Mercury Nz Ltd. · NZX:MCY
Mercury Nz — FY2017 Earnings Presentation
39 slides from Mercury Nz's earnings presentation, Aug 22, 2017
Slide 1: Financial Results for the year ended 30 June 2017
Financial Results For personal use only for the year ended 30 June 2017 FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 22 August 2017
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: 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 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 the South Island) North Island genera
Slide 5: FY2017 Highlights
For personal use only 5 FY2017 HIGHLIGHTS
Slide 6: FY2017 Highlights
FY2017 HIGHLIGHTS MERCURY $523m 2% For personal use only One brand, EBITDAF One brand, has RECORD EARNINGS DIVIDEND GROWTH MERCURY Mercury capitalised on wet hydrological Fully-imputed ordinary dividend of combined our heritage and our Bringing together our customer-led innovation $[ ]m conditions a
Slide 7: Delivering Customer Advocacy
DELIVERING CUSTOMER ADVOCACY INSPIRING OUR CUSTOMERS REWARDING OUR CUSTOMERS For personal use only > One brand, Mercury, combining our strengths in > Over 157,000 Free Power Days claimed by our harnessing renewable generation and innovating customers for customers > More than 119,000 customers signe
Slide 8: Leveraging Core Strengths
LEVERAGING CORE STRENGTHS ENGAGED TEAMS TAKING OPPORTUNITIES For personal use only 1 > Employee engagement increased to 81% > Record generation of 7,533GWh with record hydro > 96% of people leaders completed new StepUp production of 4,724GWh and high geothermal Management Fundamentals Training Progr
Slide 9: Delivering Sustainable Growth
DELIVERING SUSTAINABLE GROWTH CUSTOMER LED INNOVATION GROWTH FROM CORE BUSINESS For personal use only > Providing innovative product offerings with > Wind options (Turitea & Puketoi) remain ready for widespread uptake – Airpoints DollarsTM, development at the right time Free Power Days, E-bike retai
Slide 10: Well-being
WELL-BEING > 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 the first half of (per 200,000 hours; includes onsite employees and contractors) FY2017 due to an office stair fall Low Severity Inciden
Slide 11: Financial Performance
FINANCIAL PERFORMANCE 800 698 For personal use only 660 FY2016 700 FY2017 600 523 493 500 $m 400 300 258 221 197 201 160 184 176 200 152 116 72 55 69 100 0 Energy Margin EBITDAF NPAT Underlying Earnings Free Cash Flow Capital Expenditure Declared Ordinary Special Dividend Dividend > EBITDAF up $30m,
Slide 12: FY2018 Guidance
FY2018 GUIDANCE > FY2018 EBITDAF guidance is $500m subject to hydrological volatility, wholesale market conditions and any material For personal use only adverse events, significant one-off expenses or other unforeseeable circumstances > The FY2018 EBITDAF guidance assumes: > 4,150GWh of hydro gener
Slide 13: Market Dynamics
For personal use only 13 MARKET DYNAMICS
Slide 14: Anticipated Response to Balanced Supply and Demand
ANTICIPATED RESPONSE TO BALANCED SUPPLY AND DEMAND For personal use only DYNAMIC: THERMAL RATIONALISATION AND POSITIVE DRIVERS OF DEMAND GROWTH FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED ANTICIPATED MARKET RESPONSE Increase in wholesale price volatility in the absence of high hydro inflows
Slide 15: Industrial Closures Offsetting Underlying Growth
INDUSTRIAL CLOSURES OFFSETTING UNDERLYING GROWTH > Demand lower, led by a fall in the irrigation and industrial sectors For personal use only > Down -0.8% in FY2017 (1HY2017 -2.4% & 2HY2017 1.0%), -0.9% after normalising for temperature (1HY2017 -1.6% & 2HY2017 -0.2%) > Irrigation demand lower due t
Slide 16: Industrial Closures Offsetting Underlying Growth
