Mercury Nz Ltd. · NZX:MCY
Mercury Nz — Non-Deal Roadshow (May 2017)
48 slides from Mercury Nz's roadshow presentation, May 25, 2017
Slide 1: Investor Roadshow Presentation – May and June 2017 (news release)
STOCK EXCHANGE LISTINGS: NZX (MCY) / ASX (MCY) For personal use only NEWS RELEASE Investor Roadshow Presentation – May and June 2017 25 May 2017 - Mercury will be giving presentations at a series of international investor meetings during May and early June 2017. The presentation materials are attach
Slide 2: Mercury Investor Roadshow
Mercury For personal use only Investor Roadshow FRASER WHINERAY WILLIAM MEEK TIM THOMPSON Chief Executive Chief Financial Officer Head of Treasury & Investor Relations 25 May 2017
Slide 3: Disclaimer
DISCLAIMER This presentation has been prepared by Mercury NZ Limited and its group of companies (“Company”) for informational purposes. This disclaimer For personal use only applies to this document and the verbal or written comments of any person presenting it. Information in this presentation has
Slide 4: Country, Industry & Mercury
For personal use only 3 COUNTRY, INDUSTRY & MERCURY
Slide 5: New Zealand Economic Overview
NEW ZEALAND ECONOMIC OVERVIEW Key Facts For personal use only > Stable political environment Credit Rating: AA/stable > Mixed Member Proportional (MMP) system Population: 4.7 million1 > Two main parties – National (centre-right) and Labour (centre-left) GDP: NZ$260 billion (or US$180 billion)2 > Nat
Slide 6: How New Zealand Ranks on the Global Stage
HOW NEW ZEALAND RANKS ON THE GLOBAL STAGE1 For personal use only 1st Prosperity Index 1st 17th Corruption Global Perception Index Innovation Index 1st 13th Ease of Doing Human Business Development Index 3rd 12th Index of Economic Good Country Freedom Index 53rd 35th Largest Economy Highest GDP per i
Slide 7: New Zealand Electricity Market Structure Since 1998
NEW ZEALAND ELECTRICITY MARKET STRUCTURE SINCE 1998 For personal use only WE OPERATE 1 2 3 4 WE OPERATE 4 RETAILERS AND 1 GENERATORS CONSUMERS HERE HERE > Wholesale prices > Retail prices determined by determined by competition (unregulated) competition > 33 retailer brands buy from > Generate elect
Slide 8: New Zealand's Competitive Advantage in Electricity
NEW ZEALAND’S COMPETITIVE ADVANTAGE IN ELECTRICITY > Electricity markets globally seek to balance Reliability, Competiveness and Renewability – the ‘Electricity Trilemma’ For personal use only > New Zealand has achieved a ‘Trifecta’: RELIABILITY NZ ranks 3rd lowest out of 25 large energy-consuming c
Slide 9: Unsubsidised Electricity Market and >80% Renewable
UNSUBSIDISED ELECTRICITY MARKET AND >80% RENEWABLE > “With its unique resource base, New Zealand is a success story for the development of renewable energy, notably For personal use only hydro and geothermal, without government subsidies” – International Energy Agency (IEA)1 > Geothermal or wind are
Slide 10: Highly Competitive Retail Market Delivering Customer Choice
HIGHLY COMPETITIVE RETAIL MARKET DELIVERING CUSTOMER CHOICE > One of only 4 highly competitive retail markets – Accenture 2015 OECD RESIDENTIAL ELECTRICITY PRICES1 For personal use only > Energy portion of end-user pricing determined by competition 0.40 Lower tercile residential electricity price 0.
