Slide 1: Financial Results for the year ended 30 June 2019
Financial Results For personal use only for the year ended 30 June 2019 FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 20 August 2019
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: FY2019 Highlights
FY2019 HIGHLIGHTS $505m EBITDAF MARKET THESIS 9.3cps For personal use only Achieved through mean hydro Being realised as more balanced supply generation supported by record and demand and thermal fuel constraints FINAL DIVIDEND geothermal generation in challenging led to record futures prices Fully-
Slide 4: Financial Performance
FINANCIAL PERFORMANCE 800 730 For personal use only 700 667 FY2018 600 566 FY2019 505 500 $m 400 357 300 264 237 234 207 211 205 199 198 200 161 150 112 89 81 100 50 0 0 Energy Margin Operating EBITDAF NPAT Underlying Free Cash Flow Stay-In-Business Growth Declared Share Buyback Expenditure Earnings
Slide 5: Higher spot prices partly offsetting reduction in generation
HIGHER SPOT PRICES PARTLY OFFSETTING REDUCTION IN GENERATION EBITDAF BRIDGE (FY2018 to FY2019) For personal use only Total Net Sales: 484GWh1 LWAP/GWAP: 1.9% Generation: 808GWh Mass Market Yield: 2.0% Price: $52/MWh Metrix divestment impact -$8m2 C&I Yield: 1.1% 900 0 800 700 249 356 EBITDAF ($m) 60
Slide 6: What Matters Most: Long-term success statements
WHAT MATTERS MOST LONG-TERM SUCCESS STATEMENTS For personal use only New Zealand’s leading energy brand Recognised as a leader within our industry, with our industry recognised as a positive contributor to New Zealand; and Mercury’s access to fuel and energy storage enduring and enhanced Recognised
Slide 7: Key Performance Indicators – Year Trends
KEY PERFORMANCE INDICATORS – 5 YEAR TRENDS Mercury brand Customer For personal use only Brand Love trader churn satisfaction 85%2 7.4% 64%1 Industry recognised Airpoints™ ✓ EPR final report as key enabler of registrations expected late 2019 low-carbon economy 160,0003 Gross Generation LWAP/GWAP SIB
Slide 8: Recognising New Zealand's Renewable Advantage
RECOGNISING NEW ZEALAND’S RENEWABLE ADVANTAGE > Numerous reports released recognising renewable electricity as an opportunity for New Zealand For personal use only > Interim Climate Change Committee (Final report released July 2019) > Recommends focus on renewable electricity for transport and indus
Slide 9: Regulatory Environment
REGULATORY ENVIRONMENT > Electricity Price Review (EPR) For personal use only > Final report and Government response now expected to be released in September 2019 > Based on the February EPR options paper, expectations are for incremental rather than fundamental structural reforms > Main focus on im
Slide 10: Spot Prices Persist Above Historical Trend
SPOT PRICES PERSIST ABOVE HISTORICAL TREND For personal use only SI MONTHLY HYDRO STORAGE AND PRICE1 NI MONTHLY HYDRO STORAGE AND PRICE1 Jan 1999 to Jun 2016 Jan 1999 to Jun 2016 $350 FY2017 $59/MWh $350 FY2017 $59/MWh FY2018 $87/MWh FY2018 $87/MWh OTA Wholesale Price ($/MWh) OTA Wholesale Price ($/
Slide 11: Prudent Risk Management Given Challenging Conditions
PRUDENT RISK MANAGEMENT GIVEN CHALLENGING CONDITIONS LAKE TAUPO STORAGE Min / Max Avg Lake Taupo MCL1 FY2019 For personal use only (since 1 Jul 1999) 700 600 500 400 GWh 300 200 100 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Hydro Generation - +73 +81 +101 -10 -14 -6 -45 -45 -45 -47 -56 -
Slide 12: Three-Year Market Thesis Happening
THREE-YEAR MARKET THESIS HAPPENING For personal use only ANTICIPATED MARKET OUTCOMES > Supply and demand re-balanced ✓ Futures and recent C&I contracted prices up $20+/MWh across FY2019 in line with > Conditions for demand growth ✓ spot prices > Increased spot price volatility ✓ Increase in spot pri
Slide 13: Seasonal Factors Contribute to Lower Demand
SEASONAL FACTORS CONTRIBUTE TO LOWER DEMAND > Demand flat in FY2019 as an increase in industrial demand was offset by decreases in other sectors For personal use only > Industrial demand increase driven by Tiwai Point 4th potline restart > Tiwai Point 4th potline restart increased Tiwai demand by 4.
