Mercury Nz Ltd. · NZX:MCY
Mercury Nz — FY2024 Earnings Presentation
42 slides from Mercury Nz's earnings presentation, Aug 20, 2024
Slide 1: Full Year Results
For personal use only 2024 Twelve Months Ended 30 June 2024 FULL YEAR RESULTS VINCE HAWKSWORTH WILLIAM MEEK PAUL RUEDIGER Chief Executive Chief Financial Officer Head of Business Performance & Investor Relations 20 August 2024
Slide 2: Disclaimer
DISCLAIMER. This presentation has been prepared by Mercury NZ Limited and its group of companies (“Company”) for informational purposes. This disclaimer applies to this document and the verbal or written comments of any person presenting it. Information in this presentation has been prepared by the
Slide 3: Mercury takes leading role in New Zealand's energy transition
MERCURY TAKES LEADING ROLE IN NEW ZEALAND’S ENERGY TRANSITION. Business performance and major events For personal use only Produced 8.8TWh of diversified renewable Started construction of the $220m Ngā Tamariki generation from hydro (47%), geothermal geothermal expansion, site work underway, (30%) a
Slide 4: Our People
OUR PEOPLE. Continued focus on Health, Safety and Wellbeing % FY23 FY24 Target 100 For personal use only 1.5 3 78 80 75 60 1 2 60 47 46 46 40 0.5 1 21 18 20 0 0 0 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Women In Internal Mobility People Leaders Mercury's TRIFR High Severity Incidents (RHS) Leadership of
Slide 5: Our strategic framework supports NZ's electrification opportunity
OUR STRATEGIC FRAMEWORK SUPPORTS NZ’S ELECTRIFICATION OPPORTUNITY. We launched our new three-year FY25 to FY27 objectives For personal use only Key messages • Our strategic framework defines our purpose and outlines our priorities for short and long-term growth • The new three-year objectives reflec
Slide 6: Taking action to reach our 2035 aspirations
TAKING ACTION TO REACH OUR 2035 ASPIRATIONS. For personal use only 6
Slide 7: Financial – strong performance following FY23's record hydro generation
FINANCIAL – STRONG PERFORMANCE FOLLOWING FY23’S RECORD HYDRO GENERATION. Our performance funds our ongoing investment For personal use only 1400 1,228 FY2023 1,163 1200 FY2024 1000 877 841 800 $m 578 612 600 346 385 400 290 302 325 142 177 154 200 112 119 0 Trading Margin Operating EBITDAF NPAT Oper
Slide 8: Financial – new wind and customer sales lift earnings
FINANCIAL – NEW WIND AND CUSTOMER SALES LIFT EARNINGS. EBITDAF bridge (FY23 to FY24) Decrease Increase For personal use only 47 13 (39) (46) 60 EBITDAF ($m) 841 877 FY23 Generation Customer Sales Price Other Operating FY24 volume income Expenses FY24 EBITDAF Performance • Price: higher wholesale pri
Slide 9: Financial – investing in future growth
FINANCIAL – INVESTING IN FUTURE GROWTH. Continued investment in growth and existing assets For personal use only 11 15 1 11 366 Opex ($m) 385 877 $m 346 268 124 121 44 (46) FY23 Retail Wind generation Asset Inflation FY24 (other) opex maintenance at 4.4% EBITDAF Investing Dividends Paid Interest Tax
Slide 10: Financial – capex enhancing geothermal resilience and hydro capacity
FINANCIAL – CAPEX ENHANCING GEOTHERMAL RESILIENCE AND HYDRO CAPACITY. Geothermal drilling lifted FY24 SIB capex For personal use only FY24 SIB Capex ($m) (16) 5 SIB Capex ($m) 30 4 47 142 42 119 22 20 11 FY23 Drilling Kawerau Karāpiro Other FY24 Drilling campaign Hydro Generation related Retail Ente
Slide 11: Operational – low hydro and gas driving high electricity prices
OPERATIONAL – LOW HYDRO AND GAS DRIVING HIGH ELECTRICITY PRICES. 5,000 National Hydro Storage (GWh) Key messages For personal use only 4,000 • Full year national inflows were 23rd percentile with spot price in Auckland averaging $187/MWh for FY24. Gas and 3,000 forward electricity prices have increa
