Mercury Nz Ltd. · NZX:MCY
Mercury Nz — FY2018 Earnings Presentation
33 slides from Mercury Nz's earnings presentation, Aug 21, 2018
Slide 1: Financial Results for the year ended 30 June 2018
Financial Results For personal use only for the year ended 30 June 2018 FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 21 August 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: 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: FY2018 Highlights
For personal use only 5 FY2018 HIGHLIGHTS
Slide 6: FY2018 Highlights
FY2018 HIGHLIGHTS $561m BRAND IDENTITY 9.1cps For personal use only RECORD EARNINGS Multi-award-winning campaigns FINAL DIVIDEND Achieved as the value of favourable building brand capital to differentiate Fully-imputed total ordinary dividend of hydrological conditions was realised by Mercury in int
Slide 7: Financial Performance
FINANCIAL PERFORMANCE 800 734 698 For personal use only 700 FY2017 600 561 FY2018 523 500 $m 400 300 234 258 259 214 214 201 207 184 176 198 150 200 114 112 69 50 100 2 0 Energy Margin Operating EBITDAF NPAT Underlying Free Cash Flow New Investment Stay-In-Business Declared Other Expenditure Earning
Slide 8: Strategic Drivers & FY2018 Outcomes: Delivering Customer Advocacy
19.8% 6.4% Total churn2 63% STRATEGIC DRIVERS & FY2018 OUTCOMES Mercury brand FY2017: 17.7% Customer trader churn2 Market: 21.0% satisfaction3 DELIVERING CUSTOMER ADVOCACY FY2017: 4.4% FY2017: 64% For personal use only Market: 8.1% > Relative churn advantage > Mercury brand trader churn1 significant
Slide 9: Strategic Drivers & FY2018 Outcomes: Leveraging Core Strengths
1.06 94% 0.87 LWAP/GWAP2 FY2017: 1.05 Geothermal STRATEGIC DRIVERS & FY2018 OUTCOMES FY2018 TRIFR1 availability3 FY2017: 1.05 FY2017: 96% LEVERAGING CORE STRENGTHS For personal use only Market4: ~97% > Goal of zero-harm > No high-severity incidents; TRIFR1 at 0.87 (down from 1.05 in FY2017) > High-l
Slide 10: Strategic Drivers & FY2018 Outcomes: Delivering Sustainable Growth
15.1cps Total Ordinary STRATEGIC DRIVERS & FY2018 OUTCOMES 19.99% Dividend $50m Tilt FY2017: 14.6cps Share Buyback DELIVERING SUSTAINABLE GROWTH acquisition of 15.6m shares For personal use only > Managing cost > Opex flat versus FY2017 at $214m for fifth year running > Investing in growth > Acquire
Slide 11: Market Dynamics
For personal use only 11 MARKET DYNAMICS
Slide 12: Futures Prices Currently Unresponsive to Price Volatility
FUTURES PRICES CURRENTLY UNRESPONSIVE TO PRICE VOLATILITY For personal use only FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED ANTICIPATED MARKET OUTCOMES > Demand growth ✓ > Increased wholesale price volatility ✓ > Futures price increase > Commercial and Industrial (C&I) upwards price pressure ? ?
Slide 13: Underlying Factors Drive Steady Demand Growth
UNDERLYING FACTORS DRIVE STEADY DEMAND GROWTH > Demand higher, led by increases in the urban and dairy sectors For personal use only > Up 0.8% in FY2018 (1HY2018 1.4% & 2HY2018 0.1%), 1.3% after normalising for temperature (1HY2018 2.1% & 2HY2018 0.6%) > Industrial demand decline remains a trend – r
Slide 14: FY2018 Wholesale Prices Reflect Variable National Hydrology
FY2018 WHOLESALE PRICES REFLECT VARIABLE NATIONAL HYDROLOGY > Mercury benefitted from monthly price variation caused by swings in dry/wet conditions For personal use only > Above average North Island (NI) inflows coincided with periods of low South Island (SI) storage in FY2018 > Large SI hydro catc
Slide 15: Mercury's Hydro Advantage Lifts Generation Value
MERCURY’S HYDRO ADVANTAGE LIFTS GENERATION VALUE > Value of low correlation of Mercury’s hydro catchment to SI hydrology shown by higher EBITDAF 3/Generation ratio For personal use only > Also highlighted by Mercury’s consistently higher hydro generation GWAP/TWAP 1 ratio > Long-term hydro generatio
Slide 16: Futures Market Unresponsive to Price Volatility
FUTURES MARKET UNRESPONSIVE TO PRICE VOLATILITY > Short-term futures prices sensitive to hydrological conditions For personal use only > Medium-term futures prices still range-bound (~$73-$83/MWh Otahuhu) despite increased wholesale price volatility > Negative futures prices margin relative to whole
Slide 17: Retail Market Highly Competitive
RETAIL MARKET HIGHLY COMPETITIVE > Intense retail competition in 2H FY2018 contributed to Mercury customer numbers decreasing by 4,000 in FY2018 For personal use only > Customer satisfaction1 based on Mercury’s survey remained stable going from 64% in FY2017 to 63% Mercury Group NATIONAL SWITCHING N
