Mercury Nz Ltd. · NZX:MCY
Mercury Nz — FY2022 Earnings Presentation
37 slides from Mercury Nz's earnings presentation, Aug 16, 2022
Slide 1: Financial Results, Year Ended 30 June 2022
For personal use only FINANCIAL RESULTS. YEAR ENDED 30 JUNE 2022 VINCE HAWKSWORTH WILLIAM MEEK Chief Executive Chief Financial Officer 16 August 2022
Slide 2: Disclaimer
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 For personal use only and the verbal or written comments of any person presenting it. Information in this presentation has
Slide 3: FY22 – A Year of Transformative Change Supports Performance
FY22 – A YEAR OF TRANSFORMATIVE CHANGE SUPPORTS PERFORMANCE TILT NZ’S OPERATIONS TURITEA NTH COMPLETE TRUSTPOWER RETAIL For personal use only INTEGRATED All 33 turbines at Turitea North Successful Trustpower retail INFINZ 2022 M&A transaction of complete, generating 308GWh in transition; Connection
Slide 4: Financial Performance
FINANCIAL PERFORMANCE 1,600 For personal use only 1,352 FY2021 1,400 1,200 FY2022 1,000 $m 800 745 616 581 600 463 469 400 338 352 282 284 232 275 190 230 141 194 200 56 68 0 Trading Margin Operating EBITDAF NPAT Operating Cash Free Cash Flow Stay-In-Business Growth Declared Ordinary Expenditure Flo
Slide 5: Growth from New Wind Generation, Customer Sales and Thrive
GROWTH FROM NEW WIND GENERATION, CUSTOMER SALES AND THRIVE EBITDAF BRIDGE (FY21 to FY22) Total Sales: 242GWh3 For personal use only Decrease Increase Mass Market Yield: 3.2% C&I Yield: 13.9%4 800 Generation1: 333GWh 700 GWAP2: $30/MWh 14 8 27 75 600 88 4 4 41 95 EBITDAF ($m) 500 43 21 400 185 61 202
Slide 6: Focus on Wellbeing and Health & Safety
FOCUS ON WELLBEING AND HEALTH & SAFETY > An all of company staff wellbeing review provided insights into how we For personal use only HEALTH & SAFETY INCIDENTS better support employee wellbeing 1.5 TRIFR1 3 High Severity Incidents (RHS) > Zero fatality and high severity Health & Safety incidents in
Slide 7: Our FY22-24 Strategic Framework
OUR FY22-24 STRATEGIC FRAMEWORK For personal use only 7
Slide 8: Key Performance Indicators
KEY PERFORMANCE INDICATORS For personal use only THREE-YEAR OBJECTIVES FY22 OUTCOMES ENHANCE OUR LICENCE TO Zero high severity Customer care External relationships OPERATE THROUGH health and safety guidelines implemented and sector engagement COLLABORATIVE WORK WITH incidents and monitored reviews c
Slide 9: Key Performance Indicators
KEY PERFORMANCE INDICATORS For personal use only THREE-YEAR OBJECTIVES FY22 OUTCOMES BE AN ADAPTIVE AND RESILIENT Technology New high-trust fully ORGANISATION, RESPONSIVE TO 51% Vacancies filled by platform review flexible approach to FUTURE NEEDS completed working rolled out internal candidates PLA
Slide 10: Electricity Spot Price Reflects Gas Availability and Hydrology
ELECTRICITY SPOT PRICE REFLECTS GAS AVAILABILITY AND HYDROLOGY For personal use only HYDRO STORAGE VS. SPOT ELECTRICITY PRICE SPOT GAS VS. SPOT ELECTRICITY PRICE From Jan-99 From Sep-14 $300 FY2018 $300 FY2018 FY2019 FY2019 $250 FY2020 $250 FY2020 Otahuhu Spot Price ($/MWh) Otahuhu Spot Price ($/MWh
Slide 11: Spot Prices Still Reflecting Reduced Fuel Availability & Higher Costs
SPOT PRICES STILL REFLECTING REDUCED FUEL AVAILABILITY & HIGHER COSTS For personal use only GAS PRODUCTION Pohokura Maui NATIONAL HYDRO STORAGE McKee/Mangahewa Kupe (since 1 Apr 1999) Min / Max Avg FY2022 200 Turangi Mixing Station 6,000 150 5,000 4,000 TJ/day 100 GWh 3,000 50 2,000 1,000 0 0 Oct-21
Slide 12: Start Low, Finish High
START LOW, FINISH HIGH 1 LAKE TAUPO STORAGE Min / Max Avg Lake Taupo MCL FY2021 FY2022 For personal use only (since 1 Jul 1999) 600 14th percentile inflows from Jan – May 2022 500 GWh 400 300 200 100 Risk/return trade-off; capitalised on high 0 spot prices vs risk of persistent low inflows Month End
Slide 13: Customer Mix Tilted Toward C&I; Trustpower Lifts Mass Market Sales
