of residential customers, 3-monthly rolling
average to 30 June for Mercury brand (excludes Bosco and GLOBUG) 2 Switches which were initiated but not completed (inclusive of saves) 3 A trader switch is where a customer changes retailer without changing house
}
MERCURY
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FOCUS ON CUSTOMER LOYALTY
15 MERCURY
The number of customers enjoying unique Mercury rewards continues to grow:
> 147,000 Airpoints™ customers (42% of Mercury brand)
> 143,000 on Fixed-Term pricing (40% of Mercury brand)
> 157,000 Free Power Days in FY2017
> $10m donated to Starship Children’s Hospital over 18 years
> GEM, our usage monitor, is one of our most popular services with ~100,000 customers engaging every week
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MERCURY 16
MERCURY’S FINANCIAL TRACK RECORD
1x
2x
3x
4x
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Financial Year
DEBT/EBITDAF DEBT/EBITDAF
0
100
200
300
400
500
600
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$m
Financial Year
DISTRIBUTIONS Interim dividend Final dividend
Special dividend Share buyback
0
100
200
300
400
500
600
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$m
Financial Year
CAPEX Stay-In-Business Growth
0
100
200
300
400
500
600
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$m
Financial Year
EBITDAF
0
200
400
600
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$m
Financial Year
OPEX Operating Expenditure One-off costsCAGR: ~5%
Flat from FY2014
Generation development Capacity for growth
9 years of ordinary dividend growth
-10000
-5000
0
5000
10000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
GW
h
Financial Year
GENERATION VS SALES Geo Hydro
Thermal Sales
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CONTINUOUS FOCUS ON CAPITAL MANAGEMENT
17
FREE CASH FLOW (FCF) Net Cash Flow from Operating Activities less normalised stay-in-business capital expenditure
BALANCE SHEET ORDINARY DIVIDENDS INVESTMENT IN GROWTH SPECIAL DISTRIBUTIONS
Key ratio for stand alone S&P
rating of ‘BBB’ is Debt/EBITDAF
between 2.0x and 3.0x
Dividend Policy is to make
distributions with a pay-out ratio of
70-85% of FCF on average
through time
Investment in growth evaluated against all other
competing uses of capital
Debt/EBITDAF 1.8x at
30 June 20171
FY2017 fully imputed ordinary
dividends of 14.6cps declared
Minimal FY2017 new investment
capital expenditure
5.0cps special dividend declared
to distribute excess FY2017 FCF
plus the proceeds of the carbon
credit sales
> > > 1 2 3 4
MERCURY
1Adjusted for S&P treatment of Mercury’s Capital Bond
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LEVERS FOR GROWTH
18 GROWTH
Better supply and demand
> Upward pressure on end-user pricing due to supply and demand balance tightening
Investment in core business
> Wind options Turitea (216MW) & Puketoi (300MW) remain ready for multi-stage development at the right time
> Current geothermal reservoirs may support further development
> Market consolidation options available but challenging
Home and beyond
> Global strategic review confirmed focus on our core markets and opportunities within the home and e-mobility
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EMERGING TECHNOLOGY IN CONTEXT
19 EMERGING TECHNOLOGY
Solar
> Will be a niche feature of the NZ electricity market
> 1m solar panels is equivalent to ~1% of national demand
> Solar generation is not well matched to NZ’s demand profile which peaks in winter evenings
> The number of new EV registrations has recently exceeded the number of new solar installations
Batteries
> Useful when coupled to solar but at significant additional cost
> Lake Taupo storage equivalent to 40m 14kWh Tesla Powerwalls
Electric Vehicles (EVs)
> New Zealand’s largest green growth opportunity
