Mercury Nz Ltd. · NZX:MCY
Mercury Nz — H1 FY2019 Earnings Presentation
29 slides from Mercury Nz's earnings presentation, Feb 26, 2019
Slide 1: Financial Results: Six months ended 31 December 2018
Financial Results For personal use only Six months ended 31 December 2018 FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 26 February 2019
Slide 2: 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 3: Our Mission
For personal use only 3 OUR MISSION
Slide 4: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation High performance teams > Two low-cost complementary fuel sources > Dynamic company culture built on the in base-load geothermal and peaking understanding that our people set hydro us apart Superior asset location Track r
Slide 5: HY2019 Highlights
For personal use only 5 HY2019 HIGHLIGHTS
Slide 6: Half Year Financial Highlights
HALF YEAR FINANCIAL HIGHLIGHTS 500 For personal use only HY2018 HY2019 400 385 380 304 302 300 $m 200 158 131 126 104 114 114 100 83 84 59 45 0 Energy Margin EBITDAF NPAT Underlying Earnings Free Cash Flow SIB Capital Declared Ordinary Expenditure Interim Dividend > Stable year-on-year earnings desp
Slide 7: HY2019 Highlights
HY2019 HIGHLIGHTS For personal use only $302m One brand, 3,901GWh MARKET THESIS MERCURY STABLE EARNINGS GENERATION COMING TO FRUITION Bringing together our heritage and our Near-record earnings maintained as customer-driven Hydro down 246GWh from HY2018 as Higher spot price volatility and futures ge
Slide 8: Strategic Drivers & HY2019 Outcomes: Delivering Customer Advocacy
20.4% STRATEGIC DRIVERS & HY2019 OUTCOMES 7.4% Total churn2 HY2018: 18.9% Market: 21.3% 63% Mercury brand Customer DELIVERING CUSTOMER ADVOCACY trader churn2 For personal use only satisfaction3 HY2018: 5.5% > Maintaining commercial discipline in competitive retail market Market: 8.0% HY2018: 62% > F
Slide 9: Strategic Drivers & HY2019 Outcomes: Leveraging Core Strengths
1.06 LWAP/GWAP2 97% STRATEGIC DRIVERS & HY2019 OUTCOMES HY2018: 1.07 0.86 Geothermal HY2019 TRIFR1 availability3 LEVERAGING CORE STRENGTHS For personal use only HY2018: 0.86 HY2018: 95% > Goal of zero-harm > No high-severity incidents; TRIFR1 at 0.86 (flat versus 0.86 in HY2018) > Focus on High Perf
Slide 10: Strategic Drivers & HY2019 Outcomes: Enhanced Long-Term Value
6.2cps STRATEGIC DRIVERS & HY2019 OUTCOMES $270m Interim Dividend Tilt Renewables Metrix HY2018: 6.0cps joint takeover ENHANCED LONG-TERM VALUE Divestment gross offer achieved For personal use only proceeds combined holding of > Operational discipline >85% > Opex flat versus HY2018 at $99m > Continu
Slide 11: Market Dynamics
For personal use only 11 MARKET DYNAMICS
Slide 12: Regulatory Overview
REGULATORY OVERVIEW > Electricity Price Review (EPR) options paper released 20 February 2019 For personal use only > Stakeholder engagement through March 2019 with final recommendations to Government by mid-2019 > Support phase-out of Low Fixed Charge Tariff which had industry consensus > Need for s
Slide 13: Fuel Scarcity Increases Spot Prices
FUEL SCARCITY INCREASES SPOT PRICES WHOLESALE PRICE (Daily average) For personal use only Otahuhu Benmore $600 HVDC outage causes $500 price spike $400 $/MWh Average spot prices $300 remain >$100/MWh $200 $100 $0 Thermal fuel Increased inflows NATIONAL STORAGE constraints and lower price Range (sinc
Slide 14: Fuel Scarcity Increases Spot Prices
FUEL SCARCITY INCREASES SPOT PRICES For personal use only SI MONTHLY HYDRO STORAGE AND PRICE NI MONTHLY HYDRO STORAGE AND PRICE Jan 1999 to Jun 2016 Jan 1999 to Jun 2016 $350 $350 FY2017 FY2017 $300 Oct-18 FY2018 $300 Oct-18 FY2018 OTA Spot Price ($/MWh) OTA Spot Price ($/MWh) FY2019 FY2019 $250 $25
Slide 15: Balanced Approach to Risk Management and Opportunity
BALANCED APPROACH TO RISK MANAGEMENT AND OPPORTUNITY > Mercury exercised prudent hydrological management as storage approached historical minimum For personal use only > Mercury’s generation (relative to average) increased in line with spot prices in Q1 FY2019 > Ability to realise generation opportu
