Mercury Nz Ltd. · NZX:MCY
Mercury Nz — H1 2018 Earnings Presentation
25 slides from Mercury Nz's earnings presentation, Feb 27, 2018
Slide 1: Financial Results: Six months ended 31 December 2017
Financial Results For personal use only Six months ended 31 December 2017 FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 27 February 2018
Slide 2: Disclaimer
DISCLAIMER For personal use only The information in this presentation has been prepared by Mercury NZ Limited with due care and attention. However, neither the company nor any of its directors, employees, shareholders nor any other person shall have any liability whatsoever to any person for any los
Slide 3: Highlights
For personal use only 3 HIGHLIGHTS
Slide 4: Our Mission
For personal use only 4 OUR MISSION
Slide 5: HY2018 Highlights
HY2018 HIGHLIGHTS For personal use only $301m One brand, RECOGNITION 6.0cps MERCURY RECORD EARNINGS Of pan-company performance with INTERIM DIVIDEND Bringing together our multi-award-winning ‘Energy Made Achieved through heritage and our favourable hydrological Fully-imputed interim dividend increas
Slide 6: Financial Highlights
FINANCIAL HIGHLIGHTS 450 For personal use only 387 HY2017 400 348 350 HY2018 301 300 270 $m 250 200 154 132 140 150 113 114 94 100 80 83 54 59 50 0 Energy Margin EBITDAF NPAT Underlying Earnings Free Cash Flow Capital Expenditure Declared Ordinary Interim Dividend > Record financial performance achi
Slide 7: Strategic Drivers & HY2018 Outcomes: Delivering Customer Advocacy
18.9% 5.5% Total churn3 62% STRATEGIC DRIVERS & HY2018 OUTCOMES Mercury brand trader churn2 FY2017: 17.7% Market: 21.0% Customer satisfaction4 FY2017: 4.4% DELIVERING CUSTOMER ADVOCACY HY2017: 61% For personal use only Market: 7.9% > Sustained below-market churn position > Mercury brand trader churn
Slide 8: Strategic Drivers & HY2018 Outcomes: Leveraging Core Strengths
STRATEGIC DRIVERS & HY2018 OUTCOMES 0.86 LEVERAGING CORE STRENGTHS HY2018 TRIFR1 For personal use only FY2017: 1.05 > Goal of zero-harm > TRIFR1 at 0.86 (down from 1.05 in FY2017) with no high-severity incidents > Increasing employee engagement > Winner of the Best Enterprise Workplace (750+ employe
Slide 9: Strategic Drivers & HY2018 Outcomes: Delivering Sustainable Growth
STRATEGIC DRIVERS & HY2018 OUTCOMES DELIVERING SUSTAINABLE GROWTH For personal use only > Managing cost > Opex higher versus HY2017 but on on track to be flat for the financial year > Investing in growth > Testing new technology possibilities with the selection of Tesla as the provider for a grid-co
Slide 10: Market Dynamics
For personal use only 10 MARKET DYNAMICS
Slide 11: Market Thesis
MARKET THESIS For personal use only FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED ANTICIPATED MARKET OUTCOMES > Demand growth > Increased wholesale price volatility in the absence of high hydro inflows > Futures price increase ? > Commercial and Industrial (C&I) pricing increase ? > Retail chu
Slide 12: Weather Conditions and Fundamentals Spur Demand Growth
WEATHER CONDITIONS AND FUNDAMENTALS SPUR DEMAND GROWTH > Demand higher across all sectors except industrial For personal use only > Drier weather conditions in HY2018 contributed to increased demand from both dairy processing and irrigation relative to HY2017 > Industrial sector continues to show lo
Slide 13: Mercury's Hydro Advantage Lifts Generation Value
MERCURY’S HYDRO ADVANTAGE LIFTS GENERATION VALUE > Above average North Island (NI) inflows coincided with low South Island (SI) storage in HY2018 For personal use only > Large SI hydro catchments and associated hydrology drive wholesale prices > Mercury’s hydro catchment has low correlation to SI hy
Slide 14: Futures Pricing Driven by Short-Term Hydrology
FUTURES PRICING DRIVEN BY SHORT-TERM HYDROLOGY > Short-term futures reflecting changes in hydrology For personal use only > Opportunities for Commercial and Industrial contracting limited as buy-side activity curtailed when prices elevated > Medium-term futures still range-bound (~$73-$83/MWh Otahuh
Slide 15: Customer Strategy Supported by Digital Execution
CUSTOMER STRATEGY SUPPORTED BY DIGITAL EXECUTION > Successful implementation of our core technology foundations For personal use only DIGITAL > Upgrade of Customer & Billing platform (SAP HANA) and completion of CUSTOMER Business Applications migration to Amazon Web Services SATISFACTION1 > Upgrade
Slide 16: Customer Strategy Maintaining Below-Market Churn
CUSTOMER STRATEGY MAINTAINING BELOW-MARKET CHURN > Market churn trended higher in HY2018 with Mercury maintaining a below-market churn position For personal use only > Reduced churn since brand launch has assisted growth in Mercury’s customer base > Increased activity observed market-wide through la
Slide 17: Political Change Produces New Regulatory Focus
POLITICAL CHANGE PRODUCES NEW REGULATORY FOCUS > Electricity Price Review (EPR) For personal use only > Announced as part of coalition agreement with Labour/NZ First RELIABILITY following September 2017 general election with review reporting NZ ranks 3rd lowest out of 25 large early 2019 energy-cons
Slide 18: Financial Summary
For personal use only 18 FINANCIAL SUMMARY
Slide 19: EBITDAF Bridge (HY2018 vs. HY2017)
EBITDAF BRIDGE (HY2018 vs. HY2017) > Energy margin up $38m For personal use only > 327GWh more hydro generation than HY2017 with elevated wholesale prices impacting both generation and purchases > Higher average energy price to customers (+1.1%); sales volume reduced due to lower commercial contract
Slide 20: Re-investing in Our Stations and Systems
RE-INVESTING IN OUR STATIONS AND SYSTEMS > Capital expenditure of $59m (HY2017: $54m) reflects completion of geothermal drilling, technology platform For personal use only upgrades and ongoing hydro refurbishment > FY2018 stay-in-business capital expenditure guidance remains at $115m CAPITAL EXPENDI
Slide 21: Dividends
DIVIDENDS > Focus remains on appropriate capital management For personal use only reflecting Government ownership constraints DIVIDEND Interim Final Specials Ordinary guidance 25 > HY2018 fully-imputed interim dividend up 3.4% to 6.0 cents per share 20 > Interim dividend to be paid on 3 April 2018 C
Slide 22: Appendix
For personal use only 22 APPENDIX
Slide 23: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 31 DECEMBER 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 - 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Year
Slide 24: Capital Structure with Capacity for Growth
CAPITAL STRUCTURE WITH CAPACITY FOR GROWTH > BBB+ rating is key reference point for dividend policy and an efficient and sustainable capital structure For personal use only > S&P re-affirmed Mercury’s credit rating of BBB+/stable on 11 December 2017 > One-notch upgrade given majority Crown ownership
Slide 25: 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