Slide 12: Operational – Taupō storage impacted by 30th percentile inflows
OPERATIONAL – TAUPŌ STORAGE IMPACTED BY 30TH PERCENTILE INFLOWS DURING FY24. FY24 margin improvement from increasing generation in 2H. FY25 impacted by a continuation of low inflows For personal use only LAKE TAUPŌ STORAGE Min / Max Avg Lake Taupo MCL FY2023 FY2024 (since 1 Jul 1999) 600 500 400 GWh
Slide 13: Financial – FY25 outlook
FINANCIAL – FY25 OUTLOOK. Drought, electricity and gas prices unfavourably impacting FY25 earnings $820m For personal use only • Since the start of FY25, national hydro lake levels were near record lows for this time of year. Gas fired generation has been underutilised due to ongoing gas supply PY $
Slide 14: Strategic – high quality generation pipeline
STRATEGIC - HIGH QUALITY GENERATION PIPELINE. Kaiwaikawe wind farm progressing through Pre-FID Key messages For personal use only Project Capacity Generation (MW) (GWh pa) Type & Location Stage Progress Comment • Mercury recently commissioned two significant wind Ngā Tamariki 46 390 uplift Geotherma
Slide 15: Strategic – our track record on generation development
STRATEGIC – OUR TRACK RECORD ON GENERATION DEVELOPMENT. Total new and committed generation since FY22 Projects under construction or consented 2,000 For personal use only 1,500 Kaiwaikawe (wind) 74MW, 220GWh GWh 1,000 500 - Ngā Tamariki OEC5 (geothermal) FY22 FY23 FY24 FY25 FY26 FY27 FY28 46MW, 390G
Slide 16: Strategic – big four wind farm options progressing
STRATEGIC – BIG FOUR WIND FARM OPTIONS PROGRESSING. Progressing and optimising pipeline options Key messages For personal use only • Kaiwaikawe: Delays due to changing wind turbine supplier, complexity connecting into a distribution network, protracted transmission landowner negotiations. FID is Pro
Slide 17: Strategic – expansion of high-quality geothermal generation
STRATEGIC – EXPANSION OF HIGH-QUALITY GEOTHERMAL GENERATION. First generation expected late calendar 2025 Key messages For personal use only • Ngā Tamariki power station consists of four Ormat Energy Converter (OEC) units providing a net station capacity of 86MW. In September 2023, the $220 million
Slide 18: Strategic – leading the way in the construction of wind generation
STRATEGIC – LEADING THE WAY IN THE CONSTRUCTION OF WIND GENERATION. Commitment of Kaiwera Downs stage 2 Key messages For personal use only • New stage one wind farm generation completed at Kaiwera Downs on time and under budget in November 2023. Stage one is a ten turbine 43MW wind farm with annuali
Slide 19: Strategic – Kaiwera Downs is a high-quality generation investment
STRATEGIC – KAIWERA DOWNS IS A HIGH-QUALITY GENERATION INVESTMENT. Stage 2 construction commenced in June 2024 Key messages For personal use only Project Specification Stage 2 Stage 1 Full Generation Late Cal-2026 November 2023 • Kaiwera Downs stage 2 (KD2) wind farm is a long dated high quality gen
Slide 20: Strategic – investing in our hydro assets
STRATEGIC – INVESTING IN OUR HYDRO ASSETS. Large programme of works planned on our hydro assets for the next decade Key messages For personal use only Generation • Significant long-term FY20 FY30 FY28 FY38 FY26 FY29 FY36 FY25 FY35 FY24 FY34 FY23 FY33 FY22 FY32 FY27 FY37 FY18 FY16 FY19 FY15 FY14 FY13
Slide 21: Operational – geothermal drilling recommenced
OPERATIONAL – GEOTHERMAL DRILLING RECOMMENCED. Geothermal drilling underway with new drilling contractor Key messages For personal use only • The eight well geothermal drilling campaign commenced in Jun-2023 to sustain capacity of the Kawerau, Ngā Tamariki and Rotokawa fields, offsetting the natural