Slide 14: Futures Lifting, Consistent with Market Thesis
FUTURES LIFTING, CONSISTENT WITH MARKET THESIS > Gas supply and thermal generation restrictions expected to persist over the medium-term impacting wholesale prices For personal use only FUTURES PRICE Otahuhu OTAHUHU FUTURES PRICE (2 year average price starting 3 quarters ahead) 30-Jun-18 30-Sep-18 3
Slide 15: Retail Competition Unaffected by Higher Wholesale Prices
RETAIL COMPETITION UNAFFECTED BY HIGHER WHOLESALE PRICES For personal use only NATIONAL CHURN RATE EXAMPLES OF COMPETITOR OFFERS (12mth rolling) All Retailers Mercury Group 25% Mercury Brand 20% prompt payment Get a free 20% } All switches discount appliance Annual Churn 15% Get $200 power Get a $40
Slide 16: Mercury Focused on Existing Customers and Value
MERCURY FOCUSED ON EXISTING CUSTOMERS AND VALUE > Mercury is focused on value and fulfilling our customer For personal use only NATIONAL SWITCHING Mercury Group promises to reward loyalty, inspire and make it easy Mercury Brand 10,000 Prior 12mth Mercury Switches > In line with this focus: Net Switc
Slide 17: Continuous Review of Capital Allocation
CONTINUOUS REVIEW OF CAPITAL ALLOCATION > Mercury Net Debt/EBITDAF ratio at 1.9x USE OF FUNDS For personal use only Increase Decrease > 1.9x after $272m Metrix divestment 350 > Consistent with low end of target band to retain flexibility and 300 growth aspirations 89 250 > Re-investment in core prio
Slide 18: Pursuing Growth
PURSUING GROWTH > Financial commitment in March 2019 of $256m to 119MW For personal use only Turitea wind farm > Turitea complements Mercury’s existing baseload geothermal and flexible hydro assets > Ability to utilise flexibility of Waikato Hydro Scheme in the same island to ‘firm’ intermittency of
Slide 19: FY2020 Guidance Re-based Following Metrix Divestment
FY2020 GUIDANCE RE-BASED FOLLOWING METRIX DIVESTMENT > FY2020 EBITDAF guidance is $485m and assumes: For personal use only INDICATIVE GUIDANCE BRIDGE Increase Decrease > Mean hydro and geothermal generation1 525 > Operating expenditure reflecting increased activity with multiple geothermal shuts and
Slide 20: Q&A
For personal use only 20 Q&A Q&A
Slide 21: 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 baseload geothermal and peaking understanding that our people, working hydro with same-island wind to be added to
Slide 22: Portfolio Approach to Risk Management
PORTFOLIO APPROACH TO RISK MANAGEMENT > Mercury operates an integrated portfolio with electricity FY2019 NET POSITION BREAKDOWN For personal use only sales to customers providing a natural price hedge to 8,000 generation Net Other CfDs1 > Average net long position with movement year-on-year 7,000 du
Slide 23: Stable Capital Structure
STABLE CAPITAL STRUCTURE > 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 5 December 2018 > One-notch upgrade given majority Crown ownership > Capital manageme
Slide 24: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 20 AUGUST 2019 For personal use only Commercial Paper Domestic Wholesale Bonds US Private Placement Undrawn Bank Facilities Undrawn Rolling Bank Facilities1 MCY020 Bonds 500 450 400 350 300 $m 250 200 150 100 50 0 2020 2021 2022 2023 2024 2025 2026 2
Slide 25: For personal use only
r Committed 220kV Transmission Consented future 220kV Transmission Turbine Zone FS “TURBINE. : Sy 5 ee National Grid E 27 turbiges eonsented: * =
Slide 26: Contracts for Difference
CONTRACTS FOR DIFFERENCE Year ended Year ended For personal use only 30 June 2019 30 June 2018 Net Contracts for Difference (Sell)/Buy GWh Sell - End User (1,352) (1,226) Sell - VAS1 (599) (650) Sell - Inter-generator & ASX (1,683) (1,737) Sell CFD (3,634) (3,613) Buy CFD 2,010 1,504 Net CFD (1,624)
Slide 27: Non-GAAP Measures: Net Debt, EBITDAF and Free Cash Flow
NON-GAAP MEASURES: NET DEBT, EBITDAF AND FREE CASH FLOW > Net Debt is reported in the full year financial statements and is a measure commonly used by investors. Net debt is For personal use only calculated as total borrowings (both current and non-current) less cash and cash equivalents. > EBITDAF
Slide 28: Reference Materials
REFERENCE MATERIALS MERCURY REFERENCES For personal use only Mercury Investor Centre https://www.mercury.co.nz/investors Quarterly Operational Updates https://www.mercury.co.nz/investors/results-reports/operating-information Investor Presentation – November 2018 https://issuu.com/mercurynz/docs/merc
Slide 29: For Further Information
For personal use only FOR FURTHER INFORMATION >> TIM THOMPSON | HEAD OF TREASURY & INVESTOR RELATIONS T. 0275 173 470 E. INVESTOR@MERCURY.CO.NZ