CUSTOMER MIX TILTED TOWARD C&I; TRUSTPOWER LIFTS MASS MARKET SALES C&I (includes physical and financial sales) For personal use only 7,000 Mass Market (includes Trustpower retail) > Elevated wholesale prices persist, but retail mass market segment 6,000 remains highly competitive despite low margins
Slide 14: Trustpower Retail Acquisition Complete, Integration Underway
TRUSTPOWER RETAIL ACQUISITION COMPLETE, INTEGRATION UNDERWAY > Trustpower retail acquisition and transition completed successfully in May 2022 making For personal use only Mercury NZ’s largest electricity multi-product retailer > $470m1 transaction price includes Trustpower’s retail business, 570 st
Slide 15: Tilt Renewables Assets Boost Wind Portfolio
TILT RENEWABLES ASSETS BOOST WIND PORTFOLIO For personal use only > Acquisition of Tilt Renewables’ New Zealand operations, valued at Kaiwaikawe (wind) $797m, completed in August and is fully integrated into Mercury Potential capacity: 75MW generation portfolio. Mercury now New Zealand’s largest win
Slide 16: Turitea: Northern Section Complete, South Section Progressing
TURITEA : NORTHERN SECTION COMPLETE, SOUTH SECTION PROGRESSING Construction For personal use only > Northern section complete and operating well (~470GWh pa) > O&M performed by Vestas under long term agreement > Southern Section (~370GWh pa) significantly delayed; expecting completion of southern tu
Slide 17: Mercury Advancing Generation Development Opportunities
MERCURY ADVANCING GENERATION DEVELOPMENT OPPORTUNITIES Development Options Potential Capacity Commentary For personal use only Puketoi ~230MW Consented lapse period extended to 2031 Kaiwaikawe (wind) Constructability work and consent enhancements progressing Potential capacity: 75MW Kaiwaikawe ~70MW
Slide 18: Market & Regulatory
MARKET & REGULATORY > During FY22, numerous regulatory processes with the potential for significant For personal use only impact to us were progressed including: > RMA reform > Low Fixed Charge Tariff and > NZ Battery Project > Prompt Payment discount removal > Wholesale market review > Industry res
Slide 19: Market & Regulatory
MARKET & REGULATORY > New Zealand Battery Project: For personal use only > Recent cabinet paper shows the Onslow project faces challenges (impacts on environmental, social and cultural values; and on the Clutha system) > Ownership model and dispatch method require more work to identify impacts on ge
Slide 20: A Culture of Continuous Improvement
A CULTURE OF CONTINUOUS IMPROVEMENT > Mercury’s focus on continuous improvement to work smarter, faster and For personal use only better, and set us up to thrive in the future exceeded expectations > $47m benefit achieved in FY22 against target of $30m; > Examples of the initiatives delivered during
Slide 21: Kawerau Outage and ETS/Carbon Transactions
KAWERAU OUTAGE AND ETS/CARBON TRANSACTIONS Kawerau outage For personal use only > A progress payment of ~$26m was received from insurers in March 2022 in compensation for property damage and lost generation revenue resulting from the unplanned outage at Kawerau from 7 June to 20 July 2021 > Replacem
Slide 22: ASX Futures Prudential Cost Rise but Exposure Closely Managed
ASX FUTURES PRUDENTIAL COST RISE BUT EXPOSURE CLOSELY MANAGED > Mercury lodges cash to cover ASX prudential exposure For personal use only > Total cash lodged with ASX broker increased by $33m over FY22 to $97m as at 30 June 2022, peaking at ~$119m in March 2022 > Exchange For Physical (EFP) transac
Slide 23: FY23 Guidance
FY23 GUIDANCE > Headline FY23 EBITDAF guidance of $580m on 4,350GWh of hydro generation (normalised EBITDAF of $756m1), For personal use only subject to hydrological volatility, wholesale market conditions and any material adverse events, significant one-off expenses or other unforeseeable circumsta
Slide 24: Q&A
24 For personal use only Q&A
Slide 25: Appendix