Slide 22: Operational – portfolio matching across Mercury's supply & demand
OPERATIONAL – PORTFOLIO MATCHING ACROSS MERCURY’S SUPPLY & DEMAND. Renewable generation from hydro, geothermal & wind Key messages For personal use only FY24 Mercury Supply & Demand • Produced 8.8TWh of diversified renewable generation from 12.0 hydro (47%), geothermal (30%) and wind (23%) Spot 0.4T
Slide 23: Operational – platform for connection growth through integration
OPERATIONAL – PLATFORM FOR CONNECTION GROWTH THROUGH INTEGRATION. Total 864k connections across all products at full year Key messages For personal use only 1,000 900 • Retail integration has reshaped Mercury into a scaled Total Connections ('000) 800 168 174 184 130 161 700 600 95 98 102 102 104 mu
Slide 24: Operational – New Zealand's leading multi-product utility
OPERATIONAL – NEW ZEALAND'S LEADING MULTI-PRODUCT UTILITY. Integration of people, processes, and systems Key messages For personal use only 20 FY23 FY24 16 2 • Retail integration (people, processes, systems) was completed during the year, with the programme of work 12 Spend $m 7 to migrate Mercury b
Slide 25: Operational – on track to deliver integration synergies
OPERATIONAL – ON TRACK TO DELIVER INTEGRATION SYNERGIES. 200 $184m $192m $174m Key messages 180 For personal use only 8 20 4 3 4 160 7 • $17 million of synergies delivered to date, of which $15 140 Opex ($m) 120 100 million are opex related 168 • Majority of the synergies expected to be realised in
Slide 26: Chief Executive appointment
CHIEF EXECUTIVE APPOINTMENT. Succession planning enables a seamless CE transition Key messages For personal use only • Vince Hawksworth developed a strategic executive leadership team, providing a strong platform for a seamless Chief Executive transition to Stew Hamilton • Stew has been responsible
Slide 27: Environmental, social and governance – key activity
ENVIRONMENTAL, SOCIAL AND GOVERNANCE – KEY ACTIVITY. Taking a collaborative approach to improve resilience Key messages For personal use only Environmental Social Governance • Mercury continues to provide wraparound support for Natural Environment Customer Care Appointments customers experiencing ha
Slide 28: Collective action required to electrify NZ
COLLECTIVE ACTION REQUIRED TO ELECTRIFY NZ. Residential electricity prices tracked lower than inflation Key messages For personal use only • Sector has done a good job managing costs to consumers. RESIDENTIAL PRICE Total residential electricity price has tracked at lower than 25 inflation 1.4 • Curr
Slide 29: Financial – strong balance sheet supports further investment
FINANCIAL – STRONG BALANCE SHEET SUPPORTS FURTHER INVESTMENT. Forecast Debt/EBITDA provides platform for growth Key messages For personal use only 3 • Mercury targets Debt/EBITDA between 2x-3x after adjusting for S&P Global treatment, consistent with our BBB+ rating Net Debt ($b) and Debt/EBITDA • D
Slide 30: Financial – FY25 guidance
FINANCIAL – FY25 GUIDANCE. FY25 EBITDAF guidance of $820m on 3,800GWh of hydro generation subject to hydrological volatility, wholesale market conditions and any material adverse events, significant one-off expenses or other unforeseeable circumstances For personal use only • FY25 ordinary dividend
Slide 31: Summary – key messages
SUMMARY – KEY MESSAGES. FY24 Summary FY25 Summary For personal use only • Construction of the 390GWh Ngā Tamariki geothermal • Continued investment in the construction of the Ngā station began in Apr-24, and the 525GWh Kaiwera Tamariki geothermal and Kaiwera Downs wind farm Downs wind farm expansion