Slide 18: Mercury Brand Maintains Churn Advantage
MERCURY BRAND MAINTAINS CHURN ADVANTAGE > Mercury brand has kept a material churn advantage compared to the rest of the market For personal use only > Mercury group churn has increased to near-market levels as smaller brands have experienced elevated churn due to the nature of their customer base NA
Slide 19: Policy Focus of New Government
POLICY FOCUS OF NEW GOVERNMENT Electricity Price Review For personal use only > Announced as part of coalition government agreement following September 2017 general election > Focus on incremental changes designed to improve customer access, affordability and energy literacy > Issues paper expected
Slide 20: Mercury's Long-Term Wind Journey
MERCURY’S LONG-TERM WIND JOURNEY Mercury must participate in wind to materially take part in renewable generation development in the medium-term For personal use only > More than decade long journey leads to optimal development options > Large-scale development delayed by low demand growth environme
Slide 21: Financial Summary
For personal use only 21 FINANCIAL SUMMARY
Slide 22: FY2018 Financial Highlights
FY2018 FINANCIAL HIGHLIGHTS For personal use only $561m $234m 2.0x EBITDAF, up $38m, reflecting NPAT, up $50m, reflecting higher Debt/EBITDAF, consistent with BBB+ favourable hydro inflows and continued earnings, fair value gains and reduction in credit rating and headroom for growth; strong company
Slide 23: Continuous Focus on Capital Management
CONTINUOUS FOCUS ON CAPITAL MANAGEMENT For personal use only Operating Cash Flow Stay-in-business capital expenditure Capital Investment returns to in growth shareholders Free Cash Flow Ordinary dividend Repayment of debt 23 FINANCIAL SUMMARY
Slide 24: 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 11 December 2017 > One-notch upgrade given majority Crown ownership > Capital managem
Slide 25: FY2019 Guidance Summary
FY2019 GUIDANCE SUMMARY > FY2019 EBITDAF guidance is $515m on 4,200GWh of hydro generation, subject to hydrological volatility, wholesale For personal use only market conditions and any material adverse events, significant one-off expenses or other unforeseeable circumstances > FY2019 ordinary divid
Slide 26: FY2019 Guidance – Underlying Earnings Growth
FY2019 GUIDANCE – UNDERLYING EARNINGS GROWTH > FY2019 EBITDAF guidance assumes: For personal use only > 4,200GWh of hydro generation (747GWh less than FY2018, 200GWh above average) > Operating expenditure flat relative to FY2018 > Growth from technology investment to improve customer profitability,
Slide 27: A Decade of Ordinary Dividend Growth
A DECADE OF ORDINARY DIVIDEND GROWTH > FY2018 fully imputed ordinary final dividend of 9.1cps which will be the 10 th consecutive year of ordinary dividend For personal use only growth > FY2019 ordinary dividend guidance is an increase of 2.6% to 15.5cps reflecting the reduced number of shares on is
Slide 28: Investing in Long-Term Capability
INVESTING IN LONG-TERM CAPABILITY > Stay-in-business capital expenditure will be elevated in FY2019 primarily due to Auckland office consolidation for two For personal use only thirds of employees ($16m for office move) > Consistent with medium-term guidance plus cost of new building development > P
Slide 29: Q&A
For personal use only 29 Q&A Q&A
Slide 30: EBITDAF Bridge (FY2018 vs. FY2017)
EBITDAF BRIDGE (FY2018 vs. FY2017) > Energy margin up $36m For personal use only > Record generation with 171GWh more generation from renewable sources > Energy Cost increased with higher wholesale price > Contribution from CFD sales was $40m, up $6m on FY2017 > Operating expenditure flat year-on-ye
Slide 31: Diversified Funding Profile
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 30 JUNE 2018 For personal use only 400 Domestic Wholesale Bonds US Private Placement Capital Bond Drawn Bank Facilities1 Undrawn Bank Facilities 350 300 250 $m 200 150 100 50 - 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Year > Commit
Slide 32: New IFRS Standards
NEW IFRS STANDARDS > Mercury will adopt IFRS 9 (Financial Instruments), IFRS 15 (Revenue From Contracts With Customers) and IFRS For personal use only 16 (Leases) from FY20191 > Under IFRS 152, credits awarded to customers in the form of upfront discounts will be recognised immediately against reven
Slide 33: 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