INDUSTRIAL CLOSURES OFFSETTING UNDERLYING GROWTH > Recent trend in de-industrialisation continues with FY2017 INDUSTRIAL DEMAND For personal use only (excluding Tiwai) industrial demand (excluding Tiwai) down 5% and down 5000 9% in the last 5 years > Recent industrial closures 4000 > Pacific Steel M
Slide 17: Supply and Demand Conditions Impact Hydro Management
SUPPLY AND DEMAND CONDITIONS IMPACT HYDRO MANAGEMENT > The hydro risk curve reflects the risk of an extended energy shortage by tracking controlled storage versus expected For personal use only hydro inflows; the 10% risk curve is designated as the ‘emergency zone’ - where one in ten historical infl
Slide 18: FY2017 Wholesale Price Reflecting South Island Storage
FY2017 WHOLESALE PRICE REFLECTING SOUTH ISLAND STORAGE > Wholesale prices highly correlated to South Island storage levels For personal use only > South Island storage above average through till March 2017 > Dry South Island conditions from March 2017 resulted in storage declining to ~1000GWh below
Slide 19: Futures Market Still Unresponsive to Supply Rationalisation
FUTURES MARKET STILL UNRESPONSIVE TO SUPPLY RATIONALISATION > Medium term futures pricing flat since thermal retirement announcements For personal use only > Futures pricing a key reference for C&I sales and purchase costs for independent retailers FUTURES PRICE ASX FUTURES PRICING (2 year average p
Slide 20: Churn Lower from Rewarding Customer Loyalty
CHURN LOWER FROM REWARDING CUSTOMER LOYALTY > Focus on promoting and rewarding customer loyalty resulted in fewer customers leaving, contributing to Mercury For personal use only customer numbers increasing by 16,000 in FY2017 > Customer satisfaction1 based on Mercury’s survey increased through the
Slide 21: Churn Lower from Rewarding Customer Loyalty
CHURN LOWER FROM REWARDING CUSTOMER LOYALTY > Loyalty focus has contributed to Mercury national trader churn falling from highs in FY2016 to the lowest among major For personal use only retailers > Mercury remains market leader for trader churn in the countries largest retail market, Auckland NATION
Slide 22: Financial Summary
For personal use only 22 FINANCIAL SUMMARY
Slide 23: FY2017 Financial Highlights
FY2017 FINANCIAL HIGHLIGHTS For personal use only $523m $184m 1.8x EBITDAF, up $30m, reflecting record NPAT, up $24m, reflecting higher earnings Debt/EBITDAF, consistent with BBB+ generation, carbon sales and execution and greater fair value movements offset by credit rating and headroom for growth
Slide 24: EBITDAF Bridge (FY2017 vs. FY2016)
EBITDAF BRIDGE (FY2017 vs. FY2016) > Energy margin up $38m For personal use only > Record generation with 837GWh more generation from renewable sources > Energy Cost down with wholesale price lower reflecting South Island hydro storage through the year > Operating expenditure flat year-on-year > No
Slide 25: LWAP/GWAP Higher Reflecting Upper North Island Plant Closures
LWAP/GWAP HIGHER REFLECTING UPPER NORTH ISLAND PLANT CLOSURES > The price Mercury receives for generation (GWAP) is typically higher than its peers reflecting the flexibility of For personal use only Mercury’s North Island assets > Lower in Q4 FY2017 due to higher southward power flow as hydro stora
Slide 26: Other Financial Items
OTHER FINANCIAL ITEMS Carbon credits NZU CARBON PRICE For personal use only > Future carbon obligations substantially reduced following Sale period the 2015 mothballing of the Southdown gas-fired station $20 > Opportunity taken in FY2017 to divest some carbon $18 credits at elevated prices $16 > Sal
Slide 27: Re-investing in Plant and Systems