Slide 11: Regulatory Stability
REGULATORY STABILITY Celebrating 20 years of market delivering reliability, renewability, and choice for customers For personal use only Market > Electricity sector fully deregulated in the early 1990s with introduction of competitive wholesale and retail markets > Generation investment entirely mar
Slide 12: Mercury at a Glance
MERCURY AT A GLANCE For personal use only Market Capitalisation of 100% RENEWABLE GENERATOR, Dual listing on the NZX and ASX RETAILER AND METERING PROVIDER $4.4b1 ~6,800GWh generation per annum from MCY.NZ / MCY.AX flexible hydro and base-load geothermal 2nd largest NZ gentailer ~390,000 customers 8
Slide 13: 100% Renewable Generator, Retailer, and Metering Provider
100% RENEWABLE GENERATOR, RETAILER, AND METERING PROVIDER For personal use only 1 1 At 30 June 2016 2 Normalised for hydrology and retired thermal generation 12 MERCURY 3 Excludes spot sales 4 At 31 March 2016
Slide 14: Our Purpose, Goal and Strategy
OUR PURPOSE OUR GOAL Inspiring New Zealanders to enjoy energy in more To be New Zealand’s leading energy brand For personal use only wonderful ways Inspiring New Zealanders OUR STRATEGY We want to inspire New Zealanders by delivering value, Mercury will create long term value for our owners by: inno
Slide 15: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation with two low- Rain-fed North Island hydro catchment with cost complementary fuel sources in base- inflows correlated with winter peak demand load geothermal and peaking hydro (unlike South Island) North Island generation
Slide 16: Mercury's Permanent Generation Advantage
MERCURY’S PERMANENT GENERATION ADVANTAGE > Positive correlation of North Island hydro inflows and sales For personal use only > Inflows into Mercury’s North Island hydro catchment peak in winter to match peak winter demand > Complemented by non-weather dependant base-loaded geothermal AVERAGE SOUTH
Slide 17: Market Dynamics
For personal use only [update picture] 16 MARKET DYNAMICS
Slide 18: Strong Underlying Drivers for Electricity Demand
STRONG UNDERLYING DRIVERS FOR ELECTRICITY DEMAND > System Operator (Transpower) forecasting demand ANNUAL ELECTRICITY DEMAND Annual Growth Rate (RHS) For personal use only 44,000 4% growth of ~1% Consumption (LHS) 42,000 3% > Underlying demand* up 0.6% in FY2016 40,000 2% > Underlying demand* down 1
Slide 19: Well Balanced Electricity Supply
WELL BALANCED ELECTRICITY SUPPLY > Hydro makes up ~55% of total generation For personal use only > Energy security margin of circa 15% required to manage dry year risk > Variable inflows into hydro catchments will impact wholesale price as generation mix changes NZ WINTER ENERGY MARGIN1 MONTHLY HYDR
Slide 20: Key Market Risk: New Zealand Aluminium Smelter (NZAS)
KEY MARKET RISK: NEW ZEALAND ALUMINIUM SMELTER (NZAS) > NZAS represents 13% of New Zealand ALUMINIUM PRICE For personal use only annual electricity demand1 3 month futures > Indications are that NZAS unlikely to be 4,500 AUCKLAND • closed in the near term Mercury generation assets > “In Aluminium, a
Slide 21: Dynamic Wholesale Market
DYNAMIC WHOLESALE MARKET > Wholesale spot prices reflect near term supply and demand conditions including hydrology For personal use only > Above average national inflows over the last four years have resulted in dampened wholesale price volatility > Futures pricing tend to Long Run Marginal Cost (L
Slide 22: Competitive Retail Market
COMPETITIVE RETAIL MARKET > Retail energy prices flat in recent years reflecting strong competition For personal use only > ‘Residential sales-based electricity cost’ flat (+0.3%) for the four years to 31 March 20161 > Recent market supply and demand conditions have inflated retail margins relative
Slide 23: Plentiful Renewable Generation Development Options