For personal use only Northern section of Turitea during construction APPENDIX 25
Slide 26: Mercury at a Glance FY22
MERCURY AT A GLANCE FY22 GENERATION 7,499GWh > Vertically integrated 100% renewable For personal use only and national energy retailer > New Zealand’s second largest gentailer HYDRO GEOTHERMAL WIND by value, NZ’s largest wind generator and NORTH ISLAND 3,662GWh 2,568GWh 1,269GWh largest electricity
Slide 27: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation High performance teams > Three low-cost complementary fuel sources > Dynamic company culture built on the in baseload geothermal and peaking hydro understanding that our people, working together with wind added and in al
Slide 28: Mercury's Long Term Track Record
MERCURY’S LONG TERM TRACK RECORD For personal use only FY23F is normalised for derivative unwind EBITDAF across Manawa, Norske and Tilt transactions OPEX1 Operating expenditure One-off costs DISTRIBUTIONS Share buyback Special dividend 800 800 800 Final dividend Interim dividend 600 600 600 $m $m 40
Slide 29: Long Term Industry Trends
LONG TERM INDUSTRY TRENDS For personal use only SECTOR EARNINGS1 DEMAND AND GENERATION CAPACITY CARBON EMISSIONS1 Demand 3 Emissions and renewability 50 Max. Generation Capacity (RHS) 10.4 10,000 CAGR: 2.4% subject to annual hydrology 10.2 40 8,000 EBITDAF ($b) 2 10.0 kT CO2e TWh 30 9.8 6,000 GW 20
Slide 30: Demand Lifts Following Lockdown Affected Period
DEMAND LIFTS FOLLOWING LOCKDOWN AFFECTED PERIOD > National demand down 0.9%1 versus FY21, driven by reductions in industrial and irrigation sectors For personal use only > Industrial demand has been impacted by the closure of Norske Skog’s Tasman newsprint mill and conversion of the Marden Point Ref
Slide 31: Accounting Impacts – Acquired Electricity Swaps
ACCOUNTING IMPACTS – ACQUIRED ELECTRICITY SWAPS For personal use only > Three transactions involved acquisition of electricity swaps $m Day 1 FY22 FY23 FY24 FY25 FY26 (CFDs) with material value: > Norske Skog: as part of the close out of the 80MW foundation hedge for the Kawerau power station, Mercu
Slide 32: Capital Expenditure
CAPITAL EXPENDITURE > Annual stay-in-business capital expenditure subject to For personal use only CAPITAL EXPENDITURE Growth - Acquisition timing of refurbishments, technology investment and Growth - excl Acquisition 1,600 geothermal make-up well drilling Stay-in-Business > Long term normalised sta
Slide 33: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURIES AS AT 12 AUGUST 2022 For personal use only 1 Commercial Paper Undrawn Bank Facilities Undrawn Rolling Bank Facilities Drawn Bank Facilities Domestic Wholeale Bonds Domestic Wholeale Green Bonds Retail Green Bonds US Private Placement AUD Green Bonds Capital
Slide 34: Capital Structure Flexibility Enables Growth
CAPITAL STRUCTURE FLEXIBILITY ENABLES GROWTH > Debt / EBITDAF expected to have peaked in FY22, reducing to a forecast of ~2.2x1 in FY23 driven by an increase in For personal use only forecast EBITDA2 with full year contributions from Turitea North, Tilt Renewables assets and Trustpower Retail > S&P
Slide 35: Financial Derivatives
FINANCIAL DERIVATIVES For personal use only 12 months ended 12 months ended 30 June 2022 30 June 2021 Energy Margin contribution ($m) Sell CFDs (127) (286) Buy CFDs 75 106 Other Financial Derivatives 1 (71) 44 Total Energy Margin contribution (124) (136) 1 FY22 includes $65m loss on close out of Nor
Slide 36: Non-GAAP Measures
NON-GAAP MEASURES > Trading Margin is Energy Margin plus Telco Margin For personal use only > Energy Margin is sales from electricity generation and sales to customers and derivatives, less energy costs, line charges, other direct costs of sales, and third-party metering > Telco Margin is mobile and
Slide 37: For Further Information
For personal use only FOR FURTHER INFORMATION > WILLIAM MEEK| CHIEF FINANCIAL OFFICER +64 21 666 265 INVESTOR@MERCURY.CO.NZ