RE-INVESTING IN PLANT AND SYSTEMS > Mercury took the opportunity to undertake additional capital expenditure in FY2017 – largely geothermal drilling and For personal use only large hydro refurbishment > Planned capital expenditure in FY2018 includes: > Kawerau spare turbine steam path rotor > Phasin
Slide 28: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 30 JUNE 2017 For personal use only Domestic Wholesale Bonds US Private Placement Capital Bond Drawn Bank Facilities* Undrawn Bank Facilities 400 350 300 250 $m 200 150 100 50 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Yea
Slide 29: Stable Capital Structure with Capacity for Growth
STABLE CAPITAL STRUCTURE WITH CAPACITY FOR GROWTH > BBB+ rating is key reference point for dividend policy and an efficient and sustainable capital structure For personal use only > S&P re-affirmed Mercury’s credit rating of BBB+/stable on 4 December 2016 > One-notch upgrade given majority Crown own
Slide 30: Continuous Focus on Capital Management
CONTINUOUS FOCUS ON CAPITAL MANAGEMENT For personal use only FREE CASH FLOW (FCF) Net Cash Flow from Operating Activities less normalised stay-in-business capital expenditure BALANCE SHEET ORDINARY DIVIDENDS INVESTMENT IN GROWTH SPECIAL DISTRIBUTIONS Key ratio for stand alone S&P Dividend Policy is
Slide 31: 9th Consecutive Year of Ordinary Dividend Growth
9TH CONSECUTIVE YEAR OF ORDINARY DIVIDEND GROWTH > FY2017 fully imputed ordinary final dividend of 8.8cps For personal use only > Ordinary dividend for FY2017 up 2% to 14.6 cps, in line with guidance > 5.0cps fully-imputed special dividend declared > Distribution of excess Free Cash Flow plus procee
Slide 32: Q&A
For personal use only 32 Q&A
Slide 33: Operating Information
OPERATING INFORMATION Year ended Year ended For personal use only 30 June 2017 30 June 2016 VWAP1 Volume VWAP1 Volume Electricity Sales ($/MWh) (GWh) ($/MWh) (GWh) FPVV sales to customers 113.51 4,606 114.83 4,397 Residential customers 2,458 2,438 Commercial customers 2,148 1,959 FPVV purchases from
Slide 34: Operating Information
OPERATING INFORMATION Year ended Year ended For personal use only 30 June 2017 30 June 2016 VWAP Volume VWAP Volume Electricity Generation ($/MWh) (GWh) ($/MWh) (GWh) Hydro 60.31 4,724 64.84 3,866 Gas (all 1HY2016) - - 68.64 146 Geothermal (consolidated)1 53.87 2,586 60.84 2,596 Geothermal (equity a
Slide 35: Contracts for Difference
CONTRACTS FOR DIFFERENCE Year ended Year ended For personal use only 30 June 2017 30 June 2016 Net Contracts for Difference (Sell)/Buy GWh Sell - End User (1,325) (1,448) Sell - VAS1 (699) (701) Sell - Inter-generator & ASX (1,562) (1,259) Sell CFD (3,586) (3,408) Buy CFD 1,628 1,741 Net CFD (1,958)
Slide 36: Non-GAAP Measure: Energy Margin
NON-GAAP MEASURE: ENERGY MARGIN > Energy Margin provides a measure that, unlike sales or total revenue, accounts for the variability of the wholesale For personal use only spot market and the broadly offsetting impact of wholesale prices on the purchase cost of our customers’ electricity Year ended
Slide 37: Non-GAAP Measure: Free Cash Flow
NON-GAAP MEASURE: FREE CASH FLOW > Free Cash Flow is a measure that the Company uses to evaluate the levels of cash available for debt repayments, For personal use only growth capital expenditure and dividends Year ended Year ended $m 30 June 2017 30 June 2016 Net cash provided by operating activiti
Slide 38: Non-GAAP Measures: EBITDAF, Underlying Earnings and Net Debt
NON-GAAP MEASURES: EBITDAF, UNDERLYING EARNINGS AND NET DEBT > EBITDAF is reported in the financial statements and is a measure that allows comparison across the electricity For personal use only sector. EBITDAF is defined as earnings before net interest expense, income tax, depreciation and amortis
Slide 39: 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