PLENTIFUL RENEWABLE GENERATION DEVELOPMENT OPTIONS > 90% of current consented projects are renewable (wind / CONSENTED GENERATION BY FUEL (MW) For personal use only geothermal / hydro / marine) equating to ~12,000GWh or ~30% of current annual generation 1% > Next generation project built likely to b
Slide 24: EVs - New Zealand's Largest Green Growth Opportunity
EVS - NEW ZEALAND'S LARGEST GREEN GROWTH OPPORTUNITY > Current target of 90% renewable electricity by 2025 is highly achievable (currently >80% renewable) For personal use only > Greatest green growth opportunity for New Zealand is reducing the 60% of NZ’s primary energy that is being met by fossil
Slide 25: Business Overview
For personal use only 24 BUSINESS OVERVIEW
Slide 26: Well-being & Safety
WELL-BEING & SAFETY > Zero harm is our well-being goal TOTAL RECORDABLE INJURY FREQUENCY RATE For personal use only (TRIFR) > One serious injury of an on-site contractor in HY2017 due to (per 200,000 hours; includes onsite employees and contractors) an office stair fall Low Severity Incidents > No h
Slide 27: Leading in Customer Loyalty
LEADING IN CUSTOMER LOYALTY > Rewarding loyalty leading to increased customer satisfaction and reduced churn For personal use only > Free Power Day – a loyalty product which helps customers appreciate the value of electricity > Airpoints – Mercury has partnered with Air New Zealand to enable custome
Slide 28: Complementary Generation Sources
COMPLEMENTARY GENERATION SOURCES > 100% renewable generation with two complementary low- ANNUAL GENERATION1 Hydro For personal use only 5,000 Geothermal cost fuel sources Long-term hydro average > High up-front build cost, low operating cost 4,000 GWh > Central North Island close to major load centr
Slide 29: Active Portfolio Management
ACTIVE PORTFOLIO MANAGEMENT > Average net long (generation) position reflecting integrated portfolio and closure of gas-fired peaking plant For personal use only > Portfolio management is subject to robust risk management framework > Movement in net position year-on-year due to hydrology, plant avai
Slide 30: Smart Metering Enabling Innovation for Customers
SMART METERING ENABLING INNOVATION FOR CUSTOMERS > Our metering division Metrix is the 2nd largest New Zealand meter data and services provider with 437k meters For personal use only owned or under management1 > Market consolidated and initial meter upgrade largely complete or contracted > Smart met
Slide 31: Delivering Innovation for Customers
DELIVERING INNOVATION FOR CUSTOMERS For personal use only GLOBUG GEM MERCURY SOLAR New Zealand’s leading An energy tracking and In-house solar and battery pre-paid customer solution reporting tool that gives storage installation customers greater visibility of capability their household energy usage
Slide 32: Opportunities for Growth
OPPORTUNITIES FOR GROWTH Market-wide growth For personal use only > Supply and demand is more balanced with thermal rationalisation in FY2016 reducing excess supply > Not currently obvious in wholesale and futures pricing due in part to above average national hydrology Development and M&A > High qua
Slide 33: Environment, Social & Governance (ESG)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) > Board and management committed to developing reporting on factors material For personal use only to the business, its ultra-long term sustainability and prosperity > Core ESG factors make up what we recognise as the foundations of the business – well-being (o
Slide 34: Financial Overview
For personal use only 33 FINANCIAL OVERVIEW
Slide 35: Financial Track Record
FINANCIAL TRACK RECORD For personal use only ENERGY MARGIN EBITDAF 700 700 600 600 500 500 400 400 $m $m 300 300 200 200 100 100 0 0 FY2012 FY2013 FY2014 FY2015 FY2016 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017F UNDERLYING EARNINGS FREE CASH FLOW 700 700 600 600 500 500 400 $m 400 $m 300 300 200 200