Slide 32: Q&A
Q&A For personal use only Whakamaru Hydro Dam 32
Slide 33: Mercury's long term track record
MERCURY’S LONG TERM TRACK RECORD. EBITDAF OPEX1 Operating expenditure DISTRIBUTIONS Share buyback Special dividend 800 Final dividend Interim dividend For personal use only 1,000 500 800 400 600 600 300 $m $m 400 $m 400 820 200 200 200 100 0 0 0 2020 2022 2023 2024 2021 2025F 2018 2019 2015 2016 201
Slide 34: Long term industry trends
LONG TERM INDUSTRY TRENDS. SECTOR EARNINGS DEMAND AND GENERATION CAPACITY CARBON EMISSIONS Demand For personal use only 3 CAGR: 2.2% 50 Max. Generation Capacity (RHS) 10.0 7,000 40 9.8 6,000 EBITDAF ($b) 2 5,000 30 9.6 kT CO2e TWh 4,000 GW 20 9.4 3,000 1 2,000 10 9.2 1,000 0 0 9.0 0 2014 2015 2016 2
Slide 35: The electrification opportunity is significant
THE ELECTRIFICATION OPPORTUNITY IS SIGNIFICANT. Renewable electricity supply to increase 30TWh by 2050 Key messages For personal use only • The 2050 energy transition will require a further NZ Renewable Electricity Supply 30TWh of renewable electricity in New Zealand, a significant uplift from the c
Slide 36: Taking action to reduce our emissions
TAKING ACTION TO REDUCE OUR EMISSIONS. Our targets drive our emissions reduction actions Key messages For personal use only • We are progressing actions to reduce our emissions, to 140 12 120 10 support our Science Based Targets Initiative (SBTi) targets Generation (TWh) Emissions Intensity 100 (kg
Slide 37: Financial – diversified funding profile
FINANCIAL – DIVERSIFIED FUNDING PROFILE. For personal use only Commercial Paper Undrawn Bank Facilities Undrawn Rolling Bank Facilities 1 Drawn Bank Facilities US Private Placement AUD Green Bonds Capital Bonds Domestic Wholesale Green Bonds Retail Green Bonds $500 $400 $300m Capital Bond redeemed,
Slide 38: Higher national demand despite industrial sector headwinds
HIGHER NATIONAL DEMAND DESPITE INDUSTRIAL SECTOR HEADWINDS. 18,000 DEMAND FY2020 FY2021 FY2022 Key messages For personal use only FY2023 FY2024 16,000 14,000 12,000 • National demand up 0.9%1 (unadjusted 2.1%) versus FY23, GWh 10,000 8,000 with irrigation-linked sectors leading growth 6,000 • Urban
Slide 39: Strategic – Kaiwera Downs is a high-quality generation investment
STRATEGIC - KAIWERA DOWNS IS A HIGH-QUALITY GENERATION INVESTMENT. KD2 wind LCOE & LRMC relative to other technologies Key messages For personal use only • LCOE and LRMC ($/MWh) information for generation LCOE & LRMC ($/MWh) projects can be difficult to interpret and benchmark across 160 technologie
Slide 40: Accounting impacts – acquired electricity swaps
ACCOUNTING IMPACTS – ACQUIRED ELECTRICITY SWAPS. Three CfDs acquired with material value Key messages For personal use only Transactions involved acquisition of electricity swaps (in FY2022): • Manawa: as part of the acquisition of the Trustpower retail business, Mercury $m Day 1 FY2023 FY2024 acqui
Slide 41: Electricity derivatives
ELECTRICITY DERIVATIVES. Trading margin contribution Key messages For personal use only $m 12 months ended 12 months ended Other electricity derivatives: 30 June 2024 30 June 2023 • Includes gains and losses on electricity trading (NZ Sell CFDs (141) 125 electricity futures), Financial Transmission
Slide 42: Non-GAAP measures
NON-GAAP MEASURES. • EBITDAF (or Operating Earnings) is earnings before net interest expense, tax expense, depreciation, amortisation, For personal use only change in the fair value of financial instruments, gain on sale and impairments • Energy Margin is sales from electricity generation and sales