> Transport related emissions account for 20% of NZ total Green House Gas (GHG) emissions
> Renewable electricity advantage well suited to transport electrification, along with substantial off-peak grid capacity
0
1,000
2,000
3,000
4,000
5,000
0
100
200
300
400
500
Au
g-1
3
Nov-1
3
Fe
b-1
4
Ma
y-1
4
Au
g-1
4
Nov-1
4
Fe
b-1
5
Ma
y-1
5
Au
g-1
5
Nov-1
5
Fe
b-1
6
Ma
y-1
6
Au
g-1
6
Nov-1
6
Fe
b-1
7
Ma
y-1
7
Au
g-1
7
Mo
nth
ly S
ola
r P
V
Ins
tall
ati
on
s
SOLAR PV INSTALLATIONS
Solar Installations 12mth Rolling Installations (RHS)
0
1,000
2,000
3,000
4,000
0
100
200
300
400
Au
g-1
3
Nov-1
3
Fe
b-1
4
Ma
y-1
4
Au
g-1
4
Nov-1
4
Fe
b-1
5
Ma
y-1
5
Au
g-1
5
Nov-1
5
Fe
b-1
6
Ma
y-1
6
Au
g-1
6
Nov-1
6
Fe
b-1
7
Ma
y-1
7
Au
g-1
7
Mo
nth
ly E
V
Reg
istr
ati
on
s
ELECTRIC VEHICLE REGISTRATIONS
Total EVs 12mth Rolling Registrations (RHS)
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THESIS: COUNTRY, INDUSTRY & COMPANY
20 SUMMARY
Stable regulatory framework
> Underpinned by strong industry performance on Reliability, Renewability and Pricing (the electricity ‘trifecta’)
> New Labour-led coalition government supportive of renewables
100% renewable generation
> Location and nature of Mercury’s assets is a competitive advantage
> Low variable cost generation delivering strong and stable cash flows
Focus on loyalty
> Focus on rewarding the loyalty of our existing customers is resulting in decreased customer churn and increased satisfaction
Shareholder value
> Positioning to deliver on growth opportunities when commercially viable
> High dividend yield with 9 years of ordinary dividend growth
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21 APPENDIX
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> Stable political environment
> Mixed Member Proportional (MMP) system
> Two main parties – National (centre-right) and Labour (centre-left)
> Labour-led coalition government since October 2017 (3-year term)
> Robust GDP growth achieved over recent years (currently 2.7%2), with below-trend unemployment (currently 4.8%4)
> Current supportive drivers of GDP growth include:
> Historic high net migration flows (72,100 net annual inflows5 or 1.5%)
> Strong tourism growth
> Robust construction sector activity
> Low interest rate settings
> Risks factors which could dampen GDP growth:
> Global geopolitical and growth concerns
> Migration cycle creating economic stresses
> House price inflation creates stability risks
NEW ZEALAND ECONOMIC OVERVIEW
APPENDIX
22
Key Facts
Credit Rating: AA/stable
Population: 4.7 million1
GDP: NZ$270 billion (or US$190 billion)2
Official Cash Rate (OCR): 1.75%
10yr Interest Rate: 3.3%3
1 At 31 December 2016 2 Year to 30 June 2017 3 At 1 November 2017 4 At 30 June 2017 5 Year to 31 August 2017
72%
20%
6%
1% 1%
Services Sector
Manufacturing, Energy &Construction
Agriculture, Forestry & Fishing
Mining
Other
NEW ZEALAND GDP BY SECTOR2
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GENERATORS
> Wholesale prices
determined by competition
> Generate electricity and
sell to wholesale market
> 5 major generators
producing about 95% of
NZ’s electricity
> 80% renewable electricity
(unsubsidised)
> Solar installed in 16,000 or
0.8% of total customer
connections
DISTRIBUTION AND
NETWORK OWNERS
> Regulated monopolies
> 29 distribution companies
> 150,000km of overhead and
underground networks
THE NATIONAL GRID
RETAILERS AND
CONSUMERS
> Retail prices determined
by competition
(unregulated)
> 33 retailer brands buy from
wholesale market and on-
sell to nearly 2 million
consumers
> Electricity Authority
responsible for promoting
competition, efficiency and
reliability of supply for
long-term benefit of
consumers
> NZAS (aluminium smelter)
13% of national demand
> 2 major metering
companies, including
Mercury trading as Metrix,
with national smart meter
penetration of 77%
23
NEW ZEALAND ELECTRICITY MARKET STRUCTURE SINCE 1998