Slide 36: 6th Year of Ordinary Dividend Growth
6TH YEAR OF ORDINARY DIVIDEND GROWTH > Mercury’s dividend policy is to make distributions with For personal use only DIVIDEND Interim Final Specials Ordinary guidance a pay-out ratio of 70% to 85% of Free Cash Flow on average through time1 25 > FY2017 ordinary dividend guidance is an increase of 2%
Slide 37: Capital Expenditure Focussed on Current Operations
CAPITAL EXPENDITURE FOCUSSED ON CURRENT OPERATIONS > Stay-in-business capital expenditure has been circa $80m per annum over the medium term For personal use only > Minimal requirement for growth capital expenditure in the short term as generation development not yet required by market and domestic
Slide 38: Flat Operating Expenses
FLAT OPERATING EXPENSES > FY2017 operating costs guided to be comparable with FY2016 levels For personal use only > Operating expenditure below 2010 levels, despite 2 new geothermal stations added OPERATING EXPENDITURE One-off costs 350 Operating expenditure 300 69 250 $m 200 150 259 245 100 216 217
Slide 39: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 30 APRIL 2017 For personal use only Domestic Wholesale Bonds US Private Placement Capital Bond Drawn Bank Facilities Undrawn Bank Facilities 400 350 300 250 $m 200 150 100 50 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Yea
Slide 40: Stable Capital Structure with Capacity for Growth
STABLE CAPITAL STRUCTURE WITH CAPACITY FOR GROWTH > bbb stand alone rating is key reference point for dividend policy and a sustainable capital structure For personal use only > S&P re-affirmed Mercury’s credit rating of BBB+/stable on 5 December 2016 > One-notch upgrade given majority Crown ownersh
Slide 41: Appendix
For personal use only 40 APPENDIX
Slide 42: Appendix to How New Zealand Ranks
APPENDIX TO HOW NEW ZEALAND RANKS For personal use only 1st Ease of Doing Business – out of 189 economies, World Bank 2017 3rd Index of Economic Freedom – out of 178 economies, The Heritage Foundation 2017 1st Prosperity Index – out of 142 economies, Legatum Institute 2016 1st Corruption Perception
Slide 43: MCY.NZ / MCY.AX
MCY.NZ / MCY.AX For personal use only Key Facts MERCURY SHARE PRICE AND TURNOVER Turnover MCY.NZ Shares on Issue: 1,377.4m $3.50 $60m Market Capitalisation: $4.44b1 Enterprise Value: $5.51b1 $3.25 $50m NZX ranking (by Market Capitalisation): 8th $3.00 $40m Turnover ($m) Share Price Avg. Daily NZX Vo
Slide 44: Ownership
OWNERSHIP For personal use only MERCURY SHARE REGISTER1 > Listed on NZX and ASX in May 2013 > Approximately 90,000 shareholders (widest held New Zealand register) 4%2% > Government majority ownership > Public Finance Act and Company’s constitution require at least 20% Government 51% Crown ownership
Slide 45: Supplementary Dividend to Non-Residents
SUPPLEMENTARY DIVIDEND TO NON-RESIDENTS > Reduces or eliminate the economic impact of Non-Resident Withholding Taxes For personal use only > For illustrative purposes see below worked example for a corporate investor. This should not be interpreted as tax advice NZ investor Foreign investor no Suppl
Slide 46: Waikato Hydro System
WAIKATO HYDRO SYSTEM > A cascade river system with nine power stations along the Waikato River (New Zealand’s longest river) For personal use only > Supports average annual generation of 4,000GWh - since 1999 ranged from 3,300GWh to 4,800GWh > Maximum storage capacity of 580GWh in Lake Taupo (New Ze
Slide 47: Reference Material
REFERENCE MATERIAL MERCURY REFERENCES For personal use only 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 FY2016 Results Pres
Slide 48: For Further Information
For personal use only FOR FURTHER INFORMATION >> TIM THOMPSON | HEAD OF TREASURY & INVESTOR RELATIONS T. +64 275 173 470 E. INVESTOR@MERCURY.CO.NZ