Slide 16: Market Thesis Coming to Fruition
MARKET THESIS COMING TO FRUITION For personal use only FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED ANTICIPATED MARKET OUTCOMES > Demand growth ✓ > Increased wholesale price volatility ✓ Futures and recent C&I contracted prices up $10/MWh+ > Futures price increase ✓ Increase in Futures / C&I pric
Slide 17: Futures Lifting in Line with Market Thesis
FUTURES LIFTING IN LINE WITH MARKET THESIS FUTURES PRICE For personal use only Otahuhu OTAHUHU FUTURES PRICE (2 year average price starting 3 quarters ahead) Benmore 31-Dec-17 30-Jun-18 30-Sep-18 31-Dec-18 22-Feb-19 $100 $180 $160 $90 $140 $120 $/MWh $/MWh $100 $80 $80 $60 $70 $40 $20 $60 $0 Jul-14
Slide 18: Seasonal Factors Contribute to Lower Demand
SEASONAL FACTORS CONTRIBUTE TO LOWER DEMAND > Demand down 0.5% in HY2019 (-0.6% normalising for temperature) led by a decrease in the irrigation sector For personal use only > Industrial demand (excluding Tiwai) continues to decline – possibly lower than usual in Q2 FY2019 due to high spot prices >
Slide 19: Discipline in a Highly Competitive Market
DISCIPLINE IN A HIGHLY COMPETITIVE MARKET > Maintained a disciplined approach in pursuing value over volume despite high levels of retail market activity For personal use only > Mercury customer numbers decreased by 7,000 in HY2019, while the average Mass Market yield increased by 4% > Customer sati
Slide 20: Financial Summary
For personal use only 20 FINANCIAL SUMMARY
Slide 21: Higher Prices Offsetting Reduction in Generation Volume
HIGHER PRICES OFFSETTING REDUCTION IN GENERATION VOLUME EBITDAF BRIDGE (HY2019 vs. HY2018) For personal use only Generation: 206GWh Mass Market Price: 3.8% Total Net Sales: 112GWh1 Price: $48/MWh C&I Price: flat LWAP/GWAP: 1% 500 4 450 400 122 195 350 2 4 26 EBITDAF ($m) 300 32 4 4 0 29 250 Energy M
Slide 22: FY2019 Guidance Confirmed
FY2019 GUIDANCE CONFIRMED > FY2019 EBITDAF guidance remains $515m on 4,150GWh of hydro generation, subject to hydrological volatility, For personal use only wholesale market conditions and any material adverse events, significant one-off expenses or other unforeseeable circumstances > FY2019 ordinar
Slide 23: Dividends
DIVIDENDS > Focus remains on appropriate capital management reflecting Government ownership constraints and growth For personal use only aspirations > HY2019 fully-imputed interim dividend up 3.3% to 6.2 cents per share > Interim dividend to be paid on 1 April 2019 > Fully year guidance of 15.5cps r
Slide 24: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 31 DECEMBER 2018 For personal use only 1 Domestic Wholesale Bonds US Private Placement Capital Bond Drawn Bank Facilities Undrawn Bank Facilities 350 300 250 $m 200 150 100 50 - 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Year > The a
Slide 25: Q&A: Questions?
For personal use only 25 Q&A QUESTIONS?
Slide 26: Contracts for Difference
CONTRACTS FOR DIFFERENCE 6 months ended 6 months ended For personal use only 31 December 2018 31 December 2017 Net Contracts for Difference (GWh) (1097) (1,193) End User (586) (642) Other (511) (551) Energy Margin contribution ($64m) ($6m) 1 VAS included on both buy and sell side CFDs 26 APPENDIX
Slide 27: Key Investor Relations Dates
For personal use only th 2018 Financial Year End - 30 JUN-18 th Q4-FY2018 Operational Statistics - 18 JUL-18 st Annual Results Announcement - 21 AUG-18 th Annual Shareholders Meeting - 28 SEP-18 th Q1-FY2019 Operational Statistics - 17 OCT-18 27 APPENDIX UK & Asia Roadshow NOV-18 Domestic Governance
Slide 28: Reference Materials
REFERENCE MATERIALS MERCURY REFERENCES For personal use only Mercury Investor Centre www.mercury.co.nz/Investor-Centre Quarterly Operational Updates https://www.mercury.co.nz/investors/results-reports/operating-information FY2018 Results Presentation – August 2018 https://issuu.com/mercurynz/docs/20
Slide 29: 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