APPENDIX
> Transpower (Government owned) is
regulated owner and operator
> Transports high voltage electricity to
networks and large industrial users
> 1,200MW HVDC link between South
and North Islands
WE OPERATE
HERE
WE OPERATE
HERE
1 4 1 4
2 3
2 3
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0
10
20
30
40
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60
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80
90
100
Kore
aIs
rae
lH
ung
ary
Cze
ch R
ep
ub
licE
sto
nia
Ne
the
rla
nds
Pola
nd
Austr
alia
Mexic
oU
nited
Sta
tes
Ja
pa
nB
elg
ium
Fra
nce
Irela
nd
Un
ited
Kin
gdo
mS
lovak R
epu
blic
Ge
rman
yG
ree
ce
Slo
venia
Turk
ey
Ita
lyS
pa
inC
hile
Fin
lan
dP
ort
ug
al
La
tvia
Sw
eden
Lu
xe
mb
ou
rgD
enm
ark
Sw
itze
rla
nd
Ca
na
da
Austr
iaN
ew
Zeala
nd
No
rwa
yIc
ela
nd
%
2016 OECD RENEWABLE ELECTRICITY
24
UNSUBSIDISED ELECTRICITY MARKET AND >80% RENEWABLE
APPENDIX
0
5
10
15
20
25
30
35
40
45
50
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
NEW ZEALAND’S GENERATION MIX
Hydro Geothermal Wind Coal Gas Waste Heat/Biogas, Oil and Wood Solar
1 Link to publication pg. 28
Source: Ministry of Business, Innovation & Employment, IEA
TW
h
> “With its unique resource base, New Zealand is a success story for the development of renewable energy, notably hydro and geothermal, without government subsidies” – International Energy Agency (IEA)1
> Geothermal or wind are the lowest cost development options – 12TWh of renewable projects already consented
Hydro, geothermal and wind
contribute > 80% of generation
Coal only around 2% of annual generation
Norway: Connected to European transmission grid
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US
$ p
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PP
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2015 OECD RESIDENTIAL ELECTRICITY PRICES1
25
HIGHLY COMPETITIVE RETAIL MARKET DELIVERING CUSTOMER CHOICE
APPENDIX
1 Residential pricing in US dollars per unit using Purchasing Power Parity (PPP)
Source: Ministry of Business, Innovation & Employment, IEA, Accenture
> One of only 4 highly competitive retail markets – Accenture
> Energy portion of end-user pricing determined by competition
Lower tercile residential electricity price
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> 100% renewable generation with two complementary low-cost fuel sources
> High up-front build cost, low operating cost
> Central North Island close to major load centres and not dependent on inter-island connection (HVDC)
> Generation-Weighted Average Price (GWAP) favourable to peers reflecting the flexibility and location of assets
> Flexible hydro generation (1,063MW / 4,000GWh)
> Largest group of peaking stations in North Island
> Baseload geothermal generation (337MW1 / 2,800GWh)
> Only renewable not dependent on weather
> Average net long position reflecting integrated portfolio
> Movement in net position year-on-year due to hydrology, plant availability and value of sales
BUSINESS OVERVIEW
COMPLEMENTARY GENERATION SOURCES
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Long Short
GW
h
FY2017 NET POSITION BREAKDOWN
CFD Sell
FPVV Losses
Commercial FPVV
Residential FPVV
CFD Buy
Additional Hydro
Average Hydro
Geothermal (Consolidated)
1 Equity share 2 Contract-For-Difference 3 Fixed-Price Variable Volume
3
3
2
2
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60
70
80
90
100
110
120
0
10
20
30
40
50
60
70
80
Jan
Fe
b
Ma
r
Ap
r
May
Jun
Jul
Au
g
Se
p
Oct
Nov
Dec
Lo
ad
(G
Wh
)
Infl
ow
s (
GW
h)
AVERAGE SOUTH ISLAND INFLOWS VS. DEMAND
Average Inflows in SI (LHS) Average Market Demand (RHS)
60
70
80
90
100
110
120
0
5
10
15
20
25
30
Jan
Fe
b
Mar
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
Nov
Dec
Lo
ad
(G
Wh
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Infl
ow
s (
GW
h)
AVERAGE NORTH ISLAND INFLOWS VS. DEMAND
Average Inflows in NI (LHS) Average Market Demand (RHS)
MERCURY’S PERMANENT GENERATION ADVANTAGE
> Positive correlation of North Island hydro inflows and sales
> Inflows into Mercury’s North Island hydro catchment peak in winter to match peak winter demand
> Complemented by non-weather-dependent baseload geothermal
APPENDIX
Inflows from snow melt inversely correlated to demand
Inflows from rain correlated to demand
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$50
$60
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
Jul-1
5
Oct-
15
Jan
-16
Ap
r-16
Jul-1
6
Oct-
16
Jan
-17
Ap
r-17
Jul-1
7
Oct-
17
Tu
rno
ver
($m
)
Sh
are
Pri
ce
MERCURY SHARE PRICE AND TURNOVER Turnover
MCY.NZ
MCY.NZ / MCY.AX
28 APPENDIX
Key Facts
Shares on Issue: 1,377.6m
Market Capitalisation: $4.53b1
Enterprise Value: $5.8b1
NZX ranking (by Market Capitalisation): 11th
Avg. Daily NZX Volume (prior 12mths): $0.8m
Avg. Daily NZX Turnover (prior 12mths): $2.4m
Cash Dividend Yield (prior 12mths): 6.0%1
Gross Dividend Yield (prior 12mths)2: 8.3%1
EV/EBITDAF (FY2017): 11.1x
PE ratio (FY2017): 24.4x1
1 At 1 November 2017
2 Fully imputed for New Zealand residents to 28%
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51%
23%
19%
5% 2%
Government
New Zealand Retail
International Institutions
New Zealand Institutions
Treasury Stock
OWNERSHIP
29
1 At October 2017
> Listed on NZX and ASX in May 2013
> 85,000 shareholders (widest-held New Zealand register)
> Government majority ownership
> Public Finance Act and Company’s constitution require at least 51% Crown ownership
> No other person may hold more than 10% of shares
> Eight independent Directors
> No direct government representation on Board
MERCURY SHARE REGISTER1
APPENDIX
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> Reduces or eliminates the economic impact of Non-Resident Withholding Taxes
> For illustrative purposes see below worked example for a corporate investor. This should not be interpreted as tax advice
SUPPLEMENTARY DIVIDEND TO NON-RESIDENTS
APPENDIX
NZ investor Foreign investor
No Supplementary
dividend
Supplementary
dividend
Gross dividend 100.00 100.00 100.00
Imputation credits (28.00) (28.00) (28.00)
Supplementary dividend - - 12.71
72.00 72.00 84.71
Less: Corporation tax (@28%) (28.00) - -
Add: Imputation credits 28.00 - -
Less: Non-resident withholding tax (@15% of dividend where DTA1) - (10.80) (12.71)
Cash dividend 72.00 61.20 72.00
1 Includes United Kingdom, Ireland, United States and Canada
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REFERENCE MATERIAL
MERCURY REFERENCES
Mercury Investor Centre www.mercury.co.nz/Investor-Centre
Governance Presentation – December 2016 https://www.mercury.co.nz/Investors/Results-Reports/Presentations.aspx
FY2017 Interim Results Presentation – February 2017
FY2017 Results Presentation – August 2017
INDUSTRY REFERENCES
Electricity Authority website www.ea.govt.nz
System Operator website www.systemoperator.co.nz
Wholesale electricity spot prices www.em6live.co.nz
Electricity futures prices www.asx.com.au/products/energy-derivatives/new-zealand-electricity.htm
INDUSTRY PUBLICATIONS
Energy Policies of IEA Countries –
New Zealand 2017 Review
https://www.iea.org/publications/freepublications/publication/energy-policies-of-iea-countries---new-zealand-2017-
review.html
Ministry of Business, Innovation and Employment –
Energy in New Zealand www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/publications/energy-in-new-zealand
Electricity Authority - Electricity in New Zealand www.ea.govt.nz/about-us/media-and-publications/electricity-nz
APPENDIX
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FOR FURTHER INFORMATION >> TIM THOMPSON | HEAD OF TREASURY & INVESTOR RELATIONS T. +64 275 173 470 E